M&M Financial hits highest level since Mar 2020, soars 10% post Q3 results

Shares of Mahindra & Mahindra Financial Services (Mahindra Finance) hit over two-year high of Rs 267.30, as they rallied 10 per cent on the BSE in Monday’s intra-day trade amid heavy volumes after the company reported healthy earnings for December quarter (Q3FY23). The performance during Q3 was characterized by further improvement in asset quality coupled with healthy growth in disbursements and asset book, the company said.

The stock of a leading provider of financial services in the rural and semi- urban markets traded at its highest level since March 2020. At 10:09 AM, the stock quoted 7.5 per cent higher at Rs 261.30, as compared to 0.33 per cent rise in the S&P BSE Sensex. The average trading volumes on the counter more-than-doubled with a combined 7.9 million equity shares changing hands on the NSE and BSE.

In Q3FY23, Mahindra Finance’s standalone profit after tax (PAT) jumped 40 per cent sequentially to Rs 629 crore. Third quarter of the previous year continued with significant reversal of impairment provisions as a result of improvement in asset quality which had deteriorated during Q1FY22 due to second wave of Covid-19. This resulted in a PAT of Rs 894 crore for Q3FY22, the company said.

Net interest income grew 7 per cent quarter-on-quarter (QoQ) and 3 per cent year-on-year (YoY) to Rs 1,621 crore. Continued & Steady improvement in asset quality – gross stage 3 improves to 5.9 per cent (6.7 per cent in Q2FY23) and gross stage 2 improves to 8.4 per cent (9.7 per cent in Q2FY23). Provision coverage on Stage 3 loans was maintained at 59.0 per cent.

While Mahindra Finance did exhibit volatile operating performance and weak asset quality in the past, Motilal Oswal Financial Services (MOFSL) believes that the strategic initiatives undertaken by the management have put it on course to script a credible transformation.

Mahindra Finance is benefitting from the healthy sectoral tailwinds and its parent Mahindra & Mahindra (M&M)’s strong recovery in auto volumes. This is reflecting in strong disbursement growth and we expect this momentum to sustain in 4QFY23, the brokerage firm said in result update.

With process improvement across underwriting and collections, MOFSL expects the asset quality improvement to sustain and now model credit costs of ~2.0 per cent each in FY24/FY25. Margin compression can be mitigated with productivity improvements aiding a moderation in cost ratios.