Tag: M&M Financial

Six stocks that are likely to underperform as per one report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brokerage firm Jefferies has highlighted six stocks that it expects to underperform with potential downside ranging between 20 percent to as high as 35 percent.

The six names that emerge from across sectors like IT, Auto, Finance, Consumer, and Capital Goods, include Coforge, Bharat Forge, Mahindra & Mahindra Finance, Cummins India, Asian Paints, and Tata Power. 

Incidentally, Mahindra & Mahindra Finance hit a 52-week high only on Monday, while Cummins India and Bharat Forge have also scaled their 52-week high levels in recent times.

Here’s Jefferies’ rationale behind each of them:

Coforge

• Rating: Underperform
• Price Target: Rs 3,340
• Potential Downside: 21 percent

Amidst deteriorating macroeconomic conditions, Jefferies expects a sharp moderation in Coforge’s revenue growth from 21 percent year-on-year to just 12 percent in financial year 2024. A recessionary environment leads to higher revenue risk for mid-sized players, given their greater share of discretionary products, according to Jefferies.

Nearly 70 percent of Coforge’s clients are below the $1 million mark, putting it at a high risk in case of a demand slowdown and possible vendor consolidation.

Challenges in Europe are another drawback for Coforge as nearly 40 percent of its revenue in the first half of the current financial year came from the continent. Despite the correction seen by the stock, Jefferies finds its valuations to be rich.

Other Factors:

• Lack of large deals may limit margin expansion
• Winning large deals may become more difficult in case of a demand slowdown
• Added overhang of a promoter stake sale. Barrings holds 40 percent stake in the company

Bharat Forge

• Rating: Underperform
• Price Target: Rs 555
• Potential Downside: 35 percent

Jefferies expects the weak US economic outlook to hurt truck demand. This was evident as class 8 truck orders declined for the second straight month in November.

The brokerage also expects the company’s export revenue growth to moderate to 18 percent this year and just 4 percent in the next financial year. However, it expects healthy domestic revenue growth led by trucks, passenger vehicles and industrials. Jefferies also expects a ramp-up in Electric Vehicle orders.

A large defence order is a key potential upside risk to Bharat Forge’s earnings, according to Jefferies.

Other Factors:

• Stock peaked 5-10 months before the peak consensus earnings estimates in the last two upturns
• Estimates are still 16 percent below consensus
• Valuations expensive even with potential for domestic artillery gun order

Mahindra & Mahindra Finance

• Rating: Underperform
• Price Target: Rs 175
• Potential Downside: 23 percent

Jefferies expects margin at M&M Financial to surprise negatively as it expects yields to moderate due to strong disbursements in lower yielding products. It also expects funding costs to rise as the full impact of higher interest rates is reflected in the cost of funds.

The brokerage termed the company’s asset quality improvement as one led by settlements and write-offs and not due to any meaningful improvement in collections.

In an interaction with CNBC-TV18, M&M Financial’s Ramesh Iyer said that the company has a target of 2.5 percent Return on Assets (RoA) for 2025, adding that rural cash flows have improved.

The stock hit a 52-week high on Monday after its November business update.

Other Factors:

• Believe divergence should gradually widen
• Credit costs could stay elevated due to higher write-offs and settlement losses
• Valuations are unattractive due to subdued RoE outlook over this year to financial year 2025.

Asian Paints

• Rating: Underperform
• Price Target: Rs 2,530
• Potential Downside: 20 percent

Grasim’s foray into the paints business and the large capex announcement by financial year 2025 has pushed Jefferies to declare this as a “Jio moment” for the paint industry.

An aggressive pricing or otherwise strategy from Grasim may disturb the market structure and have a greater impact on smaller players, according to Jefferies. However, Asian Paints is also at risk.

The entry of players like Grasim, JK Cement, Astral and Infra.market has shaken the oligopolistic structure of the Indian paints industry.

Jefferies believes that Asian Paints’ current valuations do not factor in the overhang from Grasim and that their risk-reward is unfavourable.

Cummins India

• Rating: Underperform
• Price Target: Rs 1,030
• Potential Downside: 29 percent

Jefferies has cited aggressive competition from global major Perkins, which set up its India factory in 2016, and weakening pricing power behind its underperform rating on Cummins.

The brokerage expects Cummins’ return ratios to bear the brunt of demand overestimation, capping its RoE to 18-20 percent levels, despite the recovery in the current financial year.

The current price target of Rs 1,030 reflects no earnings growth over this financial year and the next.

Tata Power

• Rating: Underperform
• Price Target: Rs 180
• Potential Downside: 20 percent

The management of Tata Power had outlined a plan to double its RoE to 12 percent by financial year 2025. However, Jefferies is concerned that competition and capex will keep the RoE below 14 percent in the medium-term.

The brokerage further states that peak positive newsflow for Tata Power is behind as asset monetisation of the company has disappointed the street.

Resolution of the Mundra tariff hike is not seeing a favourable stance from State Electricity Boards (SEBs) either.

Jefferies’ price target values the stock at 15.9 times price-to-earnings for September 2024, given the limited growth expectations ex-coal, along with muted return ratios.

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M&M Finance at a 52-week high after August disbursements rise 75%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of non-bank finance lender Mahindra & Mahindra Financial Services (MMFS) jumped to a 52-week high after the company reported a 75 percent year-on-year growth in overall disbursals for the month of August.

In an exchange filing last week, the company mentioned that it disbursed Rs 3,740 crore in August. However, on a sequential basis, the number is down 4.4 percent. The number is also lower than the disbursals made in July (Rs 3,912 crore) and June (Rs 3,750 crore).

