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

As on September 30, 2022, the company expects its Gross Stage 3 to be around 7 per cent as compared to 8 per cent in Q2FY23 and Gross Stage 2 to be around 10 per cent as against 11.7 per cent.

Shares of Mahindra & Mahindra (M&M) Financial Services gained 10 per cent at Rs 197.50 on the BSE in Tuesday’s intra-day trades on improvement in asset quality with stage 2/3 assets seeing a sequential improvement of 170bp/100bp in September quarter. The company maintained a comfortable liquidity position of over three months.

As on September 30, 2022 (Q2FY23), the company expects its Gross Stage 3 to be around 7 per cent (compared to 8 per cent as of June 30, 2022) and Gross Stage 2 to be around 10 per cent (compared to 11.7 per cent as of Q1FY23), M&M Financial Services said in pre-quarterly release.

In September 2022, aided by macro tailwinds, the business continued its momentum with disbursement of approximately Rs 4,080 crore delivering a 110 per cent year-on-year (Y-o-Y) growth. This translates to a Y-o-Y growth of 82 per cent in Q2FY23 and 106 per cent for H1FY23. The first half is estimated to clock a disbursement of approximately Rs 21,300 crore, the company said.

The healthy disbursement trends during the first half have led to a strong gross asset book of approximately Rs 73,900 crore, growing around 3 per cent month on month. This has also resulted in Y-o-Y growth of ~16 per cent vs September last year and ~14 per cent vs March ’22.

Motilal Oswal Financial Services expects the company to deliver a RoE of around 11 per cent over 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 firm said.

However, despite of today’s rally, the stock price of M&M Financial has corrected 16 per cent from its 52-week high level of Rs 235, which it hit on September 15, 2022, after the Reserve Bank of India (RBI) directed the company to immediately cease any recovery or repossession activities via an outsource till further orders.

M&M Financial on September 23 had said that they repossesses around 4,000 to 5,000 vehicles per month in daily course of business via third-party agencies as well as their own employees. That said, the company expects this number to go down temporarily to around 3,000 to 4,000 per month, as they implement the RBI order with immediate effect. The Company has not outsourced any collection activities in its vehicle finance business to any third-party agencies and therefore, the Company does not expect any impact on the collections in this business.

Technical View

Bias: Neutral

Support: Rs 192.70; Rs 185

Resistance: Rs 203.50; Rs 209.20

The recent fall in M&M Finance saw the stock test its 200-DMA (Daily Moving Average) on the daily chart at Rs 176-odd levels. After having tested the support, the stock now seems to attempt a pullback.

For the pullback to materialise, the stock needs to sustain above its 100-DMA, placed at Rs 192.70, on a consistent basis. In case the stock succeeds in doing so, the pullback rally can stretch towards the 50-DMA and 20-DMA, indicating an upside targets of Rs 203.50 and Rs 209.20, respectively.

The key momentum oscillators too are indicating a possibility of a pullback. On the downside, below the 100-DMA, the stock can find substantial support around Rs 185-odd level.

(With inputs from Rex Cano)