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M&M Financial Services
4Q earnings and analyst meet highlights
MMFSL posted strong and in line earnings.
Net profit grew 35% qoq and 12% yoy to Rs1.6bn
Asset quality improved further with gross NPLs declining
10% yoy and 23% qoq in 4Q FY11.
We maintain OUTPERFORM and our earnings forecasts.
The stock trades at 2.9x P/BV FY12E. We expect net
profit to grow 33% in FY12E against growth of 35% in
FY11.
Management guidance on growth and margins.
Management expects loan growth of 30-35% for FY12E
driven by market share gains in car financing, new product
launches by parent M&M and increasing demand for tractors
for non-farm uses. Management’s recent focus on direct
marketing will also boost loan growth. Management expects
gross margins to decline in FY12E not because of pressure
on cost of funds but because of change in loan mix towards
lower risk vehicles. Risk adjusted margins will remain stable
according to management
Expect stable asset quality. Management guided that asset
quality improvement will sustain given the strong household
balance sheets of rural India and decline in loan to value
ratios. With higher incomes, MMFSL’s customers are willing
to finance 30-35% of the vehicles through their equity against
15% earlier. Management also indicated that not only have
NPLs declined in value in FY11 but the number of NPL
accounts have also declined, which is a positive sign.
According to management, the final loss ratio in the last
economic downturn of 2008 was low at ~1.5% indicating that
while NPLs rose a lot in 2008/2009, eventually a large portion
of the bad loans were recovered, though only with a lag. In
the 2003 downturn the final loss was much higher.
Focus on direct marketing, rural housing. The company
plans to focus more on direct marketing in FY12 to leverage
its huge customer base of 1.5m customers. Direct marketing
will help reduce reliance on manufacturers and also help
cross selling. It plans to leverage its strong knowledge of
local markets to rapidly expand the balance sheet of its rural
housing finance subsidiary.
Key highlights of the analyst meet
While investors like the structural growth theme associated with MMFSL, they are concerned
about 1) accounting and regulatory risks for securitization income, 2) outlook on asset quality and
NIMs and 3) future dilution to support strong growth. We detail below management feedback on
these concerns.
Addressing concerns on assignment transactions: Investors are concerned about accounting
practices associated with loan assignments done by MMFSL and the possible regulatory risks for
such transactions.
Difference between loan assignments and securitization: As background, MMFSL sells down
loans to banks through loan assignments. Banks buy these loans to meet their priority sector
lending targets. All vehicle loans where the end use is farming can qualify as priority sector farm
loans for banks. Assignment is similar to securitization but not the same. Securitization involves
multiple parties while loan assignment deals are bilateral. The RBI considers loan assignment as
‘true sale’ but securitized assets are not considered by the RBI as true sale. As such, loans
assigned can qualify as priority sector loans. However, securitized assets do not qualify as
priority sector loans. As banks buy assets from MMFSL only to meet priority sector requirements,
MMFSL assigns loans rather than securitizing them. The RBI has specific guidelines on how
banks should account for securitized assets. There are no guidelines for loan assignments. The
seller of loans in a securitization transaction has to provide for first loss on assets and deduct it
from Tier I capital. The seller of loans in an assignment transaction has to provide capital on
credit enhancement which ranges from 15-20% of the loans assigned.
Why does MMFSL do loan assignments not securitization: Management explained that
banks prefer loan assignments rather than securitization, as loans assigned can be treated as
securitized transactions.
