Sunday, July 3, 2011

Mahindra and Mahindra Finance

M&M Financial Services

CMP Rs 657

M&M Financial Services is a major beneficiary of the continued buoyancy of the rural economy (aided by continued flow of funds through the government-guaranteed employment programme and investment). This is especially as it can boast a strong parentage and a vast network of branches. Its 2010-11 revenue and net profit rose by 31% and 38%, respectively.

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"Over the 2011-13 period, we forecast a 28% CAGR in loans and 21% CAGR in earnings," says Sampat Kumar. These numbers are slightly lower than the 2010-11 figures, but compare better with those of its peers. Further, new segments like car financing are yielding good results.

While the loan growth for 2010-11 has been broad-based across product segments, the increase in the company's market share in car financing in rural markets is worth noting. The growth should get a boost from commercial vehicle financing, used vehicles financing and rural housing finance.

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The early onset of monsoon (along with predictions of normal rains) should generate enough opportunities for this rural-focused company. "Strong earnings growth and robust profitability remain key investment arguments in favour of M&M Financial Services," says Kumar.

Our Recommendation :

Buy around 600 levels for a target price of 725 in 1 year

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