Mahindra Finance shares fell as much as 10% to an intraday low of Rs 368 on the BSE on Thursday, October 22, despite reported second-quarter earnings growth. Nomura retained its Buy rating but lowered its price target, highlighting tractor-loan asset quality and rising funding costs, while Motilal Oswal also maintained a Buy recommendation.
Key Takeaways
- Nomura cut its target price to Rs 400 from Rs 415 and reduced FY27–FY29 net profit estimates by 1–9%.
- Quarterly disbursements rose 22% to Rs 16,499 crore, supported by SME and mortgage lending.
- Motilal Oswal retained a Rs 375 target, citing healthy lending growth and contained credit costs.
Table of Contents
- Mahindra Finance shares slide as Nomura trims estimates
- Lending growth broadens beyond vehicle finance
- Motilal Oswal maintains its growth outlook
- Insurance proposals add an unquantified risk
Mahindra Finance shares slide as Nomura trims estimates
The post-results decline came alongside a more cautious assessment from Nomura. The brokerage expects annualised credit costs to reach 1.8% in the third and fourth quarters of FY27, compared with 1.7% in the first half, and flagged asset-quality risks in tractor financing.
Management said tractor-loan performance is best assessed at the end of the sowing season, when repayments fall due. Nomura also incorporated a 70-basis-point increase in funding costs over the next five quarters into its estimates.
Management expects its cost of funds to keep rising.
Lending growth broadens beyond vehicle finance
Revenue from operations increased 15% to Rs 5,164 crore in Q2 FY27, while net interest income rose 17% to Rs 2,822 crore. Consolidated total assets expanded 21% to Rs 1.80 lakh crore.
Managing director and chief executive Raul Rebello said disbursement growth was led by SME and mortgage lending. Non-vehicle lending now accounts for 20% of consolidated lending assets under management, with vehicle-related business making up the remaining 80%.
Quarterly credit costs fell to 1.6% of average total assets from 2.2% a year earlier. The company is targeting a return on assets of 2.2%–2.5% by FY31, against 2.2% in the September quarter.
Motilal Oswal maintains its growth outlook
Motilal Oswal described the quarter as steady, supported by disbursement and assets-under-management growth. It said asset quality improved in the first half of FY27 and credit costs remained contained despite weak monsoons, El Niño concerns and elevated crude oil prices.
The brokerage noted that higher liquidity buffers and seasonal trade advances weighed on net interest margin, although management expects margins to improve next quarter.
Its forecasts call for compound annual growth of around 14% in assets under management and 18% in profit after tax over FY26–FY28. For FY28, it estimates return on assets of 2.2% and return on equity of 13.5%.
Insurance proposals add an unquantified risk
Nomura also highlighted proposed insurance-distribution reforms. Insurance income represented 35 basis points of average assets in FY26, and the company operates an insurance-broking subsidiary.
Management has not quantified the potential effect of those proposed changes. Rebello separately said the liquidity buffer was at an all-time high and might not be increased further, even if it remained unused.
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