Addressing concerns around accounting of loan assignments: Some investors are
concerned about the accounting of income from assignments by MMFSL. In the absence of
specific guidelines, MMFSL upfronts income from loans assigned rather than amortizing it. The
RBI requires that income from securitization needs to be amortized over the life of the asset
rather than be recognized upfront. But it has no specific guidelines for loans assigned. Investors
wonder why MMFSL upfronts income from loans assigned. They argue that principles of income
accounting for securitization should also apply to assignments. According to MMFSL 1) While
they upfront income on loans assigned, they also upfront collections charges of ~2% which can
be actually amortized over 3 years. To be conservative, they also make upfront contingency
provisions suggested by their auditors. MMFSL has been making provisions of 3-4% upfront on
loans assigned which are higher than the historical loss ratio of ~2%. If the loan assigned turns
bad, MMFSL does not convert the general upfront provisions into specific provisions. Rather it
makes fresh NPL provisions through the profit and loss account, over and above the existing
general provision. As such the company believes that the accounting policy for loan assignments
is conservative not aggressive. 2) The company has an internal policy that they will not securitize
more than 15% of assets. Some of their competitors securitize larger portions. 3) MMFSL also
believes that capital associated with loan assignments and loan securitizations are similar. In a
securitization transaction, the company has to deduct the first loss from Tier I capital. If MMFSL
were to do a securitization transaction they would deduct 2% from Tier I as first loss. 2% is
MMFSL’s historic loss rate. As opposed to this, in loan assignments the company has to provide
for credit enhancement of an average of 18% of the loan value. The company is required to
provide capital towards this enhancement. For credit enhancement of 18%, they will provide
capital of 12% which works out to 2.2%, similar to the 2% capital requirement in securitization
explained above.
Income from loans assigned declined yoy for MMFSL in 4QFY11: The amount of income
from loans assigned remained stable qoq for MMFSL at Rs230m in 4Q FY11 but has declined
significantly yoy. Last year assignment income in 4Q FY10 was high at Rs585m. Securitization
deals are now benchmarked to the base rate which has lowered the income from these deals.
Last year in 4Q FY10 MMFSL struck deals at 3-4% because of a surplus liquidity in the system.
However, with the implementation of the base rate in FY11, banks now cannot buy securitized
loans at below the base rate. Also interest rates in the system have risen putting further pressure
on securitization deals. Even so, management has tried to protect the net earnings on these
deals. While the rates are no longer very low, MMFSL now separately recovers collection
charges from banks to compensate for the lower assignment income. The collection income
however has to be amortized over the life of the asset and cannot be accrued upfront, while
income from securitization is accrued upfront. Had the collection income been accrued upfront
along with the other securitization income, total revenues from securitization in 4Q FY11 would
have been higher by around Rs150m.
Regulatory risks in loan assignments: There is a risk that the RBI may apply accounting
principles of securitization to loans assigned or do away with loans assigned and only allow
securitization. The RBI has been debating this for the last two years. We believe banks will
continue to lobby for loan assignments as these are an easy and low risk source of meeting
priority targets.
Asset quality
Asset quality for MMFSL improved substantially in FY11 with gross NPLS declining 10% yoy.
Management explained that not only has the total value of NPLs declined but the number of NPL
accounts have also reduced. Management indicated that the final loss ratio following the
economic downturn in 2008 was low at ~1.5%. While NPLs spurted in FY08/FY09, most bad
loans were recovered over time.
The number of repossessed vehicles at 1,380 are lower by ~30% yoy.
Management believes that improving cash flow of their customers and declining loan to value
ratios augur well for future asset quality.
Risk adjusted margins likely to remain stable
While gross margins will decline as the loan mix shifts towards lower risk vehicles, on a risk
adjusted basis margins will remain stable.
In addition, management indicated that they will push for manufacturer / dealer subventions to
make loans more attractively priced for their customers.
Income from securitization has come down after the base rate was implemented. For FY12,
MMFSL plans to securitize Rs13bn worth of loans.
Management indicated that banks are lending to them at the base rate given their good financials
which is the lowest possible rate for an NBFC.
Fresh equity after 18 months
MMFSL believes that the current capital is enough to fund asset growth for the next 18 months.
They will require fresh capital in 18 months assuming growth of 30-35% in loans.
Structural growth drivers in place
Management believes that structural growth drivers are in place. Rural/semi urban household
incomes remain strong due to government stimulus, better farm output and most importantly local
infrastructure projects that have created non-farm employment opportunities in the rural areas.
Due to better cash flows, loan to value ratios have declined across products. Customers are now
willing to pay 30-35% in cash against 15% earlier. This augurs well for future asset quality.
