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Mahindra & Mahindra Financial Services: Part of a Strong Parent Group

Mahindra & Mahindra Financial Services Ltd, a subsidiary of Mahindra & Mahindra Limited was established in 1991 as Maxi Motors Financial Services Ltd. Further, in 1992 its name was changed to Mahindra & Mahindra Financial Services Limited. Subsequently, in 1993 the Company started to Finance utility vehicles of Mahindra & Mahindra Ltd. It was in 2002 that the Company started to finance non-M&M vehicles.

Further, in FY2011 it entered into a Joint Venture with Rabobank subsidiary for tractor financing in USA.

The Company is focused in the rural and semi-urban sector. Further, the company is in the business of financing purchase of new and pre-owned auto and utility vehicles, tractors, cars, commercial vehicles, construction equipment and SME Financing. As on 31-Mar21 the Company has financed 7.31 million vehicle customer contracts since inception.

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(A) Management of the Company

i) Mr. Ramesh Iyer - Vice-Chairman & Managing Director

Mr. Ramesh Iyer is the Vice Chairman and Mg Director of Mahindra & Mahindra Financial Services. He is 63 years of age.

Further, he has a Bachelor’s Degree in Commerce and a MBA from Mumbai University. He is with the Company since 1994

Moreover, he looks after the Financial Services Sector of the Mahindra Group. Further, the groups includes Mahindra & Mahindra Financial Services Ltd, Mahindra Insurance Brokers Ltd, Mahindra Rural Housing Finance Ltd, Mahindra Manulife Investment Management Pvt Ltd and Mahindra Manulife Trustee Pvt Ltd.

Also, he oversees the operations of Mahindra Finance USA, LLC., a U.S. joint venture with De Lage Landen Financial Services Inc., (DLLFS) a wholly-owned subsidiary of the Rabobank Group.

Remuneration withdrawn by Mr Iyer is Rs 7.18 Crore for FY21, which is 0.06% of the Net Sales and 0.97% of the Net Profit for FY21.

ii) Dr. Anish Shah - Non-Executive Chairman

Dr. Anish Shah is the Non-Executive Chairman of Mahindra & Mahindra Financial Services. He is 48 years of age.

Dr. Anish Shah is the Managing Director and CEO of Mahindra & Mahindra Ltd. He joined Mahindra Group in 2014, as Group President (Strategy). Moreover, Dr Anish was President and CEO of GE Capital India from 2009-14.

Anish holds a Ph.D from Carnegie Mellon’s Tepper School of Business. He also received a Masters degree from Carnegie Mellon, has a post-graduate diploma in Management from the IIM, Ahmedabad.

(B) Shareholding Pattern

Mahindra & Mahindra Financial Services Ltd shareholding pattern
Mahindra & Mahindra Financial Services Ltd shareholders holding more than 1%

Mahindra & Mahindra Financial Services Ltd: Subsidiary of Mahindra & Mahindra Limited

As on 31-Dec-21, 52.16% of the Shares of Mahindra & Mahindra Financial Services Ltd (MMFSL) are held by Mahindra & Mahindra Ltd.

MMFSL is an important subsidiary of Mahindra & Mahindra Limited. Since, MMFSL is the financer for sales of tractors & utility vehicles of Mahindra & Mahindra Ltd. Indeed, as on 30-Sep-21, M&M vehicles constitute 45% of AUM of MMFSL.

Mahindra & Mahindra Financial Services Ltd group structure

(C) AUM of Mahindra & Mahindra Financial Services Ltd

Mahindra & Mahindra Financial Services Ltd AUM

AUM of MMFSL has shown a consistent growth from Rs 18,562 Cr in FY12 to Rs 77,036 Cr in FY21 at CAGR of ~17% pa over FY12 till FY21.

The Company is continuously expanding its financial services portfolio which apart from Vehicles & Tractor financing also includes personal loan, mutual fund distribution, financing commercial vehicles, construction equipment, SME financing, Invoice discounting, Digital Finance and Leasing.

Further, the Company’s Assets under Management for distribution of Mutual Fund Products (MFP) as on 31st March, 2021 stood at Rs 2,900 Crores.

(D) Breakdown of Assets Financed by Mahindra & Mahindra Financial Services Ltd

The Company’s AUM for distribution of Mutual Fund Products as on 31-Mar-21 stood at Rs 2,900 Crores.

(E) Asset Distribution by Geography

Mahindra & Mahindra Financial Services Ltd loan assets by geography
Mahindra & Mahindra Financial Services Ltd geographical distibution of assets dec21

The above graph represents Distribution of Assets Financed by location for period till 31-Mar-21 and 31-Dec-21. Indeed, the company disburse loans in semi-urban and rural areas. Also, it has presence in all the parts of the Country.

(F) Branch Network - Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services Ltd branch network

As on 31-Mar-21 the Company has 1,388 Branches. A steady growth in the number of branches is observed from FY17 to FY21.

(G) Borrowing Mix: Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services Ltd borrowing mix

The Borrowing Mix of Mahindra & Mahindra Financial Services is diversified, with a mix of 25% from bank loans, 25% through NCDs, 16% through FDs, 18% from securitisation/assignments and 7% from offshore borrowings.

(H) Net NPA to Net Assets

Mahindra & Mahindra Financial Services Ltd npa to net assets

The Company included an additional provision of Rs. 1,320 crores on Stage 3 loans in FY21 to bring its net NPA below 4.0% vs. 5.98% at the of March 2020.

