Mahindra & Mahindra Financial Services (M&M Finance) experienced a notable drop in its stock price, declining by 8% on Wednesday. The shares hit an intraday low of ₹259.35 on the Bombay Stock Exchange (BSE) after the company disclosed lacklustre financial results for the second quarter of FY25. This sharp decline highlights the challenges facing investors in the current share market investment climate.
Market response to Q2 performance
Around 10:15 AM, M&M Finance's stock was down by 4.01%, trading at ₹270.25. In contrast, the BSE Sensex showed resilience, up by 0.21% at 80,391.42 points. As of this time, M&M Finance's market capitalisation stood at approximately ₹33,384.02 crore.
This stark contrast in performance raises concerns about the company's standing in the broader share market investment landscape.
Financial highlights of Q2 FY25
For the second quarter, M&M Finance reported a net profit of ₹369 crore, reflecting a significant year-on-year increase of 57% compared to ₹235 crore in the same period last year. Furthermore, the company's total income surged by 19%, reaching ₹1,991 crore.
Additionally, net interest income (NII) for the non-banking financial company (NBFC) also climbed by 19% year-on-year, amounting to ₹1,963 crore, up from ₹1,646 crore. Despite these positive figures, the stability of the NII margin remained unchanged at 6.5%, while the cost of funds edged up slightly from 6.4% in the previous year to 6.5%.
Challenges in disbursements and asset quality
Despite the increase in profits, M&M Finance faced challenges with disbursements, which fell by 1% year-on-year to ₹13,162 crore, down from ₹13,315 crore. This decline indicates slowing growth in critical sectors such as passenger and commercial vehicles, crucial segments for share market investment.
Moreover, the company's asset quality showed signs of strain, with gross non-performing assets (GNPA) increasing to 3.83% as of September 30, 2024, up from 3.56% in June 2024. Net non-performing assets (NPA) also rose to 1.59%, compared to 1.46% previously.
Analyst insights and future predictions
In light of these results, analysts have maintained a cautious yet optimistic view of M&M Finance. Many top brokerage firms in India continue to support the stock, indicating that the valuations are not overly stretched.
While some analysts have revised their earnings estimates downward, they still project positive long-term growth. The consensus target price for M&M Finance remains around ₹320 to ₹330 per share, suggesting a potential for recovery in the near term.
Share market investment considerations
For investors contemplating share market investment in M&M Finance, it's essential to weigh the company's current financial health against its future growth prospects. The recent decline in stock price could be seen as an opportunity for investors looking for potential recovery.
However, the increase in non-performing assets and slowing disbursements raises questions about the company's near-term performance.
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