Mahindra Finance-MMFSL-Right Issue-Subscribe

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MMFSL is coming up with a rights issue of 617764960 equity shares of face value of Rs 2each at a price of 50 per share amounting to Rs 3088.8 crore.The issue opens for subscription on 28th July and will close on 11th Aug. MMFSL has offered rights shares in the ratio of 1 share for every 1 share held.

MMFSL is a part of the Mahindra group, one of the largest business conglomerates in India. MMFSL is a leading deposit taking NBFC with pan-India presence, spanning 27 states and seven union territories through 1,322 offices, as of March 31, 2020.  It focuses on customers primarily in the rural and semi-urban markets of India. MMFSL is engaged in providing financing for purchases of auto and utility vehicles (including three wheelers), tractors, cars, commercial vehicles and construction equipment, and pre-owned vehicles which accounted for 27.7%, 16.4%, 19.2%, 15.3% and 18.1% of estimated total value of the assets financed by our Company, respectively, for the FY 20. Its portfolio also includes housing finance, mutual funds, personal loans, financing to micro, small and medium enterprises, insurance broking and mutual fund distribution services.

In August 2019, MMFSL entered into a joint venture with Ideal Finance Limited to offer financing services in Sri Lanka. It provides wholesale inventory-financing to dealers and retail-financing to customers in the United States for purchase of Mahindra tractors and utility vehicles through Mahindra Finance USA LLC.

Objects of the offer

  1. Repayment/ prepayment of certain outstanding borrowings (Rs 1600 crore)
  2. Augmenting the long-term capital and resources for meeting funding requirements (Rs 800 crore)
  3. General corporate purposes.

Financial Performance

Total revenue of MMFSL for FY 20 has increased by 8% to Rs 11148.87 crore (Rs 10366.3 crore). However, profit after tax has reduced to Rs 906.4 crore from 1557.1 crore in FY 19 because of increase in finance cost and increase in impairment of financial instruments in FY 20. Additional impairment losses have been provided to cover contingencies that may arise due to the Covid-19pandemic. Gross profit margins have remained consistently strong, being 56% in FY 20. Net profit margins are 8% in FY 20 and 15% in FY19. Leverage is high, debt is 4(x) times of equity and return on net worth is 8% for FY 20.

Profits for Q1 FY 21 has significantly increased to Rs 155.8 crore as compared to profits of Rs 68.4 crore in Q1FY 20 (128% increase). This increase is attributable to increase in revenue inspite of the lockdown and no current taxes in Q1 FY21.

Gross NPA stood at 8.4% for Mahindra fin and 15.1% for Mahindra Housing Fin which are at high levels. NPAs may continue to rise once the moratorium period is over.

Table 1 - Financials and Ratios (Amount in INR Crs)
Title Q1 FY 2021 FY 2020 FY 2019
Total revenue 2654.9 10245.1 8809.8
of which Interest income 2609.1 9941.7 8614.5
PAT 155.8 906.4 1557.1
EBITDA 1498.1 6290.7 6387.6
Total Assets NA 74071.21 67077.98
Gross profit margin (%) 56.43 61.40 72.51
Net profit margin (%) 5.87 8.85 17.67
Interest coverage ratio (times) NA 1.30 1.62

Conclusion

Right issue is priced at Rs50 and the share price of MMFSL is currently quoting near to Rs 140, this implies that Rights issue is offered at attractive discount of around 70%.This seems to be lucrative considering MMFSL has robust operating margins, consistent net margins and strong operating knowledge of rural and semi urban markets under the brand of Mahindra Group. However one needs to be watchful of increasing trends of NPA in financial services industry which got exaggerated due to current Covid scenario. Hence, Right issue shall be subscribed by the investors keeping in mind the NPA challenges that the Company and NBFC sector may continue to face.

Last updated on 11th Aug 2020

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User Comments

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1. Vinay Jain  7/27/2020 10:44:11 AM Reply
Hello Sir, What is the cut off date for MMFSL right issue?
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2.1. Priyanka Jain  7/27/2020 4:11:31 PM
Cut off date was 23rd July






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