The Net NPA of Mahindra & Mahindra Financial Services is higher than Sundaram Finance Ltd. (1.35%) and Cholamandalam Investment and Finance Company Ltd (2.25%), but lower than Net NPA of Shriram Transport Finance Company Ltd (4.26%) for FY21.

(I) Gross NPAs to Gross Advances

Mahindra & Mahindra Financial Services Ltd gross-npas-to-gross-advances

(J) Interest Income

Mahindra & Mahindra Financial Services Ltd interest income

The Interest Income grew at a CAGR of 18.1% pa from period FY12 till FY21.

(K) Interest Expend

Mahindra & Mahindra Financial Services Ltd interest expend

(L) Mahindra & Mahindra Financial Services: NIM%

Mahindra & Mahindra Financial Services Ltd nim%

NIM% has been reduced gradually over the past few years. Also, NIM% for FY21 of Mahindra & Mahindra Financial Services (7.7%) is similar as that of Cholamandalam Investment and Finance Company Ltd. (7.2%).

(M) Financial Parameters - Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services Ltd financial parameters

Just like FY20, the demand for automobiles in FY21 saw a substantial dip due to subdued load factors, poor sentiments leading to a much lower demand and supply side constraints. The overall business volumes continued to be low as some segments like taxi, school, traders, tourist, mining, etc. refrained from purchasing new vehicles. This further led to overall lower disbursements in FY21.

Further, the 2nd half of FY21 witnessed some amount of normalcy returning to the market with unlocking of the country. Further, this led to better collection efficiencies starting Dec-20.

(N) Management Discussion & Concall Highlights

The Company had a tie-up with multiple partners like CSC, FINO was undertaken to enable cash collection from customers. Also, the Company continued good relationship with all major OEM’s, dealers and channel partners.

Further, in FY21 the Company opened more rural branches. Also, MMFSL's Customer base crossed 7.31 million customers in FY21.

During FY21, theloan book de-grew by around 5% due to lower disbursements due to COVID related stress. Net Interest Margin (NIM) (Gross Spread) for the year stood at 7.7% which is at same level as in FY20.

Concall Highlights Q3 FY22

The management suggested that there is still some room to further reduce its cost of borrowings.

Further, the Collection efficiency was 100% in December, collection momentum to continue in Q4FY22. Moreover, Enhanced collection and legal efforts, including repossessions and settlements can help reduce Gross NPA in Q4FY22.

The management in order to reduce Net NPAs below 4% under IND-AS and below 6% under IRACP, may require an additional overlay provision of Rs. 500 - Rs. 1,500 crores in Q4FY22.

Loan book de-grew to Rs 58,278 Cr as on 31-Dec-22 as compared to Rs 59,947 Cr as on 31-Mar-21 and Rs 62,124 Cr on 31-Dec-21. However, for growth the Company has added 150 odd branches during Q4 FY22 which will all get active during FY22. The Company has 1,385 Branches as on 31-Dec-21. Due to increase in branches, it is expected that Cost might increase, however the management will ensure to keep variable cost under control.

Management declared that ROA% was 0.7% as on 31-Dec-21.

(O) Strengths

(i) Strong Parent Brand and Management Support

Mahindra & Mahindra Financial Services Ltd is a subsidiary of Mahindra & Mahindra Ltd, which has leadership position in tractor market in India.

The operations of the company are headed by Mr Ramesh Iyer (Vice-Chairman and Managing Director) and has been with MMFSL since inception in 1995. He is also member of the Group Executive Board of M&M, the holding company, and on the Board of various Mahindra Group companies, which explores synergies between all the businesses and formulates strategic plans.

MMFSL is a strategically important subsidiary for M&M being the largest financier of M&M since M&M vehicles constitute 45% of AUM of MMFSL as on 30-Sep-21.

(ii) Diversified OEM base of Mahindra & Mahindra Financial Services

MMFSL started business in 1991 and has a long track record of operations. It has the experience of operating in various business cycles. It started as a captive financier for M&M but from 2002-03 the company has started financing vehicles of other original equipment manufacturers (OEMs) like Maruti, Hyundai, Eicher, Nissan, Tata, etc. Indeed, being a subsidiary of M&M, it enjoys strong linkages and has relationship with the dealer network of M&M and preferred financier for most of its dealer network. As a diversification and growth strategy, the company aims at increasing financing of other manufacturers as well. Non-M&M vehicle financing constitutes around 55% of total AUM as on September 30, 2021.

(iii) Diversified portfolio mix

The Company has a well diversified portfolio mix. As on 31-Mar-21, MMFSL, had (on a standalone basis), total business assets of company stood at Rs.64,608 crore compared with Rs.68,089 crore as on 31-Mar-20. Indeed, as on 31-Mar-21, the Portfolio consists of asset classes like Auto/utility vehicles (30%), cars (22%), tractor (17%), commercial vehicles & Construction equipment (16%), Pre-owned vehicles (9%), SMEs and others (6%).

The company has also started with two new segments, viz., digital finco and vehicle leasing. Digital finco is setup to provide small ticket loans such as personal loans and consumer loans in order to provide alternative products to the existing customers.

(P) Weakness

Asset Quality

The company reported GNPA and Net NPA ratio of 8.96% and 3.97%, respectively, as on 31-Mar-21, as compared with Gross NPA and Net NPA of 8.44% and 5.98%, respectively, as on 31-Mar-20.

For half year ended September 2021, the company restructured around 103k accounts which amounted to Rs.4,330 crore, i.e., around 6.8% of the total loan book.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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