Reduce Mahindra Finance; target of Rs 260: Emkay Global Financial

Emkay Global Financial' research report on Mahindra Finance

Not surprisingly, MMFS posted muted results in Q1FY26, with PAT at ~Rs5.3bn largely hit by elevated credit cost (~25bps higher than our estimate of ~1.9% of business assets), and YoY AUM growth of 15%/disbursement growth of only 1%. Despite the management’s continual efforts and initiatives in recent years toward diversifying away from the wheels business, MMFS remained dominated by wheels (~90%). Except in tractors, disbursement was sluggish across other wheels products, thus hurting overall disbursement. This poses a challenge for near-term growth, as the new segments are still too small to drive AUM growth. Margins (NIM + Fees) in 1Q saw a minor improvement led by higher fee income, improved product yield, and Rs0.46bn dividend income (~14bps impact on NIM) from MIBL (will be recurring income going ahead); these are expected to improve, led by changing asset mix along with increasing cross-sells and fee income. The mgmt indicated it has been calibrating some less attractive segments on a risk adjusted basis; this would reduce inter-quarter volatility in terms of margin and credit cost. Overall, the mgmt remains constructive about above-average monsoon-led/improving rural cashflow-led demand recovery for driving AUM growth and better credit cost.

Outlook

However, we see growth and asset quality seeing challenges in the near term which would result in continued subpar profitability. We retain REDUCE on MMFS with unchanged Jun-26E TP of Rs260 (implying FY27E P/B of 1.3x).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Mahindra Finance - 23072025 - emkay