Broker’s call: M&M Financial (Buy)

Mahindra & Mahindra Financial Services (MMFS) has made significant strides in its digital transformation journey. Over three years, the company has successfully embedded its 'Udaan' programme across lending, servicing, and collections, transitioning from a low-tech, high-touch model to a high-tech, high-touch one. This shift has resulted in tangible operational benefits, including expanded market share at dealer counters, an enhanced cross-sell ratio, and a reduction in turnaround time to 1-2 days from the previous 8-10 days.

The company's proprietary scorecard model, built on over three decades of historical data, is expected to stabilise overall credit cost within 1.3-1.7 percent in FY27, despite temporary headwinds from the ongoing geopolitical situation. This demonstrates MMFS's structural resilience in the face of adversity.

In addition to process enhancements in onboarding, underwriting, and collection, MMFS has strategically focused on capitalising on its extensive customer base of over 12 million clients. The company believes that the ongoing digital optimisation will continue to improve return ratios in the future.

However, MMFS does face key risks, including the cyclical nature of vehicle finance impacting AUM growth and spreads remaining at lower-than-guided levels. The brokerage maintains a Buy rating with an unchanged target price of ₹415, based on a 2x September 27 earnings per share.