Mahindra & Mahindra Financial Services Ltd - Research Report

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Mahindra & Mahindra Financial Services Ltd

Reco Price
Rs. 185.00
Price Target (1.5 - 2 Years)
Rs. 400.00


February 12, 2016
CNX Nifty




Strong volume growth and favourable monsoon will boost financials.

Leader in countryside vehicles’ finance business:
M&M Financial Services (MMFS) enjoys a leadership position in rural and semi-urban region in the automobile finance business, key beneficiary of rising rural cash flows, strong principals & customized Business Model, diversified product portfolio, diversified liabilities franchise, healthy growth in loan book, healthy credit rating & diversified funding mix, improving asset quality, strong risk management, superior growth in profitability, strong subsidiary growth & contributions, impressive return ratios, well capitalized & operationally efficient NBFC and last but not least, its businesses, are well aligned with the regulator’s guideline.

Customized Business Model:
Around 75% of vehicles financed by the company are commercial vehicles which are used for generating income and the remaining 25% for consumption. Generally, rural people do not have the necessary documents which support their creditworthiness and that is why most of the lending done by local field officers. They have a strong knowledge about that particular region, crops, other activities, customers, etc. and they understand the local language as well. To avoid any kind of fraud, the company interchanges its field and branch officers in every 12-15 months. Moreover, the company has a very strong principal in terms of Loan-To-Value Ratio (LTV Ratio) and tenure of repayment of the loan. Average tenure of the loans is around two years for used vehicles, three years for Cars/UVs and four years for tractors and MHCVs. Further, the company does not restructure installments or the loan. It also doesn’t allow its branches to sanction more than one loan per family and such requests need approval of higher authority. The field officers are provided handheld devices (which have all the information about their clients and link with the branches and central offices to keep record on a real time basis) for the collection of monthly installments from the borrowers. Hence M&M Financial Services has a very strong business model in terms of lending money which is done in customized manner.

Fast sanction procedure:
Banks are expanding their branches in rural and semi urban regions to tap the potential market opportunity and meet the Priority Sector Lending (PSL) target. Generally, banks take 12-15 days for lending. However, M&M Financial Services offers a fast lending procedure of 2 days as compared to 6-7 days by other NBFCs. Its strong principals along with a customized business model and quick loan sanction and disbursements policy with less documentation gives the company an edge over others.

Strong parent support:
M&M Financial Services constructed itself as a strong asset finance company by successfully exploiting its parent’s brand (Mahindra & Mahindra) which is very well recognized in the tractors and utility vehicles market. However, the company has been transforming itself into a diversified player by adding vehicles such as passenger cars, commercial vehicles (CVs), second-hand CVs to its financing portfolio. In the passenger cars segment, MMFS finances a meaningful share of cars manufactured by Maruti, Toyota, Hyundai, Ford and Tata Motors. In recent years, the company has begun financing utility vehicles (UVs) and tractors that compete with its parent’s products.

Return ratios moderate but impressive:
In the present challenging environment where macro and micro economic environments lead to higher stress, MMFS has managed well and kept return ratios healthy. In FY15, it’s Return on Assets (ROA) and Return on Equity (ROE) stood at 2.57% and 16.50% respectively. The company’s rapid business expansion along with growing profitability and its active management of current and future business needs considering the risks in its businesses was the core reason of this achievement.

Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
173.40 - 294.00
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

M&M Financial Services LtdSensex
Mahindra & Mahindra Financial Services Ltd
Performance (%)


(in %)

+91 22 6639 3000



The Indian financial sector comprises of banks and financial institutions. Tighter liquidity conditions, stringent prudential norms and regulatory changes have resulted in fewer and stronger NBFCs across the country. The year 2014-15 saw some significant changes in the banking and financial industry:

• After a gap of more than 10 years, RBI awarded bank licenses to two new entities.

• The monetary framework has been changed to 6 reviews per year as compared to 8 earlier.

• The RBI issued norms for payments banks and small banks and initiated a process to issue differentiated licenses. It received 41 applications for payments bank licenses and 72 for small finance bank licenses.

