Add Mahindra Finance Ltd For Target Rs 340 By Emkay Global Financial Services Ltd
We upgrade MMFS to ADD from Reduce while elevating Mar-27E TP by 21.4% to Rs340 (from Rs280), implying FY28E standalone P/B of 1.5x. MMFS’s Q4FY26 performance was exemplary – PAT came in ahead of consensus’ estimates despite creation of Rs2.17bn management overlay to prepare for any challenges from a subpar monsoon. With GS2+GS3 hitting an 8Y-low of 8.2%, management overlay of Rs2.17bn, and tier 1 capital of 16.7%, the company is well positioned to withstand any upcoming challenges that might arise due to the external environment. On the profitability front, the company continues to see gradual progress, with NIM+Fee showing improvement and credit cost contained. Following the sharp 27% correction in the share price in CY26, valuations (FY28E standalone P/B of 1.3x) have become undemanding and the risk-reward has turned favorable and superior on the back of improving profitability and better balance-sheet strength
Healthy core performance despite conservative overlay
Overall, MMFS’s Q4FY26 numbers were much ahead of expectations, with PAT growing ~55% YoY to Rs8.73bn despite the Rs2.17bn management overlay. The performance was supported by stable asset quality and meaningful improvement in margins. Credit cost for the quarter stood at ~1.5% on assets (including overlay), while underlying credit cost remained significantly lower (~0.9%), indicating strong portfolio health. Margins expanded sharply, with NIM at ~7.5% in Q4 (and ~7.1% for FY26 as a more sustainable run rate), driven by better asset mix, rising fee income, and moderation in CoFs. Asset quality remained robust, with GS3 improving to ~3.4% and GS2+GS3 declining to ~8.2% (an ~8-year low) alongside a strengthened PCR of ~58.6% post-overlay, reinforcing balance-sheet resilience and the conservative provisioning stance.
Guides for mid-teens growth with stable NIM and credit costs
The management outlined a constructive outlook, with a clear pivot toward growth while maintaining discipline on risk and returns. Margins are expected to be stable, with ~7.1% NIM as a sustainable run rate, supported by better asset mix, rising fee income, and improving cost of funds. The mgmt gave guidance for range-bound operating expenses, with near-term investments in MSME, mortgages, and digital expected to be offset by operating leverage as scale builds. On asset quality, GS2+GS3 is expected to be stable, with credit costs guided at ~1.3–1.7% over the cycle. Growth is expected to improve to the mid-teens, led by tractors, used vehicles, PVs, and gradual scaling up of MSME and mortgages. Overall, the mgmt reiterated confidence in sustaining >2% RoA, with steady improvement as growth scales up owing to a stable margin/better risk profile.
Upgrade to ADD on improving risk-reward and fundamentals
Factoring in the strong Q4 performance and management commentary, we make marginal revisions to our FY27–28 estimates (Exhibit 2). Following the sharp ~27% correction in CY26, valuations have turned more reasonable (FY28E P/B: ~1.3x), thus improving the risk-reward. Accordingly, we upgrade the stock to ADD (from Reduce) and raise Mar-27E TP to Ra340 (from Rs280), implying ~1.5x FY28E P/B
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