Mahindra and Mahindra Financial Services (MMFS) is predominantly into rural, semi-urban car financing with advances at Rs fifty-eight,240 crores as on December 31, 2018, and massive consumer base of five. Three million.
For MMFS, AUM has grown at 23% CAGR with risky spells in FY09-18. AUM grew at 32% CAGR in 09-14, bogged down in FY15-17 to 10% after which revived to sixteen% in FY16-18 to Rs 55,100 crore.
ICICI Securities expects AUM to grow at 20% CAGR in FY19-21E to Rs ninety-four,996 crores. Robust infrastructure spends, and new farmer-friendly schemes are supposed to help rural cash flows. Current NIM at ~eight% is predicted to stay solid over the next years as it has already moderated from highs of 9.2% inside the beyond.
As loan book growth picks up, we expect MMFS to gain from charges incurred on employee and branch enlargement. Opex/AUM ratio is seen moderating with the aid of ~ ten bps to 2.Nine% in FY21E. Likewise, CI ratio is expected to reduce from 39.7% in FY18 to 36.5% in FY21E.
Post effect of horrific monsoon, RoA revived from 1% in FY17 to at least one.Nine% in FY18 and in addition to two.Three% in 9MFY19. Likewise, RoE improved from 6.Four% in FY17 to 11.3% in FY18, at the, returned of strong NII growth at 16% YoY and discount in CI ratio from 42% to 39% in FY18. With regular credit fee and stable yields, we assume RoA to enhance further to two.4% in FY21E.
Buoyancy in rural India and MMFS’ attention on agricultural financing are predicted to aid valuations. MMFS has elements to sustainably command top rate valuation – 1) rural reach providing big opportunity with pricing power, 2) strong AUM boom (AUM, income CAGR of 20%, 25%, respectively, in FY18-21E), 3) better rural income led by using farm mortgage waivers and cash go with the flow receipt in the course of election, 4) active control and 5) adequate hazard management with restrained losses. We price core automobile commercial enterprise at 2.6x FY21E ABV (1.8x FY21E BV) and upload 50 as a fee for subsidiaries like housing that is picking up the pace. Assuming 20% holding enterprise cut-price instead of subsidiaries, we provoke coverage with BUY advice and a target fee of per proportion.