Banks were allowed to undertake Cash Reserve Ratio (CRR)/Statutory Liquidity Ratio (SLR) exemption for the funds raised via infra bonds. Under the Prime Minister led Pradhan Mantri Jan Dhan Yojana, over 130 million bank accounts were opened, helping take financial inclusion significantly forward


Mahindra & Mahindra Financial Services Limited is an India-based non-banking financial company (NBFC) catering to financing needs in rural and semi-urban areas with 1108 offices across the country. The company provides a range of retail products and services such as financing utility vehicles for commercial & personal use, tractors, small & medium-sized enterprises (SMEs) loans, housing finance and other financial products. The company also offers mutual fund distribution, investments & advisory, fixed deposit schemes and personal loans. Its subsidiaries include Mahindra Insurance Brokers Limited, Mahindra Rural Housing Finance Limited, Mahindra Asset Management Company Limited and Mahindra Trustee Company Private Limited. Through its subsidiary, Mahindra Insurance Brokers Limited, MMFS is also engaged in the business of distributing life and non-life insurance products through tie-ups with various insurance companies.

Profit & Loss Statement:- (Standalone)
(Rs Crores)
Mar 13
Mar 14
Mar 15
Mar 16E
Mar 17E
  • Operating Income
  • Growth (%)
  • Total Expenditure
  • Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Profit Before Tax
  • Provision for Tax
  • Tax Rate (%)
  • Profit After Tax
  • Adjusted EPS
  • 4094.99
  • -
  • 1096.58
  • 2998.41
  • 73.22
  • 17.97
  • 3016.38
  • 1670.59
  • 23.66
  • 1322.14
  • 30.52
  • 1352.66
  • 423.75
  • 31.33
  • 928.91
  • 16.47
  • 5275.23
  • 28.82
  • 1531.98
  • 3743.25
  • 70.96
  • 25.33
  • 3768.57
  • 2280.96
  • 26.08
  • 1461.53
  • -
  • 1461.53
  • 496.75
  • 33.99
  • 964.77
  • 16.94
  • 6021.14
  • 14.14
  • 1972.53
  • 4048.61
  • 67.24
  • 39.76
  • 4088.37
  • 2643.00
  • 45.51
  • 1399.87
  • -
  • 1399.87
  • 475.00
  • 33.93
  • 924.87
  • 16.18
  • 6,300.00
  • 4.63
  • 2,150.00
  • 4,150.00
  • 65.87
  • 45.00
  • 4,195.00
  • 3,035.00
  • 57.50
  • 1,102.50
  • -
  • 1,102.50
  • 361.95
  • 32.83
  • 740.55
  • 12.96
  • 6,700.00
  • 6.35
  • 2,050.00
  • 4,650.00
  • 69.40
  • 45.00
  • 4,695.00
  • 3,150.00
  • 68.50
  • 1,476.50
  • -
  • 1,476.50
  • 487.54
  • 33.02
  • 988.96
  • 17.30
Source: Stockaxis Research, Company Data


We believe, the company’s strong and thoughtful business model, rising cash flows along with government’s persistent support to the rural region may keep the company operationally efficient and help it grow in terms of loan book.

Moreover, asset growth is driven by increase in field employees/branches, geographic penetration and improvement in employee/branch productivity. The number of employees and branches have grown at a CAGR of 12% and 8.5% over the period from FY10 to FY15.

Company has been doing heavy provisioning since last 2 years where asset quality has not affected much. This should flow back to PAT in next 3 years once they payback to company. These will turnaround for the company once they comply with RBI norms.

Currently company is trading at 2.05x FY 2015 P/ABV which is very low valuation considering the other private banks and its historical valuation of 2.75x P/ABV which is very high compare to its current valuation. Hence even on that front company is trading very cheap.

Even if company trades on its historical valuation of 2.75x P/ABV company has strong upside of 40% from current levels. But we feel once provision done in past flows back to future profit company’s valuation will be rerated. Hence we assign valuation 3.65x P/ABV which indicates the target price of Rs 400.



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