Anand Rathi, :: M&M Financial Services -A play on food inflation

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M&M Financial Services
A play on food inflation
Our inaugural Alpha Express, a product focused on mediumterm
thematic trading ideas, recommends investment in
Mahindra and Mahindra Financial Services (MMFS IN) as it is a
key beneficiary of high food inflation-led rising rural prosperity.

 MMFS: Leveraging rural prosperity. Food inflation in India is
largely structural and likely to be elevated in the medium term.
High food prices transfer wealth to rural India, and measures to
tackle food inflation–agro investment, technology change,
innovation–further such transfers. We recommend investment in
MMFS, strategically poised to benefit from rising rural incomes.
 Strategic positioning. MMFS is the market leader in organised
auto financing in rural India with widely spread out branches. Its
calibrated entry into rural housing finance offers additional
opportunities. Positioning in strong growth verticals with low
competition and access to cheaper funding due to its strong
parentage ensure healthy margins. Long local association-based
business makes it difficult for others to replicate the model.
 Weather-related risks. Weather condition linked stochastic
element in the short-term earnings profile of MMFS (as in any
rural play) is the key risk and this is difficult to completely hedge.
Yet, strong local knowledge, due diligence in loan appraisal,
collateralised lending and low loan-to-asset ratio ensures high
recovery potential.