Robust Q2, GST tailwind lift M&M Fin to 52-wk high; analysts raise targets

While earnings came in ahead of expectations for M&M Financial Services, analysts remain watchful of persistently high credit costs and moderation in asset growth.

Mahindra & Mahindra Financial Services’ September quarter (Q2FY26) performance has reinforced confidence in its recovery trajectory, with most brokerages highlighting improving margins, resilient asset quality, and a promising demand outlook aided by GST rate cuts and rural recovery.

 

While earnings came in ahead of expectations, analysts remain watchful of persistently high credit costs and moderation in asset growth. The Street broadly expects profitability to improve in the second half (H2FY26) as disbursements pick up and funding costs ease.

 

HDFC Securities said Mahindra & Mahindra Financial’s Q2 earnings were “marginally ahead of our estimates, driven by higher other income and healthy NIM reflation.” The brokerage noted that while business momentum was ‘muted’ in Q2 –  with disbursements and AUM up 2.7 per cent and 13.2 per cent year-on-year (Y-o-Y) – the management remains upbeat about an improvement in H2FY26 and FY27, ‘partly aided by GST rate cuts.’

 

 

Asset quality remained stable in what is typically a seasonally weak quarter, with gross stage II and III assets unchanged at 9.7 per cent. However, credit costs were elevated at 2.4 per cent. HDFC Securities said M&M Financial’s efforts for return on assets (RoA) reflation through higher fee income, cost optimisation, and steady credit costs ‘remain a work in progress,’ with early wins visible in fee traction. The brokerage maintained its ‘Add’ rating, with a revised target price of ₹315 (valuing the standalone entity at 1.6x Sep-27 ABVPS). 

 

JM Financial also struck an optimistic note, citing stronger-than-expected profitability. The company’s PAT beat of 13 per cent was led by lower operating expenses and lower-than-anticipated credit costs (2.4 per cent versus JMFe 2.5 per cent). Disbursements grew 3 per cent year-on-year, while AUM rose 13 per cent. Analysts at JM Financial said the growth slowdown from 28 per cent in Q1FY24 to 13 per cent Y-o-Y in Q2FY26 ‘would take slightly longer to recover,’ but added that management’s confidence in restricting credit costs to 1.7 per cent for FY26 infuses confidence on asset quality outcome in H2FY26.

 

“Higher share of fixed rate loan book and recent rights issue should also offer NIM tailwinds,” the brokerage said, upgrading the stock to ‘Add’ with a revised target price of ₹320, valuing M&M Financial at 1.7x FY27E Price-to-Book Value (P/BV).

 

Motilal Oswal Financial Services (MOFSL) reiterated its ‘Buy’ rating, lifting its target price to ₹350 (based on 1.7x Sep-27E BVPS), following a “~54 per cent Y-o-Y PAT rise to ₹570 crore (~13 per cent beat).” The brokerage noted that other income surged 73 per cent Y-o-Y, driven by higher fee and dividend income, while NIMs expanded by 12 basis points (bps) sequentially to around 6.8 per cent.

 

MOFSL said the last week of the quarter ‘exhibited an improvement in business momentum, which further strengthened in October,’ with management expecting the positive trend to continue through Q3 and Q4. 

 

“The company guided for AUM growth of ~15 per cent in FY26, supported by 18-20 per cent disbursement growth in 2HFY26,” it said, adding that the GST rate cut has boosted demand in the passenger vehicle (PV) and tractor segments.  

 

The brokerage raised FY26/FY27 PAT estimates by 10 per cent and 6 per cent, respectively, factoring in recurring higher dividend income from the insurance broking subsidiary, and expects a 19 per cent PAT CAGR over FY25-FY28.

 

Those at Nuvama Institutional Equities, meanwhile, maintained a cautious stance, keeping its ‘Hold’ rating but raising its target price to ₹288 (from ₹280 earlier). The brokerage said M&M Financial reported a beat on Pre-Provision Operating Profit (PPOP) driven by a beat on fees, but a miss on credit cost. It added that the credit cost miss was from a sharp jump in credit cost for GS3 due to the quarterly Loan Given Default (LGD) reset. Fee growth was strong at 16 per cent Q-o-Q, leading to an 11 per cent sequential expansion in PPOP.

 

Nuvama said management ‘is optimistic about a demand recovery post-GST in H2FY26 with green shoots already seen in October,’ while expressing confidence in better recoveries and lower provisions in the second half.

 

Emkay Global Financial Services described Q2 as a ‘steady quarter,’ with PAT coming in ahead of expectations. While credit costs stayed elevated at 2.2 per cent versus 1.9 per cent in Q1, the brokerage noted that management expects moderation in coming quarters, with full-year levels ‘contained at ~1.7 per cent.’

 

Emkay expects disbursement momentum to strengthen in H2, supported by GST 2.0 benefits and a favourable monsoon, particularly in PVs, tractors, and used vehicles. Margins, it said, improved by 30 bps sequentially, aided by lower cost of funds and better fee income. Still, the brokerage retained a ‘Reduce’ rating, lifting its target price to ₹280 from ₹260, citing that the sustainable >2 per cent RoA path still lacks visibility.

 

Despite differences in ratings, most brokerages concur that M&M Financial is in a transition phase marked by improving profitability, steadying asset quality, and early benefits from structural changes. 

 

The common thread among them is that the company’s second-half growth hinges on rural recovery, GST-led demand revival, and credit cost control, which together could set the tone for a stronger FY27.

 

On the bourses, Mahindra & Mahindra Financial Services share price rallied up to 8.1 per cent to hit a fresh 52-week high of ₹324.20 per share. Around 10:15 AM, Mahindra & Mahindra Financial Services shares were trading 3.38 per cent higher at ₹310.05 per share. In comparison, BSE Sensex was trading 0.14 per cent higher at 84,747.82 levels.