X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Mah Fin.: Asset quality issues persist - Views on News from Equitymaster
MidCapSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Mah Fin.: Asset quality issues persist
Feb 4, 2015

Mahindra Finance declared its results for the third quarter (3QFY15) and nine months of the financial year (9mFY15). The company reported a 10.7% YoY growth in net interest income while net profits declined by 14% YoY during 3QFY15. For 9mFY15, the profits were down by 11.7% YoY. Here is our analysis of the results.

Performance summary
  • Income from operations grew by 11.3% YoY in 3QFY15. For 9MFY15, income from operations increased by 14.4% YoY backed by 11% YoY growth in assets under management of standalone.
  • While the loan growth stood at 12%, the value of assets financed for standalone declined by 8% YoY during 9mFY15.
  • Net interest margin of standalone remained flat at 7.6% for 9mFY15.
  • Cost to income ratio fell to 37.5% in 3QFY15 from 38.2% in 3QFY14.
  • Bottom-line declined by 14% YoY during 3QFY15 and 11.7% in 9mFY15 on account of over 50% YoY growth in provisions.
  • Net NPA to total advances of standalone went up to 3.4% at the end of 9mFY15 (2.2% in 9mFY14).

Consolidated performance snapshot
Rs (m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Income from operations 13,586 15,119 11.3% 38,091 43,562 14.4%
Interest expense 6,141 6,877 12.0% 16,566 19,651 18.6%
Net Interest Income 7,445 8,242 10.7% 21,525 23,912 11.1%
Net interest margin       7.6% 7.6%  
Other Income 46 97 109.4% 155 246 58.7%
Other Expense 2,864 3,125 9.1% 7,770 8,684 11.8%
Provisions and contingencies 1,828 2,765 51.3% 4,415 6,987 58.2%
Profit before tax 2,800 2,449 -12.5% 9,494 8,487 -10.6%
Exceptional gains / losses            
Tax 951   853 -10.4% 3,247 2,957 -8.9%
Profit after tax/ (loss) 1,849 1,596 -13.7% 6,248 5,530 -11.5%
Minority interest  25 28 12.7%  68   73 7.4%
Net Profit to equity shareholders 1,824 1,568 -14.0% 6,179 5,457 -11.7%
Net profit margin (%) 13.4% 10.4%   16.2% 12.5%  
No. of shares (m)         564.0  
Book value per share (Rs)*           98.4  
Price to book value (x)*          2.6  
*trailing twelve month earnings

What has driven performance in 3QFY15?
  • The company's profits continued to remain under pressure on account of higher provisioning. Provisioning was up by 51.3% YoY during the quarter due to rising bad loans. The stress on the asset front has risen on account of two factors. Firstly the cash flow cycles of the customers have been impacted by a variety of reasons such as below average monsoon, delayed sowing, poor yield and low realization along with the overall economic slowdown. Secondly, financing of new assets has also stopped due to slowdown in the demand for auto and tractors. The total assets financed by the company (standalone) fell by 8% YoY in 3QFY15.
  • Notwithstanding, the company has been able to maintain Net interest margin (NIM) for 9mFY15 backed by controlled overhead expenses. Mahindra Finance's cost to income ratio fell to 37.5% in 3QFY15 from 38.2% in 3QFY14. The company expects benefits from interest rate cut to flow from next financial year onwards. However the net spread for the company has contracted.

  • Asset quality continues to remain the major cause of worry for Mahindra Finance. The gross NPA to total assets (standalone) rose to 7.1% in 3QFY15 from 4.8% in 3QFY14. Even the net NPA to total assets (standalone) has risen to over 3% in 3QFY15 as compared to 2.2% in 3QFY14. These NPA ratios are at the highest levels in the last 3-4 years.
What to expect?
At the current price of Rs 253, the stock is trading at a multiple of 2.2 times our estimated FY16 adjusted book value.

Mahindra Finance's financials continue to be hit by sluggish rural economy as well as overall economic slowdown. As the company operates in the 'earn and pay' segment, cash flow pressures have led to extended payment cycles from customers. Moreover the company has not been adding assets adequately owing to overall slowdown. For 9mFY15, the company's loan book has risen by 12% YoY to Rs 362.2 bn. This in turn has led to deterioration in the company's asset quality as well as higher provisioning and reduced earnings.

The company is taking steps to improve recovery by opening more branches in villages, curtailing business in branches where the focus is on recovery and exiting out of the commercial vehicle business in certain geographies.

As medium-term pressures continue, we recommend investors to not buy more at current levels. We also advise the ones holding the stock to maintain sufficient margin of safety; given the weak credit quality of the company. Mahindra Finance, nonetheless, is rightly positioned from the turnaround in the macro economy and the government's continued rural and semi-urban focus. Therefore, we would like to wait and watch the makeover of the balance sheet and would wait for the right opportunity before we recommend it to our subscribers. Kindly ensure that no stock forms more than 5% of your portfolio.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MAHINDRA FINANCE SHARE PRICE


Dec 12, 2017 03:33 PM

TRACK MAHINDRA FINANCE

  • Track your investment in MAHINDRA FINANCE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON MAHINDRA FINANCE

MAHINDRA FINANCE - SREI INFRA FINANCE COMPARISON

COMPARE MAHINDRA FINANCE WITH

MARKET STATS