Shares of Mahindra & Mahindra Financial Services plunged as much as 10% to their day’s low of Rs 368 on the BSE on Thursday despite strong Q2 earnings. The company reported a 55% year-on-year rise in consolidated net profit to Rs 882 crore for the second quarter of FY27, helped by higher business volumes and lower credit costs. In the same quarter last year, the company’s net profit came in at Rs 569 crore
Revenue from operations rose 15% to Rs 5,164 crore. Net interest income increased 17% to Rs 2,822 crore. On a consolidated basis, net profit rose 61% to Rs 911 crore and consolidated total assets grew 21% to Rs 1.80 lakh crore.
During the quarter under review, credit cost moderated to 1.6% of average total assets from 2.2% a year earlier, while net interest margin remained unchanged at 7%, the company said in a regulatory filing.
Looking ahead, Mahindra & Mahindra Financial Services is targeting a return on assets of 2.2%-2.5% by the financial year 2031, compared with 2.2% in the September quarter.
Disbursements rose 22% to Rs 16,499 crore, led by growth in SME and mortgage lending, Raul Rebello, MD & CEO, said speaking at an analyst call. He said that the effort to diversify outside passenger and commercial vehicle finance has yielded results, with 20% of consolidated lending AUM being non-wheel business and 80% from the wheel business.
M&M Finance is targeting a return on assets of 2.2%-2.5% by FY31, compared with 2.2% reported in the September quarter. Rebello said that the liquidity buffer is at an all-time high and may not be raised further even if it is not dipped into.
What are analysts saying?
Nomura has lowered its target price on Mahindra & Mahindra Financial Services to Rs 400 from Rs 415 while retaining its Buy rating, implying an upside of 35%. The brokerage has turned cautious on asset quality in the tractor financing segment and expects credit costs to rise to 1.8% on an annualised basis in the third and fourth quarters of FY27, compared with 1.7% in the first half. Management believes tractor loan asset quality is best assessed at the end of the sowing season, when repayments are due.
The brokerage also flagged rising funding costs as a concern and cut its net profit estimates for FY27-FY29 by 1-9%. While excess liquidity, the floating-rate non-wheel portfolio and securitisation could help the company navigate higher interest rates, management expects its cost of funds to remain on an upward trajectory. Nomura has factored in a 70-basis-point increase in funding costs over the next five quarters.
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Proposed reforms to insurance distribution could pose another risk, given that insurance income accounted for 35 basis points of average assets in FY26 and the company operates an insurance broking subsidiary. Management has not yet quantified the potential impact of the proposed changes.
Nomura has rolled forward its valuation to September 2027 and lowered its target price to Rs 400. The revised target implies a price-to-book multiple of 1.7 times and a price-to-earnings multiple of 13.6 times as of September 2028. The stock currently trades at 1.4 times its one-year forward price-to-book value.
Motilal Oswal has maintained its Buy rating on Mahindra & Mahindra Financial Services (MMFS) with a target price of Rs 375, implying an upside of 26%. The brokerage said the company delivered a steady quarter, supported by healthy disbursement and assets under management (AUM) growth.
Asset quality improved in the first half of FY27, with credit costs remaining contained despite weak monsoons, El Niño concerns and elevated crude oil prices. Net interest margin (NIM) declined due to higher liquidity buffers and seasonal trade advances, although management expects margins to improve in the next quarter.
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MMFS currently trades at 1.4 times its estimated FY28 price-to-book value. Motilal Oswal projects a compound annual growth rate of around 14% in AUM and 18% in profit after tax over FY26-FY28. It estimates return on assets and return on equity of 2.2% and 13.5%, respectively, for FY28.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.