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ARIHANT capital markets ltd.
Mahindra Finance Limited
Stock Info Market Capital Equity Capital Avg Trading Vol. 52 WK High/Low Face Value Rs.3663 cr Rs. 96.9 cr 72398 (Qtly) 402/198 Rs. 10
Date: 13th Apr 2010
Target Price: 437
BSE Group BSE Code NSE Symbol Bloomberg Reuters BSE Sensex NSE Nifty A 532720 M&MFIN MMFS IN MMFS.BO 17933 5362
Shareholding Pattern (As on 31st December, 2009) Promoters 61.3 Domestic Institutions 7.9 Foreign 26.9 Corporate 0.6 Public & Others 3.3
Special Business Knowledge – Mahindra Finance’s (MMFSL’s) technique of credit evaluation, business generation, loan sanction and collection, makes its business model niche. This model has helped it sustain high margins while containing the risks involved. Developed over the period, this technique cannot be not easily adopted by other financial institutions. This reduces the threat of direct competition although indirect competition from PSU banks, which now plan to focus on the rural segment, would remain. Well Established Business with Growth Potential – The aim of MMFSL is to become one of the top rural finance brands and this is very much achievable given the potential opportunity presented by the improving prospects of rural economy. This would be supported by the geographically well established wide network of MMFSL and strategic plans of further expansion. The improving prospect of the auto sector is also highly beneficial with an encouraging trend of increasing rural sales. Cushioned with High Margin Business, High Coverage and Adequate Capital – Catering to a high risk business the yields earned by MMFSL are also high. Better credit rating and efficient resource management keeps the cost of borrowings in check, thereby resulting in healthy margins. For FY10E we expect the spread and margins to be about 9% and 12% respectively. Aggressive provisioning adopted and adequate capital adequacy ratio provides a much needed comfort for the high risk it carries. Financial Performance Expected to be Encouraging – Growing loans at a CAGR of 58% from FY02-07, the global crisis curtailed the same to 32% for FY04-09. However with signs of revival of economy we expect the loans to grow at a CAGR of 19% and the bottom line to expand by 26% over the period of FY09-FY12E. Despite pressures, margins are not expected to drop significantly as the Company has the ability to pass it on to the customers to a reasonable extent. Asset Quality Strained But Controlled – Given the high risk nature of rural and auto lendings, the asset quality risk remains for MMFSL. Increasing over the years, the GNPA peaked in 2009 with the dual impact of global crisis and monsoon failure when it reached over 10%. The strain is expected to peak off and presently the same has reduced and stood at 8.7% in Q310. The Co has set up various check to tab the asset quality including use of IT. However with threat of stimulus pullback, we expect have built in some strain till FY12E. A consequtive monsoon failure or slower than expected revival of economy will remain to be key risk. Valuation – Established business with good growth prospects, cushion for risks and M&M patronage make MMFSL a good investment bet. Improving prospects of rural segment and auto industry as well as Cos. plans for expansions and diversification, improves its future prospects. Concerns would be consecutive poor monsoon in FY11 and competition from increasing rural focus of PSU banks. At CMP of Rs 378 the stock is trading at 1.8x of FY11E P/BV and 9.9x P/E. Given the historical and peer comparison we value the stock at 2.1 times the book value of FY11E and arrive at a price target of Rs 437 over a period of 12 months giving a potential upside of 15%. We recommend an “ACCUMULATE” on the stock and would revisit our assumptions post the FY10 results.
