After falling over 60 percent in the first five months of 2020, this NBFC stock recovered over 80 percent just in the last month. M&M Financial Services fell as much as 83 percent in 2020 to its 52-week low of Rs 125.40 per share on May 22 but since then the stock has been on an upward march, rising as much as 83 percent to Rs 230 currently.
However, overall in 2020, the stock is down nearly 30 percent but up 31 percent in just the last month.
So what led to the sudden surge?
The first reason is strong earnings in the June quarter, which was the most hit quarter by COVID-19. In the first quarter, the company posted a 300 percent rise in the net profit to Rs 432 crore as against Rs 108 crore during the corresponding quarter last year.
The total consolidated revenue of the firm also increased by 8 percent to Rs 3,069 crore as compared to Rs 2,838 crore in the same quarter last fiscal. Meanwhile, standalone assets under management (AUM) as on June 30, 2020, rose 14 percent to Rs 81,436 crore as against Rs 71,406 crore.
Secondly, the sentiment was also lifted after the board of directors of the company approved the conditions of an earlier-approved rights issue.
On June 1, the board had approved fundraising through a rights issue of its equity shares of the face value of Rs 2 each for an amount not exceeding Rs 3,500 crore.
Further, on July 18, the board approved the rights issue instrument for a total of 61.77 crore fully paid-up equity shares of the face value of Rs 2 each, for an aggregate amount not exceeding Rs 3,089 crore.
The issue is fixed at Rs 50 per fully paid-up equity share, including a premium of Rs 48 per fully paid-up equity share, the company said in a regulatory filing. The issue will open on July 28, 2020, and close on August 11, 2020.
However, brokerages do not seem very keen on the stock. As per Prabhudas Lilladher, PAT was cushioned by partial stake sale gains from AMC business, operating leverage driven by one-offs and marginally better than expected NII.
It added that while management cites confidence in tractor, pre-owned and small vehicle financing, certain critical products, critical rural housing business and customer segments (59 percent under moratorium) should further weigh down on asset quality and earnings over FY21-22.
Motilal Oswal also noted that on the asset quality front, the true picture would be known only after the moratorium. However, the fact that the company is buffering up with a Rs 3,100 crore capital raise is comforting, it added.
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