Mahindra and Mahindra Financial Services share price up over 12% in November; time to buy the stock?
Mahindra and Mahindra Financial Services share price has been volatile in the last few sessions. However, it is still up about 12 per cent in November so far after witnessing a strong selloff of nearly 19 per cent in October.
As of the November 21 close, the stock is up 17 per cent this year against an 8 per cent gain in the equity benchmark Sensex.
The stock’s poor show in October could be attributed to the company’s subdued Q2 earnings.
The company reported a 48 per cent drop in its standalone net profit to ₹235 crore in Q2FY24, led by provision reversals. In comparison, during the same period last year, the company reported a PAT of ₹448 crore, and in the preceding June quarter (Q1FY24), the PAT stood at ₹362 crore.
The company’s net interest income reached ₹1,674 crore, marking a 9 per cent YoY growth in Q2FY24, while it reported a PPoP (pre-provision operating profit) of ₹942.8 crore, reflecting a 9.2 per cent YoY rise. During the quarter, yields moderated at 35 basis points QoQ, while CoF jumped 10 basis points, leading to a NIM contraction of 45 basis points QoQ.
We collated the views of several experts and brokerage firms to understand what investors should do with the stock. Here’s what they said:
Fundamental views
Nirmal Bang Institutional Equities
Nirmal Bang has an ‘accumulate’ call on the stock with a target price of ₹300 after it hosted the management of Mahindra and Mahindra Financial Services at its Annual Investor Conference.
“Maintain ‘accumulate’ on Mahindra Finance and value the standalone business at ₹283 (1.7 times Sep 2025 ABV) and subsidiaries at ₹17, post 25 per cent holding company discount, to arrive at our target price of ₹300,” Nirmal Bang said.
Nirmal Bang pointed out the following key takeaways from the meeting:
(1) While the festive season demand was decent, Mahindra and Mahindra Financial Services highlighted that it was lower than expected, resulting in a high inventory buildup at dealerships. It expects incremental growth to be driven by the used vehicle and LAP portfolio.
(2) While the cost of funds is likely to move up due to the new norms, Nirmal Bang expects net interest margins (NIMs) to see a boost in subsequent quarters as the company hikes rates and increases the share of pre-owned vehicles in its portfolio.
(3) Credit costs of 1.5-1.7 per cent seem likely for FY24 if current asset quality is maintained. Collection efficiency trends look healthy, despite a slowdown in the tractor portfolio.
Jignesh Shial, Director – Research; Head of BFSI Sector at InCred Capital
InCred Capital has an ‘add’ rating on the stock with a target price of ₹370 on 2.1 times FY25 BV.
“We do acknowledge that the margin miss during Q2 was a negative surprise, however, we assume this to be cyclical and we remain optimistic about a gradual improvement in margins (from Q4FY24F) backed by repricing of yields as well as a consistent surge in better yield products,” said Shial.
The company is neither facing any specific asset quality issue nor witnessing a slowdown in growth. The current margin issue is more of an industry-led concern and would be sorted over a period.
“Our ground checks reiterate improving underwriting practices of the company (which used to be a key concern) along with stringent collection processes which will provide much-needed stability to earnings,” Shial said.
“Our channel checks indicate various changes undertaken by the management in operational processes and policies of the company adhering to a balanced authority-responsibility mechanism for ground-level employees with optimum operating leverage. This has enhanced our confidence in the company and its ability to deliver on expected lines,” said Shial.
Technical views
Pravesh Gour, Senior Technical Analyst at Swastika Investmart
Mahindra and Mahindra Financial Services stock witnessed a breakout of an inverse head-and-shoulders formation on the monthly chart. After that, it gave a massive rally to ₹346 and made an all-time high. It has retested its previous neckline breakout levels at around ₹235 and started a new leg of rally towards ₹300.
On the higher side, 200-DMA will act as a psychological resistance level at around ₹280; above this, we can expect a big move to over ₹314 in the shorter time frame. On the downside, ₹260 is the immediate support, whereas ₹235 will be the next important support during any correction, said the analyst.
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Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers
Patel observed that after registering the low of approximately ₹235, this counter gave a technical rebound and placed near the ₹275 mark. At the current juncture, it is hovering above 200 DEMA, but on the indicator front, the daily DMIs are tangled, which hints towards sideways movement.
“If already bought, book some partial profit between ₹273-278 and wait and watch. As we advance, ₹280 will be a stiff resistance, and support is expected near ₹270. On the flip side, if it closes above ₹280 on a daily basis, then one can add fresh longs for a target of ₹310,” said Patel.
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Disclaimer: We advise investors to check with certified experts before making any investment decisions.
