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Buy M&M Financial


  1. #1
    insight95in is offline eTI Member

    Buy M&M Financial

    M&M Financial
    Price: Rs359
    BUY Target: Rs425 (March’11)

    Flying high

    * Stellar PAT growth of 110% YoY; 20% ahead of expectation: M&M Financial
    Services (MMFS) reported strong earnings growth at Rs933mn in 3Q10 driven by
    robust NII growth (up 22% YoY) and significant improvement in loan loss
    provisioning (down 36% YoY)inspite of increase in coverage ratio.

    * Strong disbursement growth of 74% YoY: Disbursements rose to Rs16.6bn
    due to revival in auto industry as cars (up 110% YoY) and UVs (up 52% YoY) lead
    the higher disbursement growth. However, loan growth was at 11% YoY to
    Rs79bn due to sell-down of loan portfolio. Loans Securitised during 3Q10
    increased by 61% YoY and now constitutes 16% of AUM. We expect 19% CAGR
    growth in loan book during the FY09-12E period.

    * NII grows 11% sequentially; NIM expands; expect higher securitization
    income in 4Q10: NII was up 22% YOY due to expansion in NIM and higher AUM
    growth. NIM improved by 134 bps YoY and 51 bps QoQ due to fall in cost of
    borrowings and higher securitization income which increased 64% YoY. Because
    of strong credit growth in FY09, there will be huge demand for PSL from banks
    (PSL is calculated as % of opening advances) which is expected to drive
    securitization income growth for MMFS.

    * Asset quality improves; LLP down 36% YoY despite an increase in coverage
    ratio: Asset quality improved because of increased focus on recoveries and
    balance sheet growth. Gross NPLs declined by 121 bps YoY to 9.42% in 3Q10
    while net NPLs were at 2.54%. LLP was down by 36% YoY inspite of sequential
    improvement of 375 bps (10.3% YoY) in coverage ratio to 75%. We expect credit
    cost to improve by c.80bps over the FY09-12E period driven by higher loan
    growth, better cash collection on account of improved macro economic
    environment and improved recovery mechanism.

    * Superior performance to continue; maintain BUY with a target price of
    Rs425: We expect 19% CAGR loan book growth, on the back of auto industry
    revival, to translate into 14% CAGR in NII during the FY09-12E period. While we
    are also building in 80bps pressure on margins, however with declining credit
    costs, strong CAR (19.4% with tier I of 16.8% in 3Q10) and well-diversified
    distribution network, we believe external environment is favourable to MMFS for
    superior performance. Consequently, we expect PAT growth of 20% CAGR during

  2. #2
    insight95in is offline eTI Member

    Re: Buy M&M Financial

    Price: Rs 249 Target: Rs 300 (Mar’11)

    Portfolio power: multiple drivers of growth

    * Key insight – growth from diversification ventures continues to outpace
    cigarettes EBIT growth: ITC’s 3QFY10 net sales, EBITDA and net profit grew
    18%, 24% and 27% respectively. While the above-trend 8-9% cigarettes volume
    growth (our workings suggest double-digit growth in premium segment) with
    near all-time high margin of 29.6% and FMCG losses stabilizing at Rs860mn are
    major positives, the key result takeaway for us is that for the second consecutive
    quarter, growth from diversification ventures (non-cigarettes businesses) has
    outpaced cigarettes growth, despite a 16% decline in hotels profits. The result
    should, in our view, help partially settle the debate on whether ITC’s
    diversification is a case for sharp stock derating; we argue not so, given the
    growth-propelling profile of the non-cigarettes portfolio.

    * What we liked most: (a) Cigarettes volume grew in the 8-9% region for second
    quarter running - much ahead of the 5-6% trend. In our view, further uptrading
    from non-filter volumes lost last year could have contributed partly. This trend,
    to us, is a key structural positive. While cigarettes margin continue to be near
    the all-time high of 29-30%, rate of margin expansion (55bps) was not as sharp
    as 2Q (217bps), with large part of FY09 price-hikes already captured in the base
    quarter (3QFY09), (b) 32% lower FMCG losses of Rs860mn (flat QoQ) is, in our
    view, sustainable with further scope for reduction, given that it resulted from
    mix enrichment, logistics-led cost savings, and not mere oil-price led benefits.
    While higher FMCG sales growth (24%) was partly due to low base, value-added
    sales were impressive (snacks foods up 59%, cookies & cream biscuits up c.30%).

    * Other highlights – agri EBIT doubled again: (a) Agri EBIT doubled again on YoY
    basis, buoyed by >100% growth in tobacco exports volume and improved
    realization; margin lower sequentially due to higher share of commodity sales
    (much lower margin vs leaf tobacco) in 3Q, (b) Paperboards EBIT up 81% YoY on
    higher sales growth (low base) and margin benefit from optimum-utilisation of
    2HFY09’s capex, (c) Hotels profits dipped 16% (much below 1H’s -60%) but with
    encouraging sequential improvement in operating metrics: occupancies up c.7-
    8% points and exit-ARR up 20% (though still below last year’s level).

    * ITC remains our top pick: Target price of Rs300 based on PEG of 1.35 (discount
    of 10% vs past average to cognize for new FMCG launch) and 15-16% EPS CAGR
    over FY10-12E. Our EPS estimates for FY10-12E are Rs10.7, Rs12.4 and Rs14.3.


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