Rs in Cr Net Interest Income Operating profits Net Profit NIM (% )(calculated) Gross NPAs (%) Net NPAs (%) EPS RoA (%) RoAE (%) PE (x) PBV (x) FY09 855 608 215 12.4 8.7 2.4 22 3.0 15.4 16.9 2.5 FY10E 991 726 321 13.0 8.7 2.2 34 4.0 20.2 11.3 2.1 FY11E 1161 859 369 12.9 8.9 2.1 39 3.8 19.9 9.9 1.8 1 FY12E 1341 977 430 12.5 8.8 2.0 45 3.8 19.9 8.5 1.6
ARIHANT capital markets ltd
MMFSL's customer base largely includes small entrepreneurs or self-employed individuals such as transport operators. Over the years it expanded in the same premise to offer a range of financial products and services. Products are tailored to suit affordability and cashflow The customer facing employees are locally recruited and maintain direct contacts with the existing and prospective customers. as per Mckinsey. sanctioning loan and its collection. It operates flexibly and speedily like a money lender while offering much competitive rates. Structural changes.3 27. Apart from this “Mahindra” brand is a known and trusted name in the rural and semi-urban India which allows the Company easy acceptance and trust. Demographic classification Rich ( income greater than Rs 1 m per annum) Well off (income greater than Rs 0. the rural and small town economy accounts for 60% of India's income. speedy and flexible considering the low literacy and poor banking habits of the customers. taxi operators and farmers. Improving Rural Prospects – 70% of India’s population resides in rural areas. Goal of MMFSL is to become one of the top rural finance brands. 63% of population will continue to live in the rural areas even in 2025.4 28. MMFSL is set between a bank and local money lender. The Company follows a unique business model for generating business. It’s obvious that India’s next phase of growth lies in urbanisation and development of these areas. It has also built strong relationship with its customers while developing close association with vehicle dealers too.7 45. Rural and Semi-Urban India Focus Set between a bank and Money lender Physical Presence in villages Documentation-free Relationshipbased Model Comprehensive Follow up and collection > flexible and speedy than Banks .0 The rural opportunity –Huge population. In fact.9 63.8 29.1 56. The loan approval process is simple. This was mainly done to overcome the unavailability of finance and promote sales. increased focus on the segment by Govt % of households owning products (2008) Car Bicycle Colour TV AC Refrigerator Computer Top 20 cities Other cities 23 37 68 5 63 8 5 61 47 3 34 3 Rural 3 69 17 0 8 1 Source – Ministry of Communications & Information Technology.6% 6. India Source – Mint ARIHANT capital markets ltd 2 .4% Rural Total 1.3 54. On an average the loans are approved within just two days. business background and cash flows.5 34. accounting for 64% for the expenditure and a third of country’s savings. limitation.5 m per annum) Total % of total Urban 4. shift to non food spending. According to a study by the Rural Marketing Association of India (RMAI).Initiating Coverage Special Business Knowledge To Service Perceived High Risk Customers MMFSL drove into the rural and semi-urban India essentially to finance the vehicles from M&M stable (tractors and SUVs) which were the predominant vehicles used in this segment. Variable portion of salary is connected to collection rather than business. The main part is the credit evaluation which considers customer’s capability. increase in employment opportunities/ income. MIS and follow up is direct and comprehensive Not more than one loan extended to a single person The loan to value is about 70% > competitive than Money lenders Lower rates MMFSL Local employees like money lender Trustworthy like banks Over the years the company has gathered in-depth knowledge and understanding of the dynamics of the rural and semi-urban areas. despite rising urbanisation.lesser documentation The company does not follow a DSA model and business is generated by the employees.
While Govt is trying to improve social measures like literacy. With growing working population.3% and improving rural prospects make it a focal agenda for the auto companies.5% two years back would contribute 16. given already high penetration in urban markets. trailer applications or excavations.000 5. unemployment and poverty. Infact it is expected that Maruti’s rural sales which contributed only 3. Growing working population. And going by the ‘Automotive Mission Plan 2016’ of the Government. While the northern region is now almost saturated in terms of new tractor sales. However still agriculture is an important occupation there and erratic monsoon has adversely affected the area and will continue to do so in future. high pace of urbanisation and improving infrastructure thrust – positives for auto industry 35. increased access to credit. the southern region is still under penetrated.5% to the total sales in FY10. Improving Demand from Auto Segment …. upward moving income levels. high pace of urbanisation and improving infrastructure thrust . better credit products. The demand for farm equipment vehicle is also bound to rise with these vehicles finding alternative use in construction and other non-agricultural activities like haulage. Even RBI is keenly pursuing financial inclusion. Bharat Nirman etc. better credit products.Long Term Outlook The automobile industry in India happens to be the ninth largest in the world and has become one of the top five exporters of automobiles. The improving roads and infrastructure also improve the prospects of demand. increased