Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Mah Fin.: Reaping benefits of rural reach - Views on News from Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Mah Fin.: Reaping benefits of rural reach
Jul 24, 2010

Mahindra Finance declared its 1QFY11 results. The company has reported a 24% growth in interest income while net profits have grown by 85% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows by 24% YoY 1QFY11 on the back of 31% YoY growth in advances. Assets under management grew by 27% YoY.
  • Value of assets financed grew 76% YoY over the past 12 months.
  • Net interest margins dropped from 6.3% in 1QFY10 to 5.5% in 1QFY11.
  • Bottomline grows by 85% YoY during 1QFY11; largely on the back of growth in interest income and write back of provisioning.
  • Other income falls 4% during the quarter.
  • Capital adequacy ratio healthy at 17.4% at the end of 1QFY11.

Consolidated performance snapshot
Rs (m) 1QFY10 1QFY11 Change
Interest income 3,275 4,045 23.5%
Interest expense 1,212 1,328 9.6%
Net Interest Income 2,063 2,716 31.7%
Net interest margin 6.3% 5.5%  
Other Income 85 82 -3.8%
Other Expense 697 1,026 47.3%
Provisions and contingencies 802 576 -28.2%
Profit before tax 649 1,196 84.3%
Tax 217 397 82.6%
Profit after tax/ (loss) 432 799 85.1%
Net profit margin (%) 13.2% 19.8%  
No. of shares (m) 96.9 96.9  
Book value per share (Rs)*   187.6  
Price to book value (x)*   2.8  

What has driven performance in 1QFY11?
  • The 25% YoY growth in new customer contracts of Mahindra Finance is testimony to the fact that the institution has been able to reap benefits of higher income in rural India. With the economic recovery showing in the auto sector, the resurgence in demand for car and CV loans also provided a boost to Mahindra Financeís performance in 1QFY11.

    Mahindra Finance, which is predominantly a financer of tractors and utility vehicles sold by M&M, saw most of its incremental disbursements go to cars and commercial vehicles. The company saw the proportion of disbursements towards utility vehicles drop from 39% in June 2009 to 34% in June 2010. The proportion of disbursements towards cars (29%) and commercial vehicles (7%) increased while that towards tractors stayed at 22% during the period.

    Cautious growth...
    (Rs m) 1QFY10 % of total 1QFY11 % of total Change
    Advances 69,954   92,709   32.5%
    Borrowings 51,550   69,885   35.6%
    Secured 41,810 81.1% 54,524 78.0% 30.4%
    Unsecured 9,740 18.9% 15,361 22.0% 57.7%
    Credit borrowing ratio 135.7%   132.7%    

  • Mahindra Finance consciously adopted a cautious stance in the past few quarters with regard to margins and asset quality. Typical to their nature, the tractor loans yield the company superior spreads (in the range of 12% to 13%) but at the same time pose some delinquency problems. This led to the company compromising its margins for safer quality of assets.

    Disbursement mix
    (%) 1QFY10 1QFY11
    Auto / utility vehicles 39 34
    Tractors 22 22
    Cars 25 29
    Commercial vehicles 6 7
    Used vehicles & others 8 8

  • The lower interest rates led to lower delinquencies for the NBFC in the past few quarters. The NPAs at the gross level moved lower from 9.8% in 1QFY10 to 6.9% in 1QFY11. Also, due to higher provisioning, the net NPA were lower at 1.3% at the end of 1QFY11 as compared to 3.1% of assets at the end of 1QFY10. The provision coverage ratio was 82.4% at the end of 1QFY11. Having said that, notwithstanding the shift from tractors to cars and utility vehicles, we believe that the company's asset quality may continue to be subject to slippages as long as the underlying economic risks (interest rates etc.) persist.

What to expect?
At the current price of Rs 543, the stock is trading at a multiple of 1.9 times our estimated FY13 adjusted book value. The subsidy in borrowing costs for funding farm equipments provides the company substantial cushion in terms of margins. Control over asset quality and extending its advance base beyond parent M&Mís portfolio will be the key to the company's growth in the longer term. We will soon review our update on the stock. (Research pro subscribers can click here for the latest update on the company.)

To Read the Full Story, Subscribe or Sign In

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 23, 2018 (Close)


  • Track your investment in MAHINDRA FINANCE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks