Whalesbook
Strong Financial Performance
Mahindra Finance reported a 39% rise in core earnings, beating expectations. This growth was driven by a 12% increase in Assets Under Management (AUM) and 11% higher disbursements. Net interest margins (NIMs) improved by 70 basis points to 7.3%, helped by better funding costs. Fee income also rose 44%, showing a focus on adding revenue from distribution and insurance partnerships.
Navigating Macroeconomic Headwinds
Higher provisions, up 23%, meant earnings growth slightly missed estimates. Analysts warn that the West Asia geopolitical situation, potentially causing fuel shortages and price increases, along with poor monsoons, could create challenges in fiscal year 2027. However, management expects mid-teen growth if the economy stays stable, showing cautious optimism. The company expanded its loan book by 12% in FY26, with significant growth in passenger vehicles (up 15% in Q4) and pre-owned vehicles (up 17% in Q4), plus strong tractor sales.
Valuation and Outlook
Brokers have updated their estimates, factoring in slightly higher loan growth, better margins, and an expectation of normalized provisions. This has led to earnings forecasts being raised by 4% to 12.5%. Despite ongoing macro worries, Mahindra Finance is viewed as stronger than in past cycles. Its valuation, at 1.4 times book value and 10.4 times projected FY28 earnings, is considered attractive. This led to the rating upgrade to 'Buy' and a price target increase to ₹350 from ₹340.