access to credit. two wheeler and utility vehicles.000 10. In this background. there are many permanent ones also like rural development thrust of Govt through focus on agriculture. The tractor penetration level in India is very low as compared to the world standards. agricultural credit. at a CAGR of 16%. the total sales is expected to be near 28.000 15. The Union Budget for 2009-10 has hiked the allocation for the rural development by 45% through its various initiatives like NREGA. rural India offers big opportunity to the industry. ARIHANT capital markets ltd 3 .000 30. upward moving income levels. Arihant Research India is on every major global automobile player's roadmap. Rural India vehicle density is 2.auto industry is looking up. rural areas and rural spending. is expected to reach US$ 425 billion in 201011(nearly double of 2004-05 size). Income Distribution Urban Rural Source – Business Today Though the some of the reasons for the growing impetus on rural India may be temporary like agriculture waiver. Also the penetration levels are also not uniform throughout the country..8 million units by 2016.000 20. Nonetheless rural infrastructure is still far behind and technology is also distant which increase the cost of transactions. companies are trying to tap the potent consumption demand emanating there from.Initiating Coverage The rural focus is not only due to size but also due to the changing profile of villagers and growth potential in income and consumption. This points out to the potent growth lying to be tapped. which grew 25% in 2008 when demand in urban areas slowed. according to a white paper prepared by CII-Technopak. It is known that the under leveraged and savings oriented rural Indian economy remained unscathed by the recent global slowdown. especially the small cars. It will cross the 10 million unit mark in the current year. Infact the rural consumer market.000 25.000 FY03 FY04 Total Domestic Vehicle Sales (in '000) FY05 FY06 FY07 FY08 FY09 FY10E FY16E Source –Automotive Mission Plan. Improved minimum support price and alternative employment opportunity has resulted in increased share of rural contribution in the country’s GDP.
The improved economic prospects in general and auto sector in particular will create a suitable premise for companies like MMFSL. Though focus is shifting towards rural India. even though 60-70% of car purchases and 50% of two-wheeler sales are financed through credit. 7% of rural CWEs are graduates compared with 29% in urban India.Initiating Coverage 50% 40% 30% 20% 10% 0% -10% -20% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY06 FY07 FY08 FY09 Industry Domestic Growth …Near Term Scene After slugging performance for past two years. literacy levels and micro demands. However tapping this potent demand will not be easy for institutions like bank as servicing rural Indians consumers is a different ballgame given their traditional background.With Limited Threat Of Competition Improving rural prospects is drawing attention of companies as well as financial institutions like banks. no IT returns and no post dated cheques.000 100. freeing oil prices monsoon failure slower than expected growth of economy slowdown and hindrances in the infrastructure development of rural and semi urban areas Stimulus pullback earlier than warranted Source: M&M …. Hence it is not easy for them to tap these customers. servicing the population there needs a specialised business model with risk aversion techniques which cannot be built over a short time creating entry barriers The business model of MMFSL has been established over decades and is difficult to replicate in a short time. Few impending concerns are – 400. Also being an early entrant. Also banks usually follow a DSA model where the skills and commitment cannot be assured. Nonetheless the vast network of PSU banks. As per surveys. The business is set on relationship based model which is a key to service the targeted customer profile.Creates Credit Opportunities for MMFSL Data suggests that there is a high demand of credit in the villages. no profit and loss statement. ARIHANT capital markets ltd 4 . judge their credit worthiness and collect the dues. However deeper banking penetration in rural India will create a bigger market and can be a positive for the creating and tapping the potent demand. 26% of rural India’s chief wage earners (CWEs) are illiterate compared with 8% in urban India.000 200. The documentation formality of banks makes the process less flexible and time consuming. established customer profile.000 300. the auto industry revived on the back of number of impetus including – Pent up demand Improving Interest rate scenario Easy access to Finance Stimulus by Govt New Launches Lower fuel prices Source: M&M The vigor of this demand has led us to believe that a hike in interest rates on vehicle loans will have little impact on sales. It has network and niche model to serve its special customer profile. However there was still a long way to go before the high sales figures of 2007 are reached. it is better placed to tap the upcoming opportunities. There are no salary slips. perceived dependability and most importantly the low interest rates offered – all of this can be difficult to mitigate. ….000 0 Increasing Tractor Production rising input costs. It is not surprising that only 31% of the adult rural population has access to institutionalized credit while the rest depend money lenders. Company has created a bunch of products to serve the most common credit needs of rural Indians.
