Buy Mahindra Finance Ltd for the Target 450 by Emkay Global Financial Services Ltd
We upgrade MMFS to BUY from Add while revising up Jun-27E TP by 18.4% to Rs450 from Rs380, implying SA FY28E PBV of 1.9x and ~10% of value from subsidiaries. We saw credible signs of a performance turnaround in 4QFY26 and hence upgraded the stock to Add; 1QFY27 results reinforce our positive view, given MMFS’s impressive performance on asset quality, credit cost, and profitability. With disbursement growth picking up, the likelihood of growth in assets firing up has increased; this profitable growth visibility with reasonable valuations drives us to now upgrade the stock to BUY. With GS2+GS3 at a multiyear low (8.3%), PCR at 58.1%, and a healthy capital position, the balance sheet is well placed to absorb any stress from the external environment. Profitability has been steadily improving, with NIM+Fee moving up and credit cost within a through-cycle band of 1.3-1.7%. With the multi-year transformation now clearly showing growth and ROA moving toward 2.5%, we believe the structurally improved profitability and fortified balance sheet present a compelling risk-reward ratio, supporting our upgrade.
Strong quarter overall MMFS’s overall
1QFY27 numbers show a continual step-up in profitability, with SA PAT up 70% yoy to Rs8.99bn. This was backed by resilient asset quality and meaningful margin expansion. 1QFY27 credit cost (on assets) improved to 1.5%, down from 1.9% in 1QFY26 (1.5% in 4QFY26), signaling strong portfolio health/improved slippage control. Margins expanded sharply, with NIM at 7.3% in 1QFY27, up from 6.7% in 1QFY26 and remaining above the 7.1% full-year guidance. Asset quality was robust, with GS3 (Stage 3) improving to 3.5% and GS2+GS3 declining to 8.3%, with strong PCR on GS3 of 58.1%.
Focus on growth while preserving asset quality
Management offered a constructive outlook, pivoting toward growth while maintaining discipline on risk and return. Growth is expected to improve (16-18% CAGR in medium term), led by tractors, used vehicles, and PVs, with MSME and mortgages picking up pace (~30%). Asset mix should continue diversifying away from wheels which is seen as structurally positive for resilient and more predictable returns. Margins are expected to marginally improve, with ~7.1% NIM (near-term) aided by better asset mix, rising fee income, improving cost of funds. Opex guidance: range-bound (~2.5-2.7%), with nearterm investments in MSME, mortgages, and digital offset by operating leverage as scale builds. On asset quality, GS2+GS3 is expected to be stable (2.2% ROA and seeing it progress toward ~2.5%, with >15% ROE and 5Y loan book CAGR of ~16-18%
Upgrade to BUY, on improving risk-reward and fundamentals
Factoring in the strong 1Q performance and management commentary, we revise our FY27-29 estimates (FY28-29E EPS up ~5-7%; Exhibit 2). With convergence of delivery with aspirations continuing, MMFS stock rerating is also likely to continue. We upgrade MMFS to BUY; raise Jun-27E TP to Rs450, implying SA FY28E PBV of 1.9x and 10% of value from subsidiaries (Rural Housing, Insurance Broking, and Asset Management).
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