HSBC initiates overweight rating on Mahindra & Mahindra Financial Services; sets target price of Rs 780

MUMBAI : HSBC initiate Overweight rating on Mahindra & Mahindra Financial Services (MMFS) and set target price of Rs 780 implying potential returns of 26%. The repositioning of Mahindra & Mahindra Financial Services (MMFS) as a de-risked, rural growth story is not yet fully appreciated by the market.

"We expect MMFS to outperform over the next year on less direct agricultural exposure, diversification of funding base, relatively muted impact from regulatory changes and peaking of interest rates.

We have not factored in the benefits of other rural reforms, including direct subsidy distribution using the ongoing Unique Identification number (UID) initiative and land reforms, which could provide further upside" said HSBC note to client.

MMFS trades at 12-month rolling forward PE of 8x and PB of 1.8x. It has seen four distinct valuation phases in its six-year listing history. HSBC believe the current price is discounting increasing regulatory risks and a high rate environment.

However, reasonably high growth and accordingly value the stock based on its current 12-month rolling multiples of 8x PE and 1.8x PB on FY14 estimates.