Motilal Oswal Suggests Buying This Finance Stock For 18% Return, With 2% Dividend Yield

Brokerage firm Motilal Oswal suggests buying the stocks of Mahindra & Mahindra Financial (MMFS). The management recently talked about multiple changes that it effected at the operational level, which will help usher stability in asset quality and reduce volatility in credit costs.

Target Price, Current Market Price

The Current Market Price (CMP) of MMFS is Rs. 178. Motilal Oswal has estimated a Target Price for the stock at Rs. 210. This stock has the potential to give an 18% return, in the upcoming 1 year. This is a large-cap company with a market capitalization of around Rs. 22,073 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 178
Target Price	Rs. 210
Potential 1 year return	18.00%
52 week high share price	Rs. 206.35
52 week low share price	Rs. 128.00

The company's NII in FY22 was recorded at Rs. 55.4 b, which is expected to be at Rs. 57.1 b in FY23. Their PAT in FY22 stood at Rs. 9.9 b, which is expected to be at Rs. 14.1 b in FY23. The company's NIM in FY22 was recorded at 9.5%, which is expected to be at 9.2% in FY23.

The contribution of MM's assets to MMFS' AUM stood at 46% in Mar'22 (v/s 43% in Mar'19). The company is also offering a 2.02% dividend yield to its shareholders.

Stock advantages and risks: Motilal Oswal

According to Motilal Oswal, "MMFS has a healthy and well-diversified liability franchise, which will keep it in better stead in a rising interest rate environment. What we find even better is that parent MM is now taking a more prominent and explicit interest in its performance. Vision 2025 articulated its aspirational goals for AUM growth, asset quality, NIM, cost ratios, and RoA. While the growth targets seem aggressive, it will keep pushing the management team to deliver a much improved performance. We model in an AUM/PAT CAGR of 12%/26% over FY22-24E for a RoA/RoE of 1.9%/9.4% in FY24E."

Additionally, the firm mentioned, "We estimate MM's Auto segment to deliver over 30% growth in volumes in FY23. We expect MMFS to benefit from higher expected volumes for MM, particularly in the UV segment, which has always been the former's strength. We model in a NIM compression of ~30bp/15bp to 9.2%/9.1% in FY23/FY24."

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. 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. The company also undertakes mutual fund distribution, fixed deposits and personal loans tailor-made to suit its unique customer set. With over 24,000 employees, Mahindra Finance has a presence in every state in India and a footprint in 85% of its districts. It has a network of over network 1340 offices, serving customers in more than 3, 80,000 villages.

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.