M&M Finance

Rural demand is still strong, vehicle availability an issue – M&MFIN

Update on the Indian Equity Market:


On Thursday, Nifty closed 0.2% higher at 14,895. Within NIFTY50, JSWSTEEL (+9.6%), TATASTEEL(+6.6%), and BAJAJFINSV(+6.5%) were top gainers, while HEROMOTOCO (-2.4%),EICHERMOT(-2.3%), and BAJAJ-AUTO(-1.8%) were the top losing stocks. Among the sectoral indices, METAL (+4.5%), PHARMA (+0.3%), and FINANCIAL SERVICES 25/50 (+0.2%) were the highest gainers, while PSU BANK (-1.1%), AUTO (-1.0%), and FMCG (-0.4%) were the top losers.


Rural demand is still strong, vehicle availability an issue – M&MFIN


Excerpts of an interview with Mr. Ramesh Iyer, MD&Vice Chairman, M&M Financial (M&MFIN), aired on CNBC-TV18 on 26th April 2021:

  • M&MFIN represents the rural and semi-urban vehicle markets. Non-availability of vehicles has led to a lower growth in disbursements for M&MFIN.
  • MHCVswere a growth story for M&MFIN earlier and this segment has also been under pressure leading to lower growth.
  • Collections are good while disbursements are slower, again contributing to a slower growth on the balance sheet.
  • Iyer expects 2HFY22E to be strong once the availability of vehicles is smoothened. The demand in rural India is still strong.
  • Iyer thinks that they have sufficient provisioning for current book. As the 2nd Covid-19 wave is spreading to the rural areas unlike the 1st wave, M&MFIN will take a very cautious approach in 1HFY22E.
  • M&MFIN had GNPA of about 9% in 4QFY21. The seasonality of agriculture means that there is a tendency for GNPAs to go up in the 1st half of the financial year, even without Covid disruption. So 1HFY22E will be the correct period to watch out for in terms of asset quality trends.
  • Iyer is positive on the agri cash flow on back of good monsoon forecast. Infra projects were ready to start which have again faced disruption due to the second wave of covid-19. But as those projects also start post monsoon, the asset growth should be back in 2HFY22E.
  • Industry players are seeing customers wanting smaller EMIs and extended period- i.e. restructuring, which again seems necessary from customer perspective. Regulators’ decision on the same remains to be seen.

Asset Multiplier Comments

  • Several states have imposed lockdowns or restrictions to curb the rising Covid-19 cases. Vehicle demand could see further slowdown due to restricted public mobility, leading to slower disbursements for vehicle financiers.
  • Several banks as well as NBFCs that have reported 4QFY21 results have commented that current provisioning seems adequate. But the situation is still developing and any stress in the loan book will only be visible by the end of 1QFY22E.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of M&MFIN was ₹ 165 as of 29-April-2021. It traded at 1.3x/ 1.1x the consensus BVPS estimate of ₹ 131/145 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 186/- implies a PE multiple of 1.3x on FY23E BVPS of ₹145/-.


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance

Update on the Indian Equity Market:

On Tuesday, Indian indices ended on positive note for the second consecutive day. NIFTY ended up 98 pts (+1.1%) at 9380 level.
Among the sectoral indices, PVTBANK (3.6%), BANK (2.9%) and FIN SERVICE (3.4%) were among the top gainers while PHARMA (-2.3%), FMCG (-0.9%) and METAL (-0.3%) were the losers. INDUSINDBK (17.1%), BAJFINANCE (+9.3%) and HDFC (+8.3%) were the top gainers. SUNPHARMA (-3.0%), IOC (-2.3%) and NTPC (-2.1%) were the top losers.

Banks not giving moratorium should not lead to Asset Liability Management (ALM) mismatch: Mr Ramesh Iyer, Mahindra Finance
Over 75% retail borrowers have opted for loan moratorium
Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman (VC) and Managing Director of Mahindra Finance dated 27th April 2020:

• When asked about the collection efficiency after Non-Banking Finance Companies’ (NBFC) operations being partially resumed, he replied that April was not expected to be good for collections because the moratorium was just announced and he is sure that most of the NBFCs would have made some collections.
• Mahindra Finance had about 15-20% collection efficiency but that largely came from the farming community. He is of the opinion that April and May both where the moratorium has been given, no one will want to come and pay.

