M&M Financial Services

Clocked 100% collection efficiency in December-21 – M&M Financial Services

Update on the Indian Equity Market:

On Wednesday, the domestic market witnessed a recovery following a mild dip. Increasing covid cases leading to stricter restrictions pressurized market volatility. NIFTY closed at 17,925 (+0.7%).

BANK (+2.3%), PRIVATE BANK(+2.1%), and FINANCIAL SERVICES (+2.0%) were the top gainers and IT (-1.9%), MEDIA (-0.4%), and HEALTHCARE (-0.3%) were the top losing sectors.

The top losers were TECHM (-2.8%), INFY (-2.7%), and HCLTECH (-1.7%) while BAJAJFINSV (+5.0%), BAJFINANCE (+4.4%), and KOTAKBANK (+3.5%) were the top gainers.

 Edited excerpts of an interview with Mr. Ramesh Iyer, Managing Director, M&M Financial Services with ET on 4th January 2021:

  • A turnaround was seen in rural India in terms of vehicles and tractors. Growth across all categories was witnessed by the company and that has registered the growth in disbursements.
  • Rural demand continues to be buoyant. The yields have been good because of the good monsoon. Therefore the sentiments are continuing to remain positive across the country.
  • Good growth momentum was seen by the company and the recoveries have been good for the company.
  • In tractors, volume growth and gain in market share were witnessed by the company. M&M Financial Services have gone deeper and has covered more dealerships. It has put people across various dealerships which have aided the volume growth in tractors.
  • Productwise Performance:
    • M&M Financial Services has gained market share in tractors and Mahindra auto products.
    • Cars are witnessing volume growth.
    • Pre-owned vehicles have been a very buoyant segment.
  • There had been temporary pressure since 1QFY22 because of the market conditions. As the consumers come back to the market and start earning, a rollback is expected which was witnessed in 2QFY22. The company continues to see recovery in 3QFY22 and is confident that this momentum will continue going forward. It has clocked 100% collection efficiency in the month of Dec-21 and is improving on a month-on-month basis.
  • The NPAs are steadily reducing from 1QFY22 and the company is confident of bringing it below 4% levels by end of FY22E. The second half is always good for the rural market and the post-harvest quarter is always the best.
  • The company is seeing a turnaround in economic activity. Tourism has picked up substantially which is contributing to people earning better and being able to repay well.
  • Collections from every segment and every geography have been witnessed by the company. It seems to be the trend going forward and therefore M&M Financial Services is confident to bring net NPA to below 4% by Mar-22E.
  • On the latest norms by RBI on asset quality, Mr. Iyer commented that regulatory requirements are under the IRAC norms and not under the Ind-AS norms. Therefore, as far as the P&L is concerned, a major impact on the P&L might not be seen. However, under the IRAC norms, one would see an increase in NPA due to the approach that would now have to be adopted going forward. But the ground reality is that these consumers earn and pay and therefore adhering to a particular due date is difficult for them and there will be a little pressure point for the retail industry. This will cause a little increase in NPAs so far as IRAC norms are concerned.
  • The company doesn’t see any substantial change in the loan mix as far as AUM is concerned. AUM growth for FY22E is expected to remain range-bound because it is difficult to catch up with the business lost in one quarter. But the sentiments are positive and growth is expected from FY23E.

 

Asset Multiplier Comments

  • We think strong buoyancy in demand, particularly in rural centers, driven by healthy farm cash flows and a pickup in Infrastructure spending by the Center and state governments will help aid revenue growth.
  • With a recovery in collections, M&M Financial Services seems to be well-positioned to accelerate its disbursements and gain market share.

 

Consensus Estimate (Source: market screener and investing.com websites)

  • The closing price of M&M Financial Services was ₹ 154/- as of 05-Jan-22. It traded at 1.22x/1.12x/1.00 x the consensus BVPS estimate of ₹ 125/136/154 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 202/- implies a PBVPS multiple of 1.31x on FY24E EPS of ₹ 154/-.

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