Mahindra & Mahindra Financial Services

Mahindra & Mahindra Financial Services Rs 205.45 PE 14.91

Retail finance has good prospects in rural and semi-urban areas since the borrowing needs are still underserviced. Mahindra & Mahindra Financial Services (MMFS), in which automaker Mahindra & Mahindra has 68 per cent stake, is likely to benefit from this. The key to success in this market is reining in the non-performing assets (NPAs). MMFS hopes to maintain this at less than 2 per cent.

MMFS management was very transparent at the time of the company’s initial public offer. It made NPA provisioning of Rs 146.28 crore as against the mandated Rs 93.68 crore, for the first nine months of financial year 2006.

Financials. For the March 2007 quarter, MMFS posted Rs 262.17 crore income from operations and Rs 57.70 crore net profit, a year-on-year (y-o-y) rise of 37.23 per cent and 22.25 per cent, respectively. The y-o-y rise in net profit (excluding provisions and contingencies) is substantially higher at 74 per cent. Yearly figures are also robust on major parameters. Interest expended, as a percentage of interest earned, rose from 37.43 per cent to 38.72 per cent, on a consolidated basis. But, the effect is marginal and has been more than offset by the buoyancy in lending.

Investment rationale. Over the years, MMFS has expanded its product portfolio and now finances cars, utility vehicles, farm equipment, used vehicles and light commercial vehicles. Around 30 per cent of its business comes from financing non-Mahindra vehicles. In July 2006, it joined Maruti Udyog to provide finance for its vehicles. More than 70 per cent of its business comes from rural and semi-urban areas. So, it will be a direct beneficiary of government initiatives to boost the rural economy.

MMFS hopes to cash in on the parent’s acquisition of Punjab Tractors and the joint venture with Renault. The company expects to finance around 10,000 tractors per annum, an annual business of around Rs 250 crore. The newly-launched Logan is expected to bring a potential financing opportunity of Rs 400 crore annually, a significant business in the years to come. At Rs 235.45, the stock quotes at FY07 PE of 14.91. It has been untouched by the bull run and is waiting to be rerated.
(Source: Internet)