Company's Disbursements Up 115% YoY, Buy This Finance Stock With Rs. 210 Target Price: Motilal Oswal

Stock's Target Price and Current Market Price: Mahindra Finance

The Current Market Price (CMP) of Mahindra Finance is Rs. 179. Motilal Oswal has estimated a Target Price for the stock at Rs. 210. This stock has the potential to give a 17% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 23,043 crore.

MMFS reported disbursements of Rs. 37.5b in Jun'22, increased by 115% YoY on a low base. The management attributed the healthy momentum to macro tailwinds. Collection efficiency (CE) stood at 96% in Jun'22 (v/s 95% in May'22). In 1QFY23, CE stood at 94%, which the company said was the highest ever in the first quarter of a fiscal in its recent history. The company is offering a dividend yield of 1.93%.

Stock advantages, says Motilal Oswal

The company's disbursements grew by ~27% MoM, and grew by around 145% YoY to Rs. 94.5b in 1QFY23, on a low base due to the second Covid-wave. Demand/business volumes have been strong, feeding into healthy disbursement growth for MMFS as well as for other vehicle financiers. The collection war-room set up in 3QFY22 has exhibited tangible results. The company's gross business assets have increased by 4% QoQ and 6% YoY to around Rs. 675b in 1QFY23.

According to Motilal Oswal, "Asset quality deterioration (increase in Stage 3 assets) was seasonal and in line. However, the commentary from MMFS seems to suggest that the volatility in Stage 3 assets in 1QFY23 will not be as high as seen in the preceding first quarters of earlier fiscals. As of Jun'22, it maintained a comfortable liquidity position of over three months. We expect the company to deliver a RoE of ~10% over the medium term. We find its current valuations (1.3x FY24E P/BV) reasonable from a risk reward perspective and maintain our Buy rating on the stock."

Company profile:

Mahindra Finance began as a captive financier of Mahindra Utility Vehicles in the early 90s. From Mahindra UVs to tractors to non-Mahindra products, the company has diversified into a financial services provider with a whole suite of financial solutions tailored to the under-served customer in under-penetrated rural markets. Their product portfolio consists of vehicle finance, which includes financing of passenger vehicles, utility vehicles, tractors, commercial vehicles, construction equipment; and pre-owned vehicles and SME finance, which includes project finance, equipment finance, working capital finance, and bill discounting services to SMEs. With over 24,000 employees, Mahindra Finance has a presence in every state in India and a footprint in 85% of its districts.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.