The customer profile has changed. Earlier most customers were employed in the farm sector.
Incrementally the customer mix of MMFSL is shifting towards professionals (teachers, doctors),
traders and project contractors.
MMFSL has very good knowledge of local markets which is particularly helpful for new
businesses such as rural housing finance.
Incremental growth drivers for FY12E
MMFSL has shifted away from financing only parent M&M’s vehicles. The current mix between
M&M and other vehicles is 50:50. MMFSL is already the #3 financier of Maruti cars after HDFC
Bank and SBI. Maruti is now using MMFSL for financing its second-hand cars, which will be an
additional growth driver.
Heavy duty tractors of companies like Punjab Tractors are in demand for construction work.
Contractors attach excavators to these tractors or use these for transportation of material.
MMFSL sees good growth in financing tractors of Punjab Tractors.
MMFSL also sees good growth from financing the new heavy duty trucks launched by parent
M&M called Mahindra Navistar.
MMFSL has a customer base of 1.5M customers. It had earlier not made cross selling or direct
marketing efforts. The company is now spending on direct marketing to leverage its existing
customer base. This will reduce the company’s dependence on manufacturers. In addition, it will
help cross sell new products such as life and SME insurance.
MMFSL plans to leverage its good knowledge of the local markets to expand the balance sheet of
its rural housing finance company. It plans to grow the rural housing finance balance sheet from
the current Rs2bn to Rs10bn by 2015. The average size of housing loans is small at Rs200,000
and the lending rate is high at 18%. The loans are against the mortgage of land. No other large
NBFC caters to the rural housing segment due to poor knowledge of the local markets and
resistance of customers to mortgage land. Only existing players with strong local brand reputation
can therefore cater to rural housing.
Management plans to add 50 new branches in FY12E. MMFSL added 90 branches in FY11.
Key result highlights:
Net profit grew 35% qoq and 12% yoy in 4Q FY11 to Rs1.6bn.
The qoq growth in profit is strong at 35% driven by strong loan growth and expanding margins.
The yoy growth in net profit at 12% is subdued because of lower securitization income and
higher general provisions mandated by the RBI for FY11. The bank has made higher general
provisions of Rs310m in 2H FY11 as required by the RBI - of this Rs280m was made in 3Q
FY11 and Rs30m in 4Q FY11. Both lower securitization and higher general provisions are
now captured in the base and are unlikely to have a negative impact on yoy earnings from 1Q
FY11.
Disbursements of Rs39.6bn grew 44% yoy but declined 6% qoq. QoQ decline in
disbursements in 4Q is normal for MMFSL as 3Q is usually the strongest quarter for
disbursements given the festive season.
Loans grew strongly at 40% yoy and 6% qoq. Loans have been reclassified for all quarters.
Figures for the prior quarters are therefore marginally higher than those reported earlier.
Gross spread on loans including securitization came in at 13% in 4Q FY11 against 12% in 3Q
FY11. Gross spread excluding securitization came in at 12.7% in 4Q against 11.6% in 3Q.
The good improvement in qoq spreads can be attributed mainly to 1) hike in lending rates
(50bps in December and 25bps in January), 2) higher loan recoveries in 4Q and 3) to a very
small extent to the new issue that happened in end February 2011. Every year, recoveries for
MMFSL are the strongest in 4Q which is why 4Q NIMs are the strongest. Also recoveries are
the weakest in 1Q which is why normally margins decline qoq in the first quarter. Gross
spread declined yoy due to lower securitization income and higher cost of funds.
The amount of securitization is stable qoq at Rs230m in 4Q FY11 but has declined
significantly yoy. Last year securitization income in 4Q FY10 was high at Rs585m.
