M&M Financial Services Uncovers Rs 150 Crore Fraud, Delays Q4 Results
The company will intimate the postponed date of the board meeting in due course, it said.
Mahindra & Mahindra Financial Services Ltd. discovered a fraud related to retail vehicle loans at its Northeast facility at the end of March 2024. The estimated financial impact of this fraud is expected to be under Rs 150 crore, according to an exchange filing.
The fraud involved forgery of KYC documents and resulted in the embezzlement of company funds. Investigations into the matter are currently at an advanced stage, the company said.
"Investigations are underway, and necessary corrective actions have been identified and are at various stages of implementation, including arrest of few persons involved," the company said.
In response to this development, the company said it has postponed its scheduled board meeting where discussions were planned on the company's fourth quarter results, dividend, and borrowing limit adjustments. The Q4 earnings were supposed to be announced on 23 April.
The company will announce the postponed date of the board meeting in due course, it said.
After the announcement of the audited standalone and consolidated financial results, the trading window will continue to remain closed till 48 hours and the earnings conference call has also been deferred, it said.
The company's size-per-branch seems higher, given less than Rs 70 crore in average loans per branch, according to Citi Research. "This is equivalent to 15-20 basis point of loans, 5-6% of pretax profit, and 0.8% of NW," it said.
Moreover, improving asset quality has been encouraging and is being closely monitored, though this incident would spook confidence once again, the research firm said.
"The event will be sentimentally negative for the stock," Citi said. "The earnings announcement too has been deferred, and we believe incremental information pertaining to this incident will be shared in their earnings call."
Citi Research has a 'neutral' rating for the stock with a target price of Rs 315 apiece. The downside risks include weak monsoons impacting rural consumption, more aggressive competition halting market share gains for Mahindra Finance, which are some of the risks to the brokerage's call.
"Upside risks include better than expected margin improvement and credit cost containment," it said.