35 . Securitisation will continue at same pace or may even reduce going forward as the Co looks to expand its balance sheet. Over FY02-07 its loan assets grew at a CAGR of 58% after which due to global crisis the Company slowed down to avoid increasing defaults. Consistent growth as since inception is expected to resume with recovery in economy. MMFSL has grown rapidly since early 2000’s and thereafter maintained a consistent growth. the growth prospects are expected to improve. 0% CV. MMFSL comes in handy for auto companies with little presence and network in India and rural and semi urban areas in particular. We expect the loans to grow at a CAGR of 19% and the bottom line to expand by 27% over the period of FY09-FY12E.Initiating Coverage Systematically Diversifying . 28. We expect the loans to grow at a CAGR of 21% and the bottom line to expand by 33% over the period of FY09-FY12E. The wide network of more than 440 branches and relationship with more than 11 lakhs customers allows it a deeper reach and potential for cross selling. Apart from improving economy.0% Fixed Deposits MF Distribution Tractors . New additions planned to the bouquet includes gold loans. At present its non-auto business forms just 5% of its total AUM while we expect it to increase to about 10% in coming few years. we expect that the growth will be supported by the strategic increase in its network as well as product profile. MMFSL has been figuring out the rural and semi-urban mindset and perceiving their demands and accordingly introducing newer products and services to its stable. With general improvement in economy and in particular the vehicle industry as well as rural segment.0% Housing Finance Insurance Broking Auto. Over the years. the same trust gets extended to MMFSL. which now forms ~60% of its total financing. 9. MMFSL offers loans for new vehicles to mainly small truck operators owning less than two vehicles. 5. With Mahindra brand being a household name in rural India due to tractors. Mahindra group has always been in a constant state of afflux and in same flow MMFSL also later broadened its prospects to include non-Mahindra vehicles. Over the past three years its loan assets have grown at a CAGR of 9% with the topline and bottomline growth of CAGR 28% and 27% respectively.0 % Others.Range of Offerings MMFSL was formed mainly to overcome the unavailability of finance in rural areas and promote sales of Mahindra vehicles. Starting from M&M vehicles with one branch in Mumbai. The company has already got into tie-ups with car makers like General Motors and Maruti to provide finance for their vehicles. Increased network will also help. and a range of other products. The used vehicle foray is at conceptual stage and would take some time to materialise as the company is developing a different model to tap this segment. This allows it to offer a bunch of financial solutions to its customers. 23. and medium to heavy commercial vehicle financing in construction sector.0% Consistent Business Growth Expected to Resume Starting only in 1991. ARIHANT capital markets ltd 5 . A glimpse of performance over past five years including period of slowdown can be seen in the chart below. used vehicle financing. Asset Finance Gold Loans Personal Loans Break up of AUM Cars. At present it has an extensive scale with approximately 443 branches covering more than 90% districts in India along with relationship with nearly 1800 dealers. The financial inclusion thrust by RBI and Govt will help in increasing the credit prospects of rural Indians and will allow MMFSL to cross sell its products more effectively. over one and a half decade the firm has grown to multi products with more than 440 branches.
NPA’s are also low as the products sold are customised on the basis of assessed cash flow of customer. The Company has been 0 steadily increasing its provision coverage and from 57% in FY07 it has FY06 FY07 FY08 FY09 FY10 FY11E FY12E increased to 75%. With 95% of the loans being secured. Therefore banks hesitate to extend loans.000 8. Networth to net NPA cushion is improving and is expected to further improve over the period of projection in line with economic condition.000 AUM Estimated value of Assets financed YTD 37 32 6.7 8.000 10. 8 However Company had anticipated worse situation. Employees being locals are regularly in touch with the borrowers building and maintaining relationship and regularly assessing the asset quality. However this presents a viable opportunity to MMFSL. ARIHANT capital markets ltd 6 . 300 250 200 150 100 50 10 5 0 FY10 FY11E FY12E 95% secured loans Comprehensive follow-up Provisioning at a faster rate and hence high coverage Rural economies stable with alternative earning sources Eventual loss < 2% Net NPA Coverage Net NPA to NW 25 20 15 The gross NPA of MMFSL has been increasing over the 0 years and rose to levels of more than 10% in the third (Rs Cr) FY06 FY07 FY08 FY09 quarter of FY09. Evidently the major defaults came from the tractor segment. Faulty credit assessment is covered up with efficient collection practice which is personally done by the employee who generates the respective loan. after the global crisis led to a slowdown in advances and increase in defaults. NPA % India. resorting to liquidation of 4 gold assets etc.000 - CAGR Growth since 2004 (%) 20 40 Asset Quality Under Stress But Guarded With Aggressive Provisioning Biggest challenge in extending loans to rural section is assessing the credit worthiness given the near absence of traditional documentation proof. But due to loan waiver. The provisioning and NPA recognition norms of MMFSL are very stringent when compared to the regulatory requirements of RBI.Initiating Coverage Net Profit Value of assets financed Contracts Employees Branches 15 22 27 12.8 2 GNPA as at end of December 2009 stood at 8. the defaults were controlled. This is expected to increase further and as per our estimates if there is no further major deterioration in asset quality. a second consecutive monsoon failure in the current year may definitely put pressure on the asset quality. Apart from slower economic revival. increase in Minimum Support Price. The evident slowdown in the economy in general and auto industry in particular.7% and the Company expects it to remain at this level for FY10. 4.000 4. As per the Company historically the eventual write-off has been less than 2%.8 8. With proven credit assessment technique and comprehensive follow-up. To add to the 10 woes was the monsoon failure and its resulting impact on the rural Gr. for first few months. This would remain to be a potential downside risk to our projections.000 2. the same will increase to 78% by FY12E. alternate 6 use of tractors as construction equipment. the risk is contained. NREGA schemes. all outstanding above 24 months are fully provided even though the RBI requires a 50% provision after 54 months.
4% dilution. In the falling interest rate however it had a positive ALM as it increased its over one year borrowings a low rates to nearly 85% while only 30% of its advances were receivable within one year. Despite hardening of interest rates we expect the margins to remain stable though with a bit of downward bias as the Company has the ability to pass on the increase to its customers to a reasonable extent. well diversified portfolio. and Tree Line Asia Master etc. Brickwork Ratings has assigned BWR AA+ – The rating takes into account MMFSL’s business model which has clear focus on untapped rural/semi-urban markets. Given the inflation and tightening in near future we have estimated the same to increase during our projection period. The securitisation is in the nature of direct bilateral assignment and as per its internal policy. proven track record in asset financing. MMFSL still has substantial headroom to further raise resources. Fixed deposit acceptance which was discontinued in April 2005 were restarted in January 2009.6 times. …. With 100% fixed lending – in case the rates rise. There is no financial support of the parent group Mahindra and around 85% to 90% of the borrowings are secured in nature. being a NBFC.4%. wide network of field staff across 25 states. Banks seek these loans at attractive values. The company is not likely to go for further equity dilution in near future. However with increased competition from banks and other NBFC’s. MMFSL follows a conservative ALM policy and is mostly in sync. Capital Cushion The Company. stable and diversified resource base. By end of December 2009. SCPE. TPG however moved out recently still leaving some serious long term investors like Copa Cabana.Cost Of Funds Controlled The current average cost of borrowing is at around 9%. the margins may face pressure going forward.2% preferential issue to TPG Axon Capital and Standard Chartered Private Equity(SCPE) at Rs 380/share resulting in a 13. is required to maintain a CAR of more than 12% at any given time. Currently the gap has been reduced with nearly 75% of the borrowing repayable over one year. Securitisation Benefit Tractors financed by MMFSL classify as priority sector lending for banks. its capital position was healthy with Tier-I capital adequacy ratio (CAR) at 16. The rating is however constrained by high NPA of the company. ARIHANT capital markets ltd 7 Fund Mix Instrument-wise CPs FD's Securitisation Bonds/NCD's Bank Term Loans 0 20 40 1 4 20 35 40 60 . healthy capital position. the outstanding book will pull down yields and hence margins also. The debt to equity ratio is at 3. MMFSL securities not more than 20% of its new loans generated during the year and at present the total outstanding is a little over Rs 1000 cr. allowing MMFSL to encash some of the loan originations and use the funds for further lending. Company came out with IPO in 2006 at a premium of Rs 180/share after which the next equity dilution was in February 2008 through 11. Mahindra & Mahindra Ltd. Average yield on advances for MMFSL comes to approx 18.Initiating Coverage Diverse Sources of Funds With Competitive Cost Majority of the resource is generated by the Company from banks and mutual fund which together form more than 80% of the total borrowings. This is much above the margins earned by the banking sector.5% thereby earning a decent spread of about 9. The Company has no foreign currency loans.5% and hence a high net interest margin. Healthy Margins Sustainable Yields for funding rural demands have generally been higher considering the risk factors. Overall. This helps in improving the NIM by lowering the cost of funds as well as also helps in managing ALM. (M&M). However CRISIL believes that the overall credit losses in Mahindra Finance’s portfolio may increase as asset quality continues to be under stress. Instrument wise bank term loans (40%) and bonds (35%) form chunk of the borrowing kit. and substantial unutilised bank lines giving flexibility to raise resources at competitive costs and high yields. Judicious liability management along with good credit rating and securitization allows MMFSL to control its funding cost. high capital adequacy and backing of the parent company Mahindra & Mahindra Ltd.8% and overall CAR at 19. CRISIL has reaffirmed its ratings at ‘AA-/FAA/Stable/P1+’ – The ratings factor in the support that Mahindra Finance receives from its parent.
At present only 40-50 branches of the company is catering to this segment but plans are in vogue to expand the same in future to a larger extent.3 Gross NPA% 8.5 23. we have weighed it against related NBFC’s.223* 2. Mahindra InSource – Manpower Outsourcing arm of Mahindra Formed recently. the demand for credit is also big.889 20.3 Average Networth Loans 1. Spread over a period of five years. Mahindra Rural Housing Finance Ltd. Subsidiaries Mahindra Insurance Brokers Ltd. to tap the potential housing demand in the rural and semi-urban areas.611 2. .101 24.4 Rs in Cr MMFSL Shriram City Union Shriram Transport Finance Stock Performance MMFSL Shriram City Union Shriram Transport Finance PE (x) 12 12 15 PAT 9M10 202 149 609 PATM% (9M10) 19 19 19 1M Return 2 0 11 6M Return 70 15 48 1 Yr Return 56 38 204 52 Wk High 402 550 585 52 Wk Low 197 279 183 *FY09 ARIHANT capital markets ltd 8 .5% held by NHB (National Housing Board).347 RoE 17.033 4. At present the scale is small and the net profit contribution at present is not even 0. Employees are now outsourced from here and retained on professional fees.109 Average Assets 8. Its turnover as well as profit has been growing at nearly 40% CAGR since its inception. Dynamics of such loans is again different for rural and semi urban areas. Peer Comparison Though there is no one to one comparison.Yr CAGR Insurance Business This subsidiary came up in 2008.43 2.6 29.490 802 4. All this forms about 60% of its disbursements. still a substantial amount of financing for M&M comes from MMFSL making it strategically important for the parent.5 3.5% in the subsidiary with the remaining 12.2* 7. documentation deficiency. (MIBL) . The outstanding loan sanctioned till December 2009 stood at Rs 119 cr.7 RoA 3. the Company gets to leverage on the Mahindra brand.0 2.9 3. this saves hassles like appraisal and promotion as well as charges like PF and other contributions. Owning a house provides significant economic security and dignity in society in India and being a huge investment in monetary terms.7 6.5% of the total profits. Rs in Cr MMFSL Shriram City Union Shriram Transport Business Predominant auto General Finance Used Vehicle CMP (09/04/10) 377 456 550 P/BV 2. MMFSL has transferred nearly 10% of its employees to this subsidiary. PAT for 9M10 was Rs 8. the defaults are quite low.Initiating Coverage Patronage of/to M&M MMFSL finances around 31% of M&M’s utility vehicle and light commercial vehicle while about 24% of tractor sales.782 Debt to Equity 3.7 2. Done for clerical level employees. MIBL undertakes direct insurance broking business.Housing Finance Business 80 70 60 50 40 30 20 10 0 67 38 20 18 69 Net Total premium Income PBT PAT No of customers 3. Hence this segment can turn into a compelling opportunity for MMFSL. The Co. both in the Life and Non-Life insurance segments with a focus on Retail and Commercial lines of businesses.6 cr forming less than 5% of the standalone profit of MMFSL. Housing loans in rural areas are necessarily construction loans and at times take over one year to clear due to difficulty in getting clear title of land. But the same is not met due to the strict lending covenants of banks on one side and high interest rate of money lenders on the other.1 Market Cap 3.671 7. owns 87. Though this is much below the 100% financing that it started with.095 12.Insurance Broking Incorporated in 2005. On the other hand. language barrier etc.6 3. However employee retention is a big problem given the fact the business requires learned employees with special qualification.
7 PBV=1.Initiating Coverage IT Initiative Co IT initiatives are encouraging.2 9% -1% 16% 132% 19% 11% 4% 16% 22% -21% 84% 73% 90% Interest Income Interest Expense Net Interest Income Other Income Operating Income Operating Expense Employee Expense Other Operating Profit Provisions Profit Before Tax Tax Provisions Profit after Tax EPS (Rs) The revival of economy and auto sector growth in 2010. All the branches of MMFSL are connected giving real time status of business.7% and the coverage improved from 65% to 75%. insurance broking and housing finance.7 MMFSL PBV=2. Bharat Doshi and Managing Director Mr Ramesh Iyer.177 cr. Such a strong team assures of a fortified corporate governance also. Improved cost of funds helped in increase in spreads from 11% to 11.000 crore since its inception. Apart from this. MMFSL is a subsidiary of Mahindra & Mahindra Limited (60% holding). Currently. tractors.067 378 689 27 716 225 90 134 491 188 304 101 202 21. M G Bhide. Engaged in retail segment. the very innovative hand-held devices are used for issuing on-the-spot receipt for collection which are in turn connected on a real time basis to its nearest branch which helps in better servicing of customers as well as helps to control the related cash handling risk. About Mahindra and Mahindra Finance Limited Mahindra & Mahindra Financial Services Limited (MMFSL) is one of India’s leading deposit-taking non-banking finance companies focused on the rural and semi-urban sectors. Pawan Goenka.2 PBV=2.2 450 375 300 225 150 75 0 May-09 Jun-09 Sep-09 Nov-09 Dec-09 Apr-09 Jul-09 Aug-09 Oct-09 Jan-10 Feb-10 Mar-10 Apr-10 0 MMFSL Nifty 2000 4000 6000 Reported Results For 9M FY10 Rs in Cr 9M 10 1.7%. Rao etc. Along with this lower credit cost helped in net spread improvement from 2.9% to 4.N. The Co has very well represented Board of Directors which includes the likes of Mr.2 9M 09 975 383 593 11 604 203 87 116 402 237 165 59 106 11.843 cr to Rs 6. Strong Management A dependable and well experienced team heads the company with Chairman Mr. Branch network was reinstated to 442 and the net value of assets financed improved from Rs 4. loan assets grew by 11% and AUM by 16% on a YoY basis. Co. The company has a presence in more than 90% of the country’s districts and has disbursed Rs 21. a leading tractor and UV manufacturer with more than 60 years’ experience in the Indian market.B. Mr M. MMFSL has a network of 443 branches and about 4500 employees. posted strong number for the nine months ended December 2009 due to lower base effect. YoY Gross NPA improved from 10. Company carries out mutual fund distribution. it primarily finances auto loans of M&M as well as non-M&M brands (UVs. CV’s and cars) while also financing personal loans and gold loans.1% to 8. ARIHANT capital markets ltd 9 . 600 500 400 300 200 100 Mar… Apr… Oct… 0 Sep'06 Apr'08 Oct'08 Apr'09 Oct'09 PBV=1. Mr. The disbursement grew by ~23%. helped MMFSL comeback after last two years slowdown.8%.
469 5.444 276 6799 110 37 222 7.0 76.4 2.213 3 762 7.8 FY11E 39 208 8.187 19 849 8.444 276 6799 3 110 37 222 7.6 15.0 6.9 1.growth % Operating Expenses .512 519 992 16 30 1.991 7.1 9.748 FY12E 97 1.1 76.8 44.1 9.growth % Provisions Profit Before Taxes Taxes Profit After Taxes .0 8.213 FY10E 97 1.4 11.0 2.403 16 426 175 252 977 14 326 651 221 430 16 Statement of Affairs As on 31st March (Rs.9 12.7 2.3 8.6 16.1 21.1 FY12E 45 242 9.8 13.9 9.2 64.0 9.0 FY11E 19.growth % FY09 1.2 7.0 17.4 Spread analysis (%) Average Yield on Advances Average cost of Funds Interest Spread Net Interest Margin Efficiency Indicator (%) Cost to Income Asset per Employee ( Rs Cr) Profit per Employee ( Rs lacs) Return Ratios Return on Avg.growth % Investments Fixed assets Other assets Total Assets FY09 97 1.9 2. Cr) Capital Reserves & Surplus Networth Borrowings .growth % Other liabilities & provisions Total Liabilities ASSETS Cash Advances .464 Ratio Analysis FY09 Ratio Analysis FY09 Basic Ratio (Rs.7 2.1 12.1 61.5 1.7 2.3 2.0 3.7 28.161 17 45 1.0 9.4 10.022 17 295 126 169 727 20 242 486 165 320 49 FY11E 1.5 1.469 5.9 12.8 18.0 3.Staff Cost .6 4.5 1.0 1.5 3.489 21 984 10.4 8.9 8.) EPS Book Value per share Dividend per share Dividend Yield Asset Quality (%) Gross NPAs Net NPAs NPA Coverage Business Performance (%) Operating profit margin (%) Net profit margin (%) Net Int.0 48. Inc/Total Income Other Income/Expense NII/ Average Total Assets Operating profit/Avg Total Assets Net Profit/Avg Total Assets Asset Growth 22 153 5.0 20.Other Expenses Gross Profits .614 1.0 20.1 8.7 9.0 14.9 3.7 20.0 4.748 312 9601 19 209 50 292 10.9 2.4 71.8 2.4 3.5 28.9 FY12E 19. Net Worth Return on Average Assets Valuation ratios (x) P/E P/BV 18.9 8.5 47.8 8.9 1.4 3.5 11.growth % Other Income Operating Income .6 ARIHANT capital markets ltd 10 .365 510 855 14 20 875 13 267 117 149 608 17 282 326 111 215 21 FY10E 1.8 8.2 4.894 1.4 FY10E 18.6 12.205 18 346 139 207 859 18 300 559 190 369 15 FY12E 2.4 FY10E 34 179 7.7 20.372 1.0 2.4 9.8 6.2 9.803 643 1.9 15.464 762 7.341 16 62 1.7 8.7 11.2 74.7 30.7 61.8 12.6 45.372 1.8 19.3 12.444 260 8035 18 157 42 255 8.712 6.Initiating Coverage Annual Standalone Financials Income Statement Year to 31st March (Rs.137 796 1.3 8.7 7.5 30.8 20.444 FY11E 97 1.5 62.8 9. Cr) Interest Income Interest Expenses Net Interest Income .
Tel: (91-22) 42254800 Fax: (91-22) 42254880 Fax: (91-731) 2519817 Disclaimer: Arihant capital markets limited is not soliciting any action based upon it.Research Desk For more information contact: research@arihantcapital. This document has been prepared and issued on the basis of publicly available information. Ratlam Kothi.P.com ARIHANT capital markets ltd 11 . However we do not represent that it is accurate or complete and it should not be relied upon such. its owners or its employees may have a position or be otherwise interested in the investment referred to in this document. Indore -452003.Initiating Coverage ARIHANT .arihantcapital. The firm or its employees may trade in investments. (M. internally developed data and other sources believed to be reliable. Before its publication the firm. Krishna Bhavan. Amit Apartment. Vile Parle (East).) Tel: (91-731) 2519610 3rd Floor.com Tel: 022-42254832/34 Stock Rating Scale BUY ACCUMULATE HOLD REDUCE Head Office : : : : >20% 12-20% 5-12% <5% Registered Office E-5. This is just a suggestion and the firm or its employees will not be responsible for any profit or loss arising out of the decision taken by the reader of this document. Visit us at: www. neither the analyst nor any employee of Arihant is in any way responsible for its contents. Whilst meticulous care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable. which are the subject of this document or in related investments and may have acted upon or used the information contained in this document or the research or the analysis on which it is based. No matter contained in this document may be reproduced or copied without the consent of the firm. Mumbai-400057. 67 Nehru Road.
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