M&M Finance soars 10% as asset quality improves in September quarter

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Shares of Mahindra & Mahindra (M&M) Financial Services gained 10% to Rs 197.50 on BSE in Tuesday’s intraday trading on improving asset quality, with Stage 2/3 assets recording a 170bps/100bps sequential improvement in the September quarter. The company has maintained a comfortable liquidity position for more than three months.

As of September 30, 2022 (Q2FY23), the company expects its Gross Level 3 to be around 7% (vs. 8% on June 30, 2022) and its Gross Level 2 to be around 10% (vs. 11 .7% per cent in Q1FY23), M&M Financial Services said in the pre-quarter statement.

In September 2022, aided by macro tailwinds, the business continued its momentum with a disbursement of approximately Rs 4,080 crore, generating 110% year-on-year (YoY) growth. This translates to year-on-year growth of 82% in Q2FY23 and 106% in H1FY23. It is estimated that the first half will be a disbursement of about Rs 21,300 crore, the company said.

Good disbursement trends during the first half led to a strong portfolio of gross assets of around Rs 73,900 crore, growing around 3% month-on-month. This also translated to year-over-year growth of around 16% from September last year and around 14% from March 22.

Motilal Oswal Financial Services expects the company to deliver an RoE of around 11% in the medium term. “We find its current valuations of 1.3x FY24E P/BV reasonable from a risk-reward perspective and maintain our buy rating on the stock,” the brokerage said.

However, despite today’s rally, M&M Financial’s share price has corrected 16% from its 52-week high of Rs 235, which it reached on September 15, 2022, after the Reserve Bank of India (RBI) ran the company. to immediately cease all recovery or repossession activities through subcontracting until further notice.

On September 23, M&M Financial said it repossessed around 4,000 to 5,000 vehicles per month as part of its day-to-day business through third-party agencies as well as its own employees. That said, the company expects that number to temporarily drop to around 3,000 to 4,000 per month as it implements the RBI order with immediate effect. The Company has not outsourced any collections activity in its vehicle finance business to third party agencies and therefore the Company does not expect any impact on collections in this business.

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