M&M Financial Services – Dismal Show In June Quarter

M&M Financial Services announced its June 2014 quarter results and the results are below the street estimates. The total income on consolidated basis stood at Rs 1384 crore as against Rs 1171 crore posted in June 2013. This results into a topline growth of 18%. However with pressure on margins in a higher interest rates scenario, the bottomline for the June 2014 quarter declined to Rs 170 crore as against Rs 203 crore posted in corresponding period last year. According to analyst consensus, the fall in bottomline was anyway expected, however the consensus was around Rs 190-195 crore. 

We are of the opinion that the company, despite its presence in the Tier II and Tier III cities has not managed to put in any impressive performance. On this front the management has stated that the first quarter results were impacted by lower collection efficiency in April and May due to reduced number of effective working days. Apart from that the company also witnessed some negative impact on account of announcement from IMD about deficient monsoon. However the management has stated that, the outlook for the year got a small boost with the month of July witnessing an improvement over the previous month. 

The total assets under management (AUM) increased to Rs 34271 crore as on June 30, 2014 as compared to Rs 29539 crore as on June 2013. This was a growth of about 16% in one year.  

On the asset quality front, analysts were uncertain of asset quality sustaining (in Q4FY14 that recovered sequentially), expecting April-September period of FY15 to be tough especially due to elections which may impact cash recoveries and weak monsoon. Hence, analysts had expected a sequential pick up in gross non-performing loans to over 5% in Q1FY15 as against 4.6% in Q4FY14 and 4.2% Q1FY14. Though the figures are not yet out in public domain, we expect that asset quality has declined in the first quarter. Over all the company has put in a dismal show for the June 2014 quarter.