Geojit Investments has reiterated its “Accumulate” rating on Mahindra & Mahindra Financial Services Ltd. (MMFS), maintaining a 12-month target price of Rs. 368, implying an upside potential of nearly 15% from the current market price of Rs. 320. The brokerage believes the NBFC is entering a stronger growth phase backed by robust rural demand, improving asset quality, healthier margins and accelerating traction in newer lending verticals such as MSME financing and leasing. Mahindra Finance delivered a sharp improvement in profitability during Q4FY26, supported by expanding net interest margins, better collection efficiency and a strengthening retail-focused loan franchise. The company also continues to deepen its presence across rural and semi-urban India, where vehicle financing and secured lending remain core growth drivers.

Geojit Reaffirms ‘Accumulate’ Call Amid Improving Fundamentals

Mahindra Finance delivered a strong operational performance in the fourth quarter of FY26, reinforcing confidence in its medium-term growth trajectory. The company reported disbursements of Rs. 17,184 crore during the quarter, reflecting a 10.7% year-on-year increase. Growth was largely fuelled by strong demand in tractor financing, passenger vehicle loans, used vehicle financing and MSME lending activities.

The company’s total assets under management (AUM) climbed to Rs. 1,34,096 crore as of Q4FY26, registering a healthy 12.1% annual increase from Rs. 1,19,673 crore recorded a year earlier. Analysts noted that the company is successfully balancing growth with portfolio quality improvement, a key factor that has historically differentiated stronger NBFC franchises from cyclical lenders.

Geojit believes Mahindra Finance is gradually transitioning from a traditional rural vehicle financier into a more diversified retail financial platform with multiple earnings engines.

Margin Expansion Becomes Key Earnings Catalyst

One of the biggest highlights during the quarter was the sharp improvement in net interest margins. Reported NIM expanded nearly 100 basis points year-on-year to 7.5% in Q4FY26. The improvement was attributed to better portfolio mix, higher focus on tractors and used vehicles, along with reduced borrowing costs aided by treasury management initiatives.

The brokerage, however, clarified that management does not view the 7.5% NIM as a sustainable long-term level. Instead, the company expects normalized margins of roughly 7.1% over the coming quarters, although limited upside cannot be ruled out.

Improved margins significantly boosted earnings performance. Net interest income surged 26.9% year-on-year to Rs. 2,729 crore during the quarter, while profit after tax jumped 55% to Rs. 873 crore.

Asset Quality Continues To Strengthen

Mahindra Finance also witnessed meaningful improvement in asset quality metrics, which remains a critical parameter for NBFC investors. Gross Stage 3 assets declined to 3.41%, improving 39 basis points sequentially and 28 basis points year-on-year.

The company attributed the improvement to stronger collections, tighter underwriting standards and better slippage control mechanisms.

Additionally, combined GS2 plus GS3 assets improved substantially to 8.18%, falling 103 basis points quarter-on-quarter. Management stated that the overall rural financing environment remains stable despite concerns surrounding monsoon variability and macroeconomic uncertainties.

The company maintained its credit cost guidance in the range of 1.3% to 1.7%. FY26 credit costs stood at 1.7%, including a macro-prudential overlay worth Rs. 217 crore. Excluding this overlay, credit costs would have been closer to 1.6%.

Management indicated that these overlays may be released gradually if geopolitical, macroeconomic and weather-related risks fail to materialize over the coming quarters.

Tractor Financing Emerges As Growth Leader

Segment-wise growth trends reflected strong momentum in agricultural-linked financing businesses. Tractor financing disbursements surged an impressive 63% year-on-year, emerging as the strongest-performing vertical during the quarter.

Passenger vehicle financing rose 15%, while used vehicle financing and SME lending expanded 17% and 6%, respectively.

However, weakness persisted in certain cyclical segments. Disbursements in three-wheelers declined 25% year-on-year, while commercial vehicles and construction equipment financing dropped 16%.

Analysts believe the company’s growing exposure toward relatively resilient rural and agricultural financing segments could help stabilize earnings across economic cycles.

Balance Sheet Strengthening Supports Long-Term Expansion

Mahindra Finance’s capital position remains comfortable, providing ample room for future balance-sheet expansion. The company’s capital adequacy ratio improved to 18.8% in FY26 compared with 18.3% in FY25.

Tier-I capital stood at 16.7%, reflecting a healthy capital cushion for future lending growth.

Geojit highlighted that Mahindra Finance continues to maintain a disciplined liability profile despite industry-wide funding cost volatility. Borrowings rose modestly to Rs. 1,00,779 crore, while advances increased to Rs. 1,30,160 crore.

The brokerage expects the company’s medium-term AUM growth trajectory to remain in the 16%–18% CAGR range over the next four to five years.

New Lending Engines Could Drive Next Growth Cycle

The brokerage sees significant opportunity in Mahindra Finance’s diversification strategy. While vehicle finance remains the backbone of the company’s operations, management is increasingly focusing on newer growth engines such as SME loans, mortgage financing, leasing businesses and cross-selling initiatives.

According to management commentary, SME and mortgage portfolios could grow at 30%–40% annually on a lower base, potentially improving overall portfolio diversification and profitability.

The company is also investing aggressively in digital capabilities, collection analytics and customer engagement tools aimed at improving operational efficiency and reducing risk costs.

Analysts believe these initiatives could gradually improve return ratios while lowering earnings volatility over the long run.

Valuation Outlook And Investment View

Geojit has valued the company using the Sum-of-the-Parts (SOTP) methodology. The standalone lending business has been valued at 1.6x FY28 estimated book value, while rural housing finance operations have been assigned a 1.4x multiple.

The brokerage arrived at a consolidated valuation target of approximately Rs. 368 per share after incorporating a holding company discount.

At current levels, the stock trades at nearly 1.6x FY27 estimated book value and around 13.2x FY27 estimated earnings, which analysts consider reasonable given improving profitability trends, stable asset quality and long-term growth visibility.

The research house believes Mahindra Finance remains well-positioned to benefit from India’s rural consumption recovery, rising farm mechanization and improving credit penetration across semi-urban regions.

For investors with a medium-term horizon, Geojit continues to maintain a constructive outlook on the stock.