Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra Finance
Expensive stock with headwinds
Event
We met with Mahindra Finance (MMFS) to get an update. Maintain
Underperform with a TP of Rs525.
Impact
Growth looks healthy, but likely to moderate. Loan disbursal growth looks
healthy, with management guiding to FY12 growth between 25% and
30%YoY, with a higher chance of ~30% growth. All major segments, such as
Mahindra UVs, tractors and non-Mahindra cars are expected by MMFS to
grow by 25–28% for FY12. However, we believe a combination of slower GDP
growth, higher interest rates and lower Maruti sales are likely to result in
growth below management expectations. We maintain our 24% YoY disbursal
growth estimate.
Pressure on NIMs, as cost of funds to remain elevated. The company has
recently raised funds through two- to three-year paper at ~10%, which is flat
to slightly lower on a QoQ basis. However, bank base rates are as high as
11.25% effective, and bank lending is 55% of total borrowings so cannot be
completely bypassed. We do not expect bank rates to come down in the next
few quarters. Bank funding through the on-lending route has also stopped,
while securitisation deals are not happening. Thus we believe there is a
downward risk to our estimate for a 30bp NIM decline to 10.6% for FY12.
Asset quality could take a sizeable hit on new regulations proposed; onground
situation has not changed materially. Monsoons have been largely
normal so far this year. The increase in minimum support prices for crops has
been lower in FY12 (at 10–13%) vs FY11 (at 13–15%), but not sharply so.
This is likely to support near-term loan repayments. However, management
believes the new NBFC regulations proposed by the RBI could lead to a
significant increase in NPLs due to shorter NPL recognition time – 90 days
proposed vs current MMFS practice of 150 days. This could result in excess
provision hits as well.
Securitisation – no deals happening. Last year 55% of securitisation
happened in the first nine months. However, banks have become very
cautious, and there are no new securitisation deals happening, as there is no
visibility about what the RBI is thinking. A few PSU banks have enquired, but
they are quoting rates above their base rates that are very high, and thus it is
difficult for deals to go through. We are building in a slowdown and no
stoppage of securitisations, which could have a large spread and capital
impact (see Figs 5, 6).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs525.00 based on a Gordon Growth model
methodology.
Catalyst: Pressure on NIMs, regulatory hits.
Action and recommendation
Given headwinds we find valuation rich at 2.0x FY13E P/BV. Maintain UP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra Finance
Expensive stock with headwinds
Event
We met with Mahindra Finance (MMFS) to get an update. Maintain
Underperform with a TP of Rs525.
Impact
Growth looks healthy, but likely to moderate. Loan disbursal growth looks
healthy, with management guiding to FY12 growth between 25% and
30%YoY, with a higher chance of ~30% growth. All major segments, such as
Mahindra UVs, tractors and non-Mahindra cars are expected by MMFS to
grow by 25–28% for FY12. However, we believe a combination of slower GDP
growth, higher interest rates and lower Maruti sales are likely to result in
growth below management expectations. We maintain our 24% YoY disbursal
growth estimate.
Pressure on NIMs, as cost of funds to remain elevated. The company has
recently raised funds through two- to three-year paper at ~10%, which is flat
to slightly lower on a QoQ basis. However, bank base rates are as high as
11.25% effective, and bank lending is 55% of total borrowings so cannot be
completely bypassed. We do not expect bank rates to come down in the next
few quarters. Bank funding through the on-lending route has also stopped,
while securitisation deals are not happening. Thus we believe there is a
downward risk to our estimate for a 30bp NIM decline to 10.6% for FY12.
Asset quality could take a sizeable hit on new regulations proposed; onground
situation has not changed materially. Monsoons have been largely
normal so far this year. The increase in minimum support prices for crops has
been lower in FY12 (at 10–13%) vs FY11 (at 13–15%), but not sharply so.
This is likely to support near-term loan repayments. However, management
believes the new NBFC regulations proposed by the RBI could lead to a
significant increase in NPLs due to shorter NPL recognition time – 90 days
proposed vs current MMFS practice of 150 days. This could result in excess
provision hits as well.
Securitisation – no deals happening. Last year 55% of securitisation
happened in the first nine months. However, banks have become very
cautious, and there are no new securitisation deals happening, as there is no
visibility about what the RBI is thinking. A few PSU banks have enquired, but
they are quoting rates above their base rates that are very high, and thus it is
difficult for deals to go through. We are building in a slowdown and no
stoppage of securitisations, which could have a large spread and capital
impact (see Figs 5, 6).
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs525.00 based on a Gordon Growth model
methodology.
Catalyst: Pressure on NIMs, regulatory hits.
Action and recommendation
Given headwinds we find valuation rich at 2.0x FY13E P/BV. Maintain UP.
No comments:
Post a Comment