The total amount disbursed during the year now stands at Rs 17,150 crore (including August), almost double compared to the same period last year. Gross business assets are up ~12 percent from last year and 3 percent month-on-month.

The Collection Efficiency (CE) during the month of August remained stable at 96 percent, compared to 97 percent in August 2021. The figure has oscillated between the 95-97 percent mark over the last four months.

M&M Finance also mentioned that its Stage 2 assets or overdue assets in excess of 60 days declined from last month while its Gross Non-Performing Assets (GNPA) or Stage 3 assets were stable in August.

“The company expects an improvement in Stage 2 and Stage 3 assets during September 2022,” it said in its exchange filing.

In an interview with CNBC-TV18 last month, Vice Chairman & MD Ramesh Iyer said that disbursements had started to grow, leading to AUM growth. “We are at close to 26 percent and it’s only now that we have started seeing good growth of disbursement leading to AUM growth. As we start consuming this capital and the return on assets (RoA) coming back, you would see that happen in the next couple.”

Shares of M&M Financial Services are up 3.3 percent at Rs 215.85 in early trading. The stock is the top F&O gainer and is also trading at a 52-week high. The stock has risen 42 percent this year so far.

For a ball-by-ball account of the market action today (Sept 5), please click here

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Expect substantial part of current rise in GNPAs to reverse by March 2022: M&M Financial

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Mahindra and Mahindra Financial is in focus on the back of the earnings, which saw a massive deterioration in terms of asset quality. To discuss the quarter gone by and the outlook from here on CNBC-TV18 spoke to Ramesh Iyer, Managing Director of the company.

Restructuring as a percentage of total loan book for the company was roughly 2.5 percent in the quarter. Talking about restructuring for the upcoming quarters, Iyer said, “We are in absolute retail assets in rural and I don’t think there will be a substantial jump to the restructuring even, going forward. And the reason I say that is because these are all earn and pay customers, and they say as earnings begin to happen, the market condition starts to improve, we will start repaying and we don’t need a long term, and they don’t want to incur a higher interest.”

“Moratorium was something they grabbed because it gave them three, four months for settling down. But restructuring is something they believe gets extended unnecessarily for longer, and they don’t want it. So we don’t see a very high book percentage coming into restructuring,” he added.

So the request for restructuring is a very small number but nothing substantial, he reiterated.

The NPAs in the quarter gone by jumped 15.5 percent. Explaining the reason for the higher NPAs and outlook for the coming quarter, Iyer said, “It is important to understand what is this 15.5 percent or whatever, that’s a regulatory need to call them an NPA and provide for it, but these are very temporary moment into that bucket and cost by the liquidity pressure on the customer front where their earnings — out of 90 days, if you work for 20 days, this what would happen to certain segment of customers who are in that market. So, they are not bad customers, they are not creditors customers, but they are temporary blip and you will start seeing the reversal right from this quarter itself.”

On GNPAs, he said, “If you look at collection, efficiency is one matrix we clearly monitor and in June, we had close to 95 percent plus going, and we already seeing July showing that trend. If that is going to be the trend, I don’t want to honestly put out a number on where the GNP would be but at least by March, whatever increase in GNP that you saw in this quarter are likely to substantially get reversed.”

For the entire interview, watch video

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These 15 stocks are Motilal Oswal’s top bets in midcap space

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The midcap index has significantly underperformed the Nifty index since December 2017 due to higher valuations premium vs the largecaps, macro headwinds, concerns about governance/liquidity issues, and the lack of pick-up in earnings growth, said Motilal Oswal Financial Service (MOFSL) in a report.

Nifty Midcap 100 index has lost 21 percent since December 2017 while the Nifty index has gained 3 percent in the corresponding period.

“Over the last 12 years, the correction in midcaps from the peak to the bottom has been much higher relative to large caps in almost every episode of correction, barring one. The average difference in peak-to-bottom correction between the Midcap 100 and the Nifty in the past has been around 10-15 percent,” MOFSL said in a report dated March 6.

But in the last one month, the Nifty Midcap index advanced over 4.5 percent, while the Nifty Smallcap index rose nearly 8 percent. In comparison, Nifty50 was up just 2 percent.

Analysts at MOFSL believe that the broad underperformance of the mid-caps is overdone and opportunities are now available in this space across sectors amid hopes of earnings recovery.

Given the rebound in the asset quality metrics of PSU banks and the consequent reduction in provisioning costs, the profits for the mid-cap index are expected to recover significantly, according to analysts.

Overall, the mid and smallcap universe is expected to post 91 percent y-o-y PAT growth in FY19. While, excluding PSU banks, growth in FY19 is expected at 16 percent versus 12 percent in FY18, the report added.

The brokerage has picked 15 stocks in their list of preferred midcap stocks. The list includes M&M Financial, Page Industries, Sun TV, LIC Housing Finance, Alkem Labs, Emami, Federal Bank, Indian Hotels and JSPL, among others.

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M&M Financial confident of maintaining 20-25% growth rate, says MD Iyer

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

M&M Financial Services posted a mixed set of numbers in the quarter gone by. Its net interest income was up 20.1 percent but net profit was down 3.8 percent. Ramesh Iyer, VC & MD of the company, spoke to CNBC-TV18 about the company’s financial performance.

“We have been gaining market share and our commercial vehicle construction equipment has been a growth engine along with being a substantial player for pre-owned vehicle lending business in the rural market,” Iyer said, adding that they are confident of maintaining a 20-25 percent growth rate.

“Going forward, expect borrowing costs to decline and so do not see any pressure on margins,” said Iyer.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow