Bad results but good investment bet: M&M Fin Ser

For the first quarter of 2021-22, Mahindra & Mahindra Financial Services (M&M Fin) reported its worst ever quarterly results in over a decade and disappointed the street on all major parameters. Disbursement fell by 35% q-o-q due to second wave induced restrictions and weak loan demand across segments. Sharp jump in gross non-performing assets (NPA), up to 15.5% against 9% in fourth quarter of 2020-21 and 9.2% in first quarter of 2020-21, was another major disappointment. Higher provisioning due to this NPA jump resulted in a massive net loss of Rs 1,529 crore for the quarter.However, analysts say one bad quarter is not end of the world and have started upgrading their views on this counter. Its recent stock market underperformance with Sensex and ET NBFC Index is the main reason for this. Moderation in valuations, due to its significant underperformance in the past six months, is another factor. Since the price to book ratio already reached 1.16 times, analysts believe that there is limited scope for further de-rating.Analysts’ viewsBuy: 18Sell: 7Hold: 11Analysts also say that improvement in collections will reduce asset quality concerns and will result in a re-rating. Its collection efficiency is already on the rise due to reduction in covid cases and subsequent opening up. For instance, its collection efficiency was at 90% in June compared to just 72% in April and 67% in May. Analysts believe that a major part of NPA jump was because its agents could not undertake physical collection during most of the first quarter and therefore, will get reversed once restrictions are fully withdrawn. Since majority of loan contracts that slipped into stage 2 and 3 buckets during first quarter of 2021-22 have seen some collections, it is not a big concern and they may become good once the collection efficiency improves.Disbursement growth is also expected to come back during the upcoming festive season due to seasonal momentum in rural economy. Since the monsoon in this season is progressing smoothly, the rural demand for tractors, pre-owned vehicles, etc. should be good. However, the loan growth may remain muted in coming quarters because the management focus has shifted from loan growth to NPA control. For instance, it is doing closer loan scrutiny now and its loan rejection rate for the first quarter was more than 15%. Market share of M&M Fin may also go down a bit due to tighter loans screening. 84919048 Selection methodology:We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena/ET Prime)

from Economic Times https://ift.tt/3yvoCWg