M&M Finance Expects Profitable Second Half of FY24 Despite Share Price Drop

Hey folks! So, here’s the scoop. Mahindra & Mahindra Financial Services Ltd. recently experienced a 14% drop in their share prices. Ouch! But don’t worry, they’re still optimistic about the future. Although their second-quarter earnings fell short of expectations, the management believes that the second half of the fiscal year will be profitable and bring in more cash flows. That’s good news, right?

Now, let’s talk numbers. In the quarter ending September, their standalone net profit was Rs 235.2 crore, which is a 48% decrease compared to the previous year. Analysts were expecting a net profit of Rs 483.1 crore. So, it’s not exactly what they hoped for, but hey, it happens.

But wait, this isn’t the first time M&M Financial Services has faced some turbulence. Back in April 2021, their shares took a nosedive of 14.95% due to concerns about the Covid-19 pandemic. Yikes! And just a few months ago, in July, their Q1 profit missed estimates by 37%, causing their shares to drop by 7.3%. It’s been a rollercoaster ride for them, that’s for sure.

But let’s focus on the future, shall we? During an analyst call, the company’s management explained that the decline in profit was due to temporary provisions related to their assets. They also mentioned that they’re being cautious about growth. Ramesh Iyer, the CEO, reassured everyone that the additional provision of Rs 300 crore doesn’t mean there are major issues in the rural economy. Phew!

So, what’s the plan moving forward? Well, the company aims to raise yields in November and December, which should bring in some benefits in the fourth quarter. Historically, the second half of the year has been profitable for them because that’s when most of the cash flows occur. And guess what? They’re expecting a positive cash flow season this time too. Favourable monsoons, good harvests, payments from the infrastructure sector, and increased tourism all contribute to this positive outlook. Sounds promising, doesn’t it?

Oh, and here’s an interesting tidbit. The CEO mentioned that they’re shifting their focus from deep rural financing to affordable housing finance. Why? Well, rural financing can be a bit tricky due to various on-ground conditions. But don’t worry, they’re still confident about their growth rate.

Now, let’s talk about the share prices. On the day of the news, Mahindra Finance’s shares fell by a whopping 14.41% to Rs 237.35 apiece. Ouch again! But hey, it closed 11.58% lower at Rs 245.20 apiece, which is still not great, but not as bad as it could have been. And here’s a fun fact: the stock may be oversold according to the relative strength index. So, maybe it’s not all doom and gloom.

According to Bloomberg data, out of the 40 analysts tracking Mahindra Financial Services, 21 have a ‘buy’ rating on the stock, 13 recommend a ‘hold’, and six suggest a ‘sell’. So, opinions are divided, but the average 12-month analyst price target implies a potential upside of 21.9%. That’s something to keep in mind.

So, there you have it, folks! Despite the drop in share prices, M&M Finance is still hopeful about the future. Let’s see how things unfold in the coming months. Fingers crossed!