Q3FY24 Review: M&M Financial Services: Beat on numbers; Growth decelerating with subdued sustainable profitability

31 Jan 2024 , 10:27 AM

M&M Financial Services (MMFS) reported in-line PPOP with Net Interest Income (NII) beat offset by higher opex. But Net profit beat IIFL estimates on lower credit costs. While Stage 3 declined 30 basis points, total stress pool increased 20 basis points sequentially to 11.5% as RBI GNPA increased by 25 basis points sequentially. 

MMFS’s growth is decelerating and is expected to remain subdued as: 1) VF growth moderates off a high base, and 2) planned scale up of its non-VF book is constrained (5% versus 15% target) due its margin dilutive nature. Further, MMFS’s cost of funds are likely to rise further with incremental COF being 20 basis points higher than back book and is unlikely to moderate in FY25 despite building 25 basis points rate cuts with repricing likely to happen at ~70 basis points higher rates. 

Valuations have moderated by 10% over last five months to 1.6x 1YF, analysts at IIFL Capital Services are factoring in 2.2%/14.5% ROAs/ROEs by FY26.