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Mahindra & Mahindra Financial Services Stock Analysis

HomeCompanyMahindra & Mahindra Financial Services Stock Analysis

Mahindra & Mahindra Financial Services (“M&M Financial” or the “Company”) is one of the leading Non-Banking Financial Company (NBFC) focused in the rural and semi-urban sector. The Company is one of the largest Indian tractor financier. The Company provides a wide range of retail products and services, such as financing vehicles for commercial and personal use, tractors, SME loans, and many other financial products.

Company’s Financials  M&M Financial has shown consistent growth over the last five years (i.e. 2012-13 to 2015-16). Its net revenue from operations over this period grew at an impressive CAGR of 17.83 %. For FY 2016, income from operations increased by 8.85 % to Rs. 6,553.87 Cr. from Rs. 6,021.14 Cr. The Company has reserves in excess of Rs. 5,975.19 Cr.

Company’s Operations – M&M Financials total Asset Under Management (AUM) have grown at a CAGR of 25 % FY 2012-16 and stands at Rs. 41,662 Cr. as on June 30, 2016 as against Rs.37,554 Cr. as on June 30, 2015, a growth of 11%. For Q1 of FY 2017, the overall loan disbursement registered growth of 8 % at Rs. 6,564 Cr. as compared to Rs. 6,057 Cr. in Q1 of FY 2016.

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Mahindra & Mahindra Financial

INVESTMENT RATIONALE

Diversified Product Portfolio

The Company operates with a diverse product portfolio, which reduces the risk of overexposure to any particular market segment.

Vehicle Financing

Loans for auto and utility vehicles, tractors, cars, commercial vehicles and construction equipments

Pre-Owned Vehicles

Loans for pre-owned cars, multi-utility vehicles, tractors and commercial vehicles

SME Financing

Loans for varied purposes like project finance, equipment finance and working capital finance

Personal Loans

Offers personal loans for weddings, children’s education, medical treatment and working capital

Mutual Fund Distribution

Under the brand “MAHINDRA FINANCE FINSMART”

Insurance Broking

Insurance solutions to retail customers as well as corporations through subsidiary Mahindra Insurance Brokers Limited

Housing Finance

Loans for buying, renovating, extending and improving homes in rural and semi-urban India through its subsidiary Mahindra Rural Housing Finance Limited

Mutual Fund & AMC

Asset Management Company/ Investment Manager to Mahindra Mutual Fund

Enormous potential in new growth avenues  

Mahindra & Mahindra Financial has diversified its product portfolio by leveraging its expertise in the existing business and solid rural market understanding.

Mahindra Rural Housing Finance – Provide loans for home construction, extension, purchase and improvement to a wide base of customers in rural and semi-urban India. Mahindra & Mahindra Financial owns 87.5% in the company and 12.5% is owned by the National Housing Bank. Currently it has presence in 11 states.

Particular

(In Cr.)

Q1 FY 2017

Q1 FY 2016

FY 2016

Loans Disbursed

405.0

339.2

155.25

Outstanding Loan Book

3,557.6

2,364.6

3,264.5

Mahindra Insurance Brokers Limited – Distribute life and non-life insurance products in the rural areas. Mahindra & Mahindra Financial owns 85% in the company.

Particular

(In Cr.)

Q1 FY 2017

Q1 FY 2016

FY 2016

Total Income

36.5

31.7

149.2

Net Premium

268.0

249.9

1,087.0

Extensive Branch Network

Mahindra & Mahindra Financial operates with an extensive network of 1,172 offices (as of 30 June, 2016) spanning across 26 states and 5 union territories, which is one of the largest amongst Non-Banking Financial Companies. The widespread network allows the Company to service its existing customers and attract new customers. The Company’s pan India presence also mitigates some of the regional, climatic and cyclical risks, such as heavy monsoons or droughts.

M&M Financials Branch Network

Competitive Advantage in the Rural and Semi-Urban Markets

Currently when many players in the financial services sector are trying to enter into the rural markets, M&M Financial already has over 20 years of operating experience in rural and semi-urban markets, which has led to a significant competitive edge. The Company continues to expand its network and increase its market share in the rural and semi-urban markets of India.

Strong Parentage and Brand Equity of Mahindra & Mahindra

Mahindra & Mahindra holds 51.2% stake in Mahindra & Mahindra Financial. Mahindra & Mahindra brand is one of the most well respected and trustworthy brand in India which has helped the Company in attracting new customers and talent and in accessing capital.

INVESTMENT CONCERNS

Expensive Valuation – At the current price of Rs 335.55 (as on 11 August 2016), Mahindra & Mahindra Financial’s trailing 12 month PE comes to ~ 24.06 which is at a ~50% premium to its 10 year average PE Multiple. 

Current P/E

Price

326.70

EPS TTM

13.58

Current P/E

24.06

 

2007

2008

2009

2010

2011

Price

45.99

56.82

41.93

74.57

155.95

EPS

3.16

3.74

4.53

7.34

9.48

P/E

14.54

15.20

9.25

10.15

16.46

10 Year Average P/E = 13.62

Price

2012

2013

2014

2015

2016

EPS        

131.94

194.25

251.9

253.75

242.5

P/E

12.37

17.23

16.78

16.05

13.58

Weakening Asset Quality

Mahindra & Mahindra Financial has underperformed peers by a wide margin over the last 2-3 years due to asset quality pressures. Gross Non-Performing Assets (“GNPAs”) for FY 2016 stood at 8% of gross advances, and Net Non-Performing Assets (“NNPAs”) came at 3.20% of customer assets.

M&M Financials asset quality

Intense Competition

M&M Financial provide loans primarily to customers residing in rural and semi-urban markets. The Company faces huge competition from private unorganized lenders who typically operate in rural and semi-urban markets. In addition, the Company faces competition from banks, NBFCs and housing finance companies.

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Also See: L&T Finance Holding Stock Analysis

 

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 
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