• He informed that more than 75% of the customers have opted for the moratorium. Initially it was only about 60-65%. Then subsequently they would have reviewed their own situation and would have felt opting for moratorium. He believes that the 25% who are not asking for it, there would be about 4-5% or maybe little more who are fearing the interest that is going to be charged for the moratorium period and therefore they would have made the payment. They might not have the money to pay but fearing the interest, they would have made the payment. But they would come back and possibly negotiate on the interest and take the moratorium.
• When asked about the Asset Liability Management (ALM) mismatch due to the moratorium, Mr Iyer stated that it will depend from NBFC to NBFC. Mahindra Finance in particular always had a good match of ALM. So, banks not giving moratorium should not lead to ALM mismatch because he expects that the disbursements to not be there. Therefore, if the collections are not there to that extent that disbursements are not there, it should kind of offset each other to an extent. But again, it depends on each NBFC independently but the large ones should not have a mismatch.
• He further clarified that some of the banks are giving moratorium on the term loan. The Banks have not announced that but most of the private banks are giving moratorium on the term loans to NBFCs also.
• When asked his opinion on the Franklin Templeton issue is going to further tighten the liquidity in the system, he said that clarifications have been given. Even Templeton has put out some notes. So, this is a one-off case but definitely, whenever something like this happens, it does build up pressure in the system. But in any case, mutual funds were not actively providing funds to NBFCs in the recent past given their own redemption and inflow being a little low. Really what we are looking for is liquidity from the banking system and with so much action already taken by the RBI to provide liquidity in the system, he personally believes if the banks do open up to NBFCs and start providing them funds, then liquidity by itself should not be a problem.
• When asked about his outlook on rural economy and impact on rural cash flows, he said that it is not the farmers who are hugely impacted because it is not across the country that everyone is impacted. After analysis it is found about 65-70% of the districts do remain free from this problem but, the fact is because of the lockdown, the activities are low. But what is important and interesting is that the harvest has been good; wheat output is good, sugarcane is good, potato, onion is good, pulses are good and the government will buy and they will warehouse these products. So surely the farm cash flows should improve and the collections seen in April are coming from the farming community. So, he is not of the opinion that the farmers are impacted.
• He also informed that there is a demand for tractors. The dealerships in some of the locations have opened up. But because of the lockdown there has been a slowdown in the activities. If two months of activity is lost, there would be pressure in the collections and the consumers even if they have the money would like to hold it back and wait and what next happens. So, to that extent, the overdues will go and with three months moratorium provided by the Reserve Bank, if things were to regularise if not from immediate June but even in August, things should settle down well and we should not see increase in NPAs.
• But yes, if this was to get extended and not stop at May and was to continue to go longer then, one will need to relook at the situation and what happens next. But he believes that post August, things would start to look better and definitely rural is not as badly impacted as urban is.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Mahindra Finance was ₹ 155/- as of 27-April-20. It traded at 0.76x/ 0.70x the consensus BVPS estimate of ₹ 189/205 for FY20E/ FY21E respectively.
• Consensus target price of ₹ 305/- implies a PBV multiple of 1.5x on FY21E BVPS of ₹ 205/-

COVID-19 impact: Have requested RBI that moratorium sought by consumers should be given, says M&M Fin Services

Update on the Indian Equity Market:

On Thursday, NIFTY continued gains for the 3rd day and ended at 8,641 (+3.9%). Among the sectoral indices, Pvt Bank gained the most while no sector index ended negatively. Pvt bank (+8.3%), Realty (+7.3%) and BANK (+6.4%) were the top gainers. Out of the NIFTY50 stocks, IndusInd bank (+46.0%), L&T (+10.0%) and Bajaj Finance (+9.3%) rallied the most, while GAIL (-3.3%), HCL Tech (-2.6%) and Sun Pharma (-2.5%) were the worst performers for the day.

Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman & Managing Director of Mahindra & Mahindra Financial Services Ltd; dated 25th March 2020. The interview aired on CNBC-TV18.

  • Original equipment manufacturers (OEMs) have shut down production due to COVID-19, which obviously have an impact on vehicle financiers.
  • For OEMs at the beginning of 4Q FY20, the volumes started to shrink because everybody was preparing for BS-VI transition and therefore the inventory levels started to come down. Now with the COVID-19 scare – even the little possible sales that were likely to happen have come to an end, according to him.
  • He added the month of January-February was average; March has been absolute no-number kind of a month, so he thinks that it would be a low single-digit growth in loan book or for some it may not even be that.
  • The Company has told the RBI about consumers asking them for a moratorium and has requested RBI to provide the same.
  • They have also told RBI that these are the times where maybe the non-performing assets (NPAs) norms itself will have to be rewritten to say it is not 90-days delinquent but 180-days kind of a delinquent and it is more to protect the good customers who have been paying so far.
  • There is uncertainty about tomorrow. So people had started becoming cautious but even more important is that the overall activities have started to reduce and therefore people’s earnings will start to reduce but these are times where instead of worrying about what is going to happen to the growth and things like that – the Company will be looking at ‘how do they help out the consumers’.
  • The current situation is still not as impactful in the rural market as seen in urban according to him. People will have to figure out after things get normal. They will start relooking at what else to do, how else to do. So the real impact will be known only three months down the line.
  • If consumers need some kind of temporary short-term loan after things get to some normal then the Company will look at what could be that short-term small-ticket loans to the existing consumers whom they may want to support and partner them to come out of this situation as things start to improve.

