Sell M&M Financial Services; target of Rs 380: Centrum

Centrum’s research report on M&M Financial Services

We retain Sell on MMFS with TP revised upwards to Rs380 (valued at 2.5x FY20E ABV). Our channel checks had pointed for strong disbursement growth and incidences of lower repossessions / higher recoveries for the quarter. Q418 results corroborated our survey that saw a) solid 17.8% YoY growth in AuM and b) sharp 22% QoQ decline in GNPA. Commentaries on growth, asset quality remain encouraging.

Outlook

Even as we build in strong recovery in growth and earnings (following reduced lower loan loss provisions and recovery) over FY18-20E, valuations at 3.4x FY20E ABV for an exit RoE of 15-16% appear expensive. Retail SELL with TP at Rs380. Key risks: Higher AuM growth or lower slippages and credit cost.

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