M&M Finance: Fraud detection another rerating challenge, will spook confidence, say brokerages

M&M Finance shares, M&M Financial Services share price fraud detection: Brokerages are cautious on Mahindra & Mahindra Financial Services (M&M Finance) after the company detected fraud amounting to Rs 150 crore in one of the company's branches in the North East. The company also had to defer the March quarter result announcement (Q4 FY24) due to this, which was originally scheduled to be released yesterday, April 23, to May 30.

Maintaining a "neutral" stance on the stock with a target price of Rs 300, Jefferies said that though the fraud amount is 15 basis points of the overall loan, the figure appears large for a branch. 

Similarly, Macquarie highlighted that fraud detection is another rerating challenge. It has maintained a "neutral" rating on the stock with a target price of Rs 275. 

Citi has also maintained a "neutral" rating on M&M Finance, with a target of Rs 315. It said that the fraud incident would spook confidence again. 

Further, Morgan Stanley has maintained an "equalweight" rating on the stock with a target price of Rs 310. 

M&M Finance shares ended 5.52 per cent lower at Rs 263.45 apiece on the NSE on Tuesday. 

Deven Mehata, an equity research analyst at Choice Broking, says that M&M Finance is currently navigating a critical juncture, trading at Rs 268 levels with notable price action observed around key support and resistance zones. The stock encountered a significant decline below the crucial 200-day exponential moving average (EMA) at Rs 278 levels, indicating a shift in market dynamics. This breach suggests heightened selling pressure and challenges the stock's bullish momentum.

Moreover, the current price level coincides with a strong support zone near Rs 256, further emphasising its significance in defining the stock's price trajectory. However, the breach of the Rs 278 level now transforms it into a formidable resistance barrier, potentially capping upside movements.

"Given this scenario, investors are advised to exercise caution and closely monitor price movements within the Rs 278–Rs 256 range. This zone may serve as a no-trade area until clearer signals emerge regarding the stock's direction. Those currently holding positions should implement a strict stop-loss strategy, ensuring protection against further downside risks, with a recommended stop-loss set at Rs 256," Mehata added.

Analysts at Centrum Broking, in their report issued on April 23, said that while the investors got comfort from improving the asset quality trajectory at Mahindra Finance, the recent event may pivot investor discussion on the adequacy of provisions to meet any such future contingencies. They said that they expect to get more clarity on the provision coverage in the 4Q investor call.

The brokerage has downgraded the stock to "Sell" with a target price of Rs 249.