Shares of Mahindra & Mahindra Financial Services Ltd (MMFSL) experienced a significant 10% decline in Thursday's trade following the announcement of its mixed September quarter results. While the non-banking financial company (NBFC) reported a 15% year-on-year growth in its assets under management (AUM) for Q2, this growth was primarily driven by low-yielding trade finance, which subsequently dragged down net interest margin (NIM) and fees by 30 basis points sequentially to 7%.
Despite the share price fall, analysts largely maintained a 'Buy' recommendation for the stock. The 12-month consensus target price stands at Rs 371.41, suggesting a potential upside of 24.9% from current levels. However, individual brokerage targets varied, ranging from Rs 330 (UBS, Jefferies, Morgan Stanley, JPMorgan, HSBC) to Rs 425 (Investec).
Analyst Insights and Future Outlook
Brokerage firm Nuvama noted that while NIM fell, lower operating expenses and provisions contributed to an in-line profit after tax. They cautioned that potential rate hikes could intensify margin pressure, and anticipated insurance commission caps might impact FY28E fees. Furthermore, the possibility of drought in specific states could delay the credit-cost improvement cycle.
MOFSL described MMFSL's Q2 results as steady, supported by healthy disbursement and AUM growth. They highlighted an improvement in asset quality during the first half and contained credit costs despite weak monsoons and elevated crude prices. Management expects an improvement in NIM in the next quarter.
Key Concerns and Management Guidance
The MMFSL management reiterated its medium-term guidance, aiming for 16-18% AUM growth, 1.3-1.7% credit cost, and a Return on Assets (RoA) of 2.2-2.5%. However, they cautioned that the current 55-70% PAT growth is unsustainable, as credit costs are largely optimized. The management also indicated an expected upward trajectory in the cost of funds due to ongoing rate hikes.
Analysts pointed to several key monitorables, including rising costs of funds, proposed insurance commission cuts (which could impact fees currently at 1.6% of assets), and potential stress on tractor financing due to drought conditions. These factors led some brokerages to revise their earnings estimates for FY27E and FY28E downwards, despite some upward adjustments in AUM growth forecasts.