Mahindra Group's NBFC Stock Slumps Despite Healthy Growth Metrics: Why Analysts Are Reducing Targets

Mahindra & Mahindra Financial Services shares were trading lower after the NBFC subsidiary of the Mahindra Group reported a net profit of ₹619 crore for the March quarter, marking a 9.5% decline from ₹684 crore in the same period last year.

What Happened: Despite the decline in profit, the non-bank lender saw a significant rise in its net interest income, which increased by 21% year-on-year to ₹3,706.10 crore.

The company experienced robust loan growth with total assets growing 24% year-on-year to ₹1.02 lakh crore. Disbursements for the quarter also rose by 11% to ₹15,292 crore. In April, Mahindra & Mahindra Financial Services disclosed that overall disbursements reached about ₹3,930 crore, a 4% increase from the previous year. However, its collection efficiency dropped to 89% from 92% year-on-year.

The scheduled reporting of the company's results was delayed due to a fraud discovered at one of its branches in the Northeast, which impacted the profits for the quarter and the fiscal year ending March 31, 2024.

See also: Why Godrej Consumer Shares Hit All-Time High Even After Reporting ₹1,893 Cr Loss In Q4

Analyst reactions: Brokerage firm Citi maintained a ‘neutral’ stance on Mahindra & Mahindra Financial Services but reduced its target price to ₹290 per share from ₹315, citing the quarter’s aggressive write-offs of ₹600 crore and a fraud provision of ₹136 crore at the Mizoram branch. Despite these setbacks, the firm noted an unexpected increase in net interest margins by 30 basis points quarter-over-quarter to 7.1%, supported by strong fee income and controlled operational expense growth.

Nomura gave a ‘reduce’ call with a target price of ₹240 per share, pointing to a challenging quarter and a weak near-term outlook.

Meanwhile, Jefferies held its rating but reduced its target price to ₹294 per share, acknowledging the impact of the ₹140 crore fraud on quarterly profits, while stating the fraud was an isolated event and adjusting its FY25 return on assets aspiration to 2.2%.

Price Action: Shares of Mahindra & Mahindra Financial Services were down 1.69% to trade at ₹255.50 on Tuesday.

Read next: Railway Stock Soars 6% As Brokerage Initiates Coverage, Sees 24% Upside Ahead

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