Mahindra Financial Services Q3 Results Review - Asset Quality, Net Interest Margins Improved: IDBI Capital

IDBI Capital Report

Mahindra and Mahindra Financial Services Ltd.'s reported improvement in net interest margin led by increase in yields. Management maintained the guidance of NIMs at 7% for FY25. Asset quality improved with gross stage-III at 4.0% versus 4.3% QoQ backed by higher write offs.

Assets under management growth remains strong at 25.5% YoY versus 27% (Q2 FY24); we expect 19% compound annual growth rate (FY23-26) AUM growth. Net interest income grew by 8% QoQ led by improvement in NIMs. Pre-provision operating profit grew by 13% QoQ led by lower opex (up 3%QoQ).

However, Profit after tax increased by 135% QoQ led by decline in provisions (down 48% QoQ). Management guided on track to achieve vision 2025 of ~2.5% return on assets (achieved 2.3% FY23). We have moved to FY26E estimates and expect earning per share to grow at 15% CAGR (FY23-26).

We maintain ‘Buy’ on Mahindra Finance with target price of Rs 345 (earlier Rs 330), valuing it at two times price/adjusted book value FY26E adjusted book value.

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