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Better than expected improvement in asset quality (GNPAs: ~5.9%) and provision reversals (~Rs 1.15bn) drove PAT (+95/88%). Maintain BUY with a TP of Rs 504 (2.75x Mar-21E ABV of Rs 177 + Rs 18 for MIBL)
HIGHLIGHTS OF THE QUARTER
* Asset quality improved sharply, a 4Q phenomenon, exceeding expectations. G/NNPAs dipped ~20/11% QoQ to ~Rs 40.6/32.8bn (~5.9/4.8%). A relentless and sustained focus on collections resulted in a ~20% YoY drop in GNPAs. While susceptibility to rural stress (elections, poor monsoon etc.) remains, MMFS is better equipped than before. We have factored in GNPAs of ~6% over FY 19-21E.
* LLP reversals were ~Rs 1.15bn as recoveries improved. A rural-focused business model results in volatile recoveries. We expect quarterly ECL provisions to follow suit. Low coverage causes us to increase our LLP assumptions (~1.4% vs. 1.1% in FY19).
* While AUMs grew ~22/6% YoY/QoQ to ~Rs 671bn disbursals dipped ~12% QoQ (after a 22% jump in 3Q). CV/CE (+56/13%) and Tractors (+22/6%) grew the fastest (AUM wise). Disbursals dipped across segments QoQ. In spite of tie-ups with numerous OEMs and diversification, we have reduced our AUM CAGR from ~18 to 15% due to headwinds faced by the auto sector. Calc. NIMs were stable at ~7.8%. While growth in yields outpaced CoF, the negative carry on excess liquidity weighed down on NIMs. The pass-through of higher CoF is admirable. We have factored in margins of 8.15% over FY19-21E.
* Near Term Outlook: Healthy growth and asset quality improvement should keep the stock buoyant.
A sustained and relentless focus on collections translated into sustained asset quality improvement. Vulnerability to rural stress persists, although reducing. The impact of upcoming elections and monsoon are key monitorables. In spite of continued mkt share gains and subdued competition from smaller NBFCs, we expect lackluster auto growth to impact MMFS.
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