COVID-19 impact: Have requested RBI that moratorium sought by consumers should be given, says M&M Fin Services

Update on the Indian Equity Market:

On Thursday, NIFTY continued gains for the 3^rd day and ended at 8,641 (+3.9%). Among the sectoral indices, Pvt Bank gained the most while no sector index ended negatively. Pvt bank (+8.3%), Realty (+7.3%) and BANK (+6.4%) were the top gainers. Out of the NIFTY50 stocks, IndusInd bank (+46.0%), L&T (+10.0%) and Bajaj Finance (+9.3%) rallied the most, while GAIL (-3.3%), HCL Tech (-2.6%) and Sun Pharma (-2.5%) were the worst performers for the day.

Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman & Managing Director of Mahindra & Mahindra Financial Services Ltd; dated 25^th March 2020. The interview aired on CNBC-TV18.

• Original equipment manufacturers (OEMs) have shut down production due to COVID-19, which obviously have an impact on vehicle financiers.
• For OEMs at the beginning of 4Q FY20, the volumes started to shrink because everybody was preparing for BS-VI transition and therefore the inventory levels started to come down. Now with the COVID-19 scare – even the little possible sales that were likely to happen have come to an end, according to him.
• He added the month of January-February was average; March has been absolute no-number kind of a month, so he thinks that it would be a low single-digit growth in loan book or for some it may not even be that.
• The Company has told the RBI about consumers asking them for a moratorium and has requested RBI to provide the same.
• They have also told RBI that these are the times where maybe the non-performing assets (NPAs) norms itself will have to be rewritten to say it is not 90-days delinquent but 180-days kind of a delinquent and it is more to protect the good customers who have been paying so far.
• There is uncertainty about tomorrow. So people had started becoming cautious but even more important is that the overall activities have started to reduce and therefore people’s earnings will start to reduce but these are times where instead of worrying about what is going to happen to the growth and things like that – the Company will be looking at ‘how do they help out the consumers’.
• The current situation is still not as impactful in the rural market as seen in urban according to him. People will have to figure out after things get normal. They will start relooking at what else to do, how else to do. So the real impact will be known only three months down the line.
• If consumers need some kind of temporary short-term loan after things get to some normal then the Company will look at what could be that short-term small-ticket loans to the existing consumers whom they may want to support and partner them to come out of this situation as things start to improve.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of M&M Financial Services Ltd was Rs 169/- as of 26-March-2020. It traded at 0.9x / 0.8x/ 0.7x the consensus book value estimate of Rs 190/ 211/ 238 for FY20E/ FY21E/ FY22E respectively.
• The consensus target price of Rs 394/- implies a PB multiple of 1.7x on the FY22E book value of Rs 238/-