Brokerages lower target prices as Q4 earnings disappoint Wall Street, causing M&M Finance shares to decline 3%

Brokerages lower target prices as Q4 earnings disappoint Wall Street, causing M&M Finance shares to decline 3%

M&M Finance postponed the release of its Q4 results till April 25, 2024, last month, after the discovery of a Rs 150-crore scam at one of its North East locations.

On May 7, shares of Mahindra and Mahindra Financial Services (M&M Finance) fell more than 3% to Rs 251 a share after the non-bank lender let Wall Street down with its subpar Q4FY24 results. Brokerages were forced to lower their target prices on the counter and cut their forecast for FY25 as a result.

Citi reduced its target price for M&M Finance from Rs 315 to Rs 290 per share and issued a "neutral" rating. Analysts said that Q4 performance was negatively impacted by aggressive write-offs of Rs 600 crore and a Rs 136 crore provision for Mizoram branch fraud.

Nomura also disclosed a "reduce" rating, with a target price of Rs 240 per share, for M&M Finance. "After a challenging quarter, we think the near-term picture is dismal. We have lowered M&M Finance's FY25 projection by all measures," the company said in a post-result review letter.

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In Q4FY24, M&M Finance's net profit decreased 9.5% YoY to Rs 619 crore, although its net interest income increased 21% YoY to Rs 3,706 crore. Loan growth and disbursements both continued to expand strongly, rising by 11% and 24% YoY in the quarter that ended in March, respectively.

In the future, Jefferies analysts anticipate that margins will be rangebound in FY25 and loan growth would slow to 18% YoY. They also said that write-offs are expected to stay high, limiting any increase in return on asset (RoA), issuing a "hold" call, and lowering the target price to Rs 294 per share.

M&M Finance said last month that it will postpone its Q4 results release until April 25, 2024, after the discovery of a Rs 150-crore scam at one of its North East locations. The theft of KYC papers, which resulted in the misappropriation of business cash, was the fraud pertaining to retail car loans that the firm provided.

According to the firm, the scam is not expected to have a financial effect more than Rs 150 crore. "Investigations are underway, and the essential corrective actions have been identified as well as are at various stages of implementation, possibly arrest of few persons involved," they stated in an exchange filing.

In the last month, M&M Finance's stock has plummeted roughly 14%, outperforming the benchmark Nifty 50 index's 0.3 percent decrease.