BackMahindra Finance: untimely rains further dampen sentiments
The non-banking financial company, which reported a 17% drop in profit in Oct-Dec, may see its earnings decline in the current quarter as well
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The commentary from Mahindra and Mahindra Financial Services Ltd remains discouraging.
The non-banking financial company, or NBFC, which reported a 17% drop in profit for the October-December quarter, may see its earnings decline in the current quarter as well.
The management has indicated to analysts that the recent unseasonal rains can further dampen rural sentiments.
At least seven states are estimated to have suffered notable damage to crops because of the hailstorm and heavy rain.
According to Nomura Research, the untimely rains have hit 10-15% crops in the affected states. Around 20% of the company’s branches are in these states, the broking firm said.
Weak rural demand would mean the company is unlikely to see significant improvement in the current quarter.
“After poor performance in Q3, the management is not seeing any improvement in the business environment in Q4," Nirmal Bang Retail Research said. “Generally, Q4 for MMF (Mahindra Finance) is seasonally very good and sees substantially improvement as compared with Q3. But this time, though, there will be improvement in performance in Q4 against Q3, but it will be marginal, and will show substantial decline y-o-y (year-on-year)," the report added.
In the fourth quarter of the last fiscal (2013-14), the company reported a 7% y-o-y drop in profit.
In the year-ago period—the fourth quarter of 2012-13—profit increased 47%.
Nomura estimates profit to drop 18% in the current quarter.
The performance is likely to be weak in the June quarter, too. Apart from seasonality—according to Nirmal Bang, Q1 is usually a weak quarter—sluggish tractor and car sales in the rural areas mean disbursements can remain weak. “Management expects a pick-up in disbursements from 2H FY16F and believes that will translate into higher AUM (assets under management) growth from FY17F only," says Nomura Research.
The subdued commentary has led to earnings cuts. Prabhudas Lilladher Pvt. Ltd cut profit estimates for the current fiscal by 16% and by 5% for next year. As the cost of funds ease, margins are expected to improve. But improvement in disbursements and interest income will be tied to sufficient and timely onset of monsoon rains. “The management expects a major improvement will depend on rainfall and rural economy revival, and will be visible only in H2 FY16," Nirmal Bang added. The concerns are reflecting in the stock, which has been underperforming the broader markets in the past year.
The writer does not hold positions in the company discussed here.
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