Mahindra & Mahindra Financial Services posts better than expected performance

Mahindra and Mahindra Financial Services (M&MFS) reported a better expected performance in the quarter ended March with a net profit growth of 40% year-on-year adjusted for one-off gains. This was driven by strong customer assets growth and margin expansion due to capital infusion.

The assets under management ( AUM) showed a strong growth of 35% driven primarily by financing for M&M vehicles. This is due to its diversified product strategy, rural penetration and new manufacturer tie-ups.

During the quarter it also sold stake in one of its subsidiaries - Mahindra Insurance Brokers which resulted in a one-off extraordinary gain of Rs 64.3 crore which was used to augment provisions.

On the asset quality front too, the NBFC (Non-Banking Financial Institution) showed improvement with gross non-performing loans declining by 110 basis points. Though it has low exposure in the troubled medium and heavy commercial vehicles, the additional provisioning will cushion it in case of asset quality deterioration.

Its margins improved substantially compared to the previous quarter due to a capital infusion of Rs 870 crore and lower cost of funds. With 100% of its lending at fixed rate, the margins are likely to improve in FY14 as interest rates decline.

With better than industry growth backed by its lending portfolio, resilient rural economy improving margins and stable asset quality, the stock is poised for a run-up.