Consensus Estimate: (Source: market screener, investing.com websites)

  • The closing price of M&M Financial Services Ltd was Rs 169/- as of 26-March-2020. It traded at 0.9x / 0.8x/ 0.7x the consensus book value estimate of Rs 190/ 211/ 238 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of Rs 394/- implies a PB multiple of 1.7x on the FY22E book value of Rs 238/-

M&M Finance- 2HFY20 to be better

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 1.7% higher. Among the sectoral indices NIFTY Bank (+3.7%), NIFTY PVT bank (+3.5%), NIFTY PSU bank (+3.1%) closed higher while NIFTY Media (-0.3%), NIFTY FMCG (-0.2%) NIFTY IT (-0.8%) ended on a negative note. The biggest gainers were IndusInd Bank (+5.5%), Infratel (+5.3%), Bharti Airtel (+5.2%) whereas Yes bank (-5.2%), Hero motocorp (-2.8%), Zee (-2.4%) ended on a negative note.

Excerpts from an interview with Mr. Ramesh Iyer – Chairman & Managing Director, M&M Financial Services.

  • Mr Ramesh said, “We have been focusing on the semi-urban rural market and we do see that the festival demand, at least the footfall at the dealerships are much much higher than what it was in the last six months.”
  • According to him, the festival season would turn out to be good and normally the second half for the rural market is always good, given the festival, and harvest has been in widespread range. Put together, he expects demand to pick up and the second half to be good.
  • They have revised FY20 loan growth numbers and there are four reasons for that:
    • Their deeper penetration is an advantage as they get volumes from the deeper pockets. 
    • Multi-product approach that they have been taking. Their growth is not dependent on a single product. 
    • They have been little more aggressive in pre-owned vehicle like pre-owned cars, tractors, UVs, etc, and they do see demand for a pre-owned vehicle in the rural market picking up.
    • Large customer base.
  • They have not seen too much competition and they expect some market share growth. So, that is one growth possibility.
  • Pre-owned vehicle segment has been a little aggressive and they do see growth coming from there. While the heavy commercial vehicle segment is not growing, they have a very small base or a low base and they do expect some volume growth there, given the total volume.
  • As far as the pre-owned vehicle is concerned, they were concentrating on cars and UVs. Now, they have also gone into pre-owned tractor financing and that is another very exciting segment.
  • These are the growth drivers and market share gain from their prime products like UV or car segment altogether is helping them maintain growth.
  • They do not see an issue to really worry about from the asset quality front but it all depends on yields. What is going to be the price that will get announced because the farm cash flow is important from a rural perspective, but they believe that given the widespread monsoon, at least in some of the states, the yields would be good.
  • They do not, therefore, see a spike in NPAs but there are some pockets where one could witness delay.
  • Their focus area is going to be semi urban, rural market and that is what they have done for the last 25 years. They do see a pick up in sentiment and they expect that in the next six months, with the festival and the harvest coming up, they should see some buoyancy in that market.
  • They are borrowing from banks, own debentures, fixed deposits and that has helped them maintain growth. But yes, there has been some increase in cost that they have witnessed initially but now that is climbing down.
  • Liquidity has not been an issue and as cost seems to get addressed, they feel a little more comfortable than that of six months back.
  • They will be open to any inorganic growth opportunity, but they do not have anything on the tables at this stage. But clearly, it has to have a strategic fit, a cultural fit and that is what they will look for.

Consensus Estimate (Source: market screener website & Investinng.com website)

  • The closing price of M&M Finance was ₹ 334 /- as of 09-10-19. It traded at 1.7x /1.5x/1.4x x the consensus book value for FY20E/ FY21E/FY22E of ₹ 194 /₹ 218/ ₹242 respectively.
  • Consensus target price of ₹ 378/- implies a P/B multiple of 1.6 x on the FY22 book value of ₹242 /-