M&M Financial Services experienced a significant drop in its stock price on October 4, plummeting by 7% as the company struggled with weak growth and deteriorating asset quality. This decline has drawn the attention of many involved in share market investment, particularly those tracking the financial sector.
As one of India's notable non-bank finance companies, M&M Financial's performance is crucial for investors strategising their share market investment portfolios.
Disappointing growth and stock selloff
The decline in M&M Financial's stock was triggered by weak disbursement growth during the first half of FY25, which has made it difficult for the company to meet its previously stated growth targets. Nomura, a prominent brokerage firm, has expressed concerns about the company's ability to achieve low-teen growth for the full year, highlighting potential challenges for those involved in share market investment in this stock.
At 10:02 am on October 4, M&M Financial shares were trading at ₹313.35 on the NSE, reflecting a sharp 7% decline. Heavy trading volumes added to the selloff, with 40 lakh shares changing hands, well above the one-month daily average of 37 lakh shares. This significant drop has heightened concerns among share market investment participants, who may have been bullish on the stock's future performance.
Disbursement growth challenges
M&M Financial's disbursement growth has been sluggish, with disbursements falling 1% year-on-year to ₹13,160 crore in the July-September period. For the first half of FY25, the non-banking financial company's disbursement growth was only 2% year-on-year, which raises concerns for those eyeing the stock for share market investment.
In the last quarter, M&M Financial's management had provided soft guidance, targeting low-teen growth in disbursements for FY25. However, according to Nomura, achieving even an 11% year-on-year disbursement growth for FY25 would require a significant 19% increase in the second half of the fiscal year. This ambitious target adds uncertainty to the company's near-term outlook, creating potential risks for investors interested in share market investment.
Asset quality concerns
Asset quality issues further compounded the challenges for M&M Financial, as its gross non-performing assets (NPAs) ratio rose to 3.8% in Q2, up from 3.56% in the previous quarter. This deterioration in asset quality is another key factor affecting the company's stock performance and is something that investors should consider when planning their share market investment strategies.
The rise in NPAs signals that the company may face ongoing profitability challenges, which could make it less appealing for share market investment in the short term. As profitability remains a core metric for investors, this decline in asset quality puts additional pressure on M&M Financial's ability to deliver strong returns.
Profitability concerns
Profitability remains a major concern for M&M Financial. The brokerage noted that the company has delivered underwhelming returns on equity (RoE) over the past several years. Over the last 5 and 10 years, M&M Financial has recorded RoEs of just 8% and 10%, respectively, which are the lowest among its peers. Even in FY24, the company's average RoE stood at just 10%.
For those engaged in share market investment, RoE is a critical measure of a company's ability to generate returns on shareholders' equity. M&M Financial's consistently low RoE suggests structural challenges in its business model, which may deter long-term share market investment in the stock.
Conclusion
M&M Financial's recent stock performance highlights the importance of assessing growth potential, asset quality, and profitability when making share market investment decisions. The company's 7% stock drop, driven by weak disbursement growth and rising non-performing assets, raises concerns for investors looking to invest in the financial sector.
For those actively engaged in share market investment, it's essential to stay informed about key developments in stocks like M&M Financial. As the company navigates through these challenges, investors should remain cautious and consider the broader market environment before making any long-term investment commitments.
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