Valuation and Outlook -
The COVID 19 disruptions along with elevated provisioning levels have seriously impacted the profits of MMFS. PAT rose to Rs. 4,321 mn from Rs. 1,085 mn showing a 298% increase. The value of assets financed fell 69% y-o-y to Rs 34,892 mn from Rs 1,10,959 mn. Gross stage 3 assets stood at 9.19% of the average loan assets, and with a ~40.1% provision coverage the net stage 3 assets were roughly 5.72%.
On account of COVID -19, an additional charge on of Rs. 6,645 million has been provided based on management overlay, this led to a considerable stress on the bottom line in Q1. The standalone assets under management (AUM) rose 14 per cent Rs 81,436 crore as on June 30, 2020, from Rs 71,406 crore in Q1FY20.
Vehicle sales slowdown had grappled the disbursals and the value of assets financed. Management has been confident of the collection efforts picking up, many customers who had previously availed of a moratorium are now paying their dues (~40%).
MMFS’s rural focus, strong promoter support and ability to mobilise funds in the markets easily in the past are key positive rating drivers. Tractor demand has seen green shots which can do well for MMFS. Overheads / Average Assets has come down to 1.8% from 3.3% in the previous fiscal owed to several cost saving efforts by the management.
The rights issue is priced at Rs 50 is at a ~0.26x multiple on Q1FY21 book value of Rs 186.7, which is well priced captures the near term stress adequately.
Hence, we recommend a subscribe to the rights issue.