Securitization deals are now benchmarked to the base rate which has lowered the income
from these deals. Last year in 4Q FY10 MMFSL struck deals at 3-4% because of a surplus
liquidity environment in the system. However with the implementation of the base rate in FY11,
banks now cannot buy securitized loans at below the base rate. Also interest rates in the
system have risen putting further pressure on securitization deals. Even so, management has
tried to protect the net earnings on these deals. While the rates are no longer very low,
MMFSL now separately recovers collection charges from banks to compensate for the lower
securitization income. The collection income however has to be amortized over the life of the
asset and cannot be accrued upfront, while income from securitization is accrued upfront. Had
the collection income been accrued upfront along with the other securitization income, total
revenues fro securitization in 4Q FY11 would have been higher by around Rs150m.
Staff costs rose sharply by 51% qoq. The company has made provisions of Rs400m as onetime
special bonus to employees. In addition, the company has provided for regular bonuses
of Rs100m which it provides for every year in 4Q. Excluding the bonus component, staff costs
have grown at a more moderate pace of 6% qoq. On a yoy basis, staff costs have grown 25%
yoy.
MMFSL plans to add 50 branches in FY12E against 90 branches in FY11E. Due to lower
number of branches to be added in FY12E cost to income ratio will decline yoy.
Asset quality continues to be strong with gross NPLs declining 23% qoq and 11% yoy.
Subsidiaries continue to perform well. Mahindra Insurance Brokers grew its net profit by 152%
qoq in 4Q. Mahindra Housing grew net profit by 115% qoq in 4QFY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M&M Financial Services
4Q earnings and analyst meet highlights
MMFSL posted strong and in line earnings.
Net profit grew 35% qoq and 12% yoy to Rs1.6bn
Asset quality improved further with gross NPLs declining
10% yoy and 23% qoq in 4Q FY11.
We maintain OUTPERFORM and our earnings forecasts.
The stock trades at 2.9x P/BV FY12E. We expect net
profit to grow 33% in FY12E against growth of 35% in
FY11.
Management guidance on growth and margins.
Management expects loan growth of 30-35% for FY12E
driven by market share gains in car financing, new product
launches by parent M&M and increasing demand for tractors
for non-farm uses. Management’s recent focus on direct
marketing will also boost loan growth. Management expects
gross margins to decline in FY12E not because of pressure
on cost of funds but because of change in loan mix towards
lower risk vehicles. Risk adjusted margins will remain stable
according to management
Expect stable asset quality. Management guided that asset
quality improvement will sustain given the strong household
balance sheets of rural India and decline in loan to value
ratios. With higher incomes, MMFSL’s customers are willing
to finance 30-35% of the vehicles through their equity against
15% earlier. Management also indicated that not only have
NPLs declined in value in FY11 but the number of NPL
accounts have also declined, which is a positive sign.
According to management, the final loss ratio in the last
economic downturn of 2008 was low at ~1.5% indicating that
while NPLs rose a lot in 2008/2009, eventually a large portion
of the bad loans were recovered, though only with a lag. In
the 2003 downturn the final loss was much higher.
Focus on direct marketing, rural housing. The company
plans to focus more on direct marketing in FY12 to leverage
its huge customer base of 1.5m customers. Direct marketing
will help reduce reliance on manufacturers and also help
cross selling. It plans to leverage its strong knowledge of
local markets to rapidly expand the balance sheet of its rural
housing finance subsidiary.
Key highlights of the analyst meet
While investors like the structural growth theme associated with MMFSL, they are concerned
about 1) accounting and regulatory risks for securitization income, 2) outlook on asset quality and
NIMs and 3) future dilution to support strong growth. We detail below management feedback on
these concerns.
Addressing concerns on assignment transactions: Investors are concerned about accounting
practices associated with loan assignments done by MMFSL and the possible regulatory risks for
such transactions.
Difference between loan assignments and securitization: As background, MMFSL sells down
loans to banks through loan assignments. Banks buy these loans to meet their priority sector
lending targets. All vehicle loans where the end use is farming can qualify as priority sector farm
loans for banks. Assignment is similar to securitization but not the same. Securitization involves
multiple parties while loan assignment deals are bilateral. The RBI considers loan assignment as
‘true sale’ but securitized assets are not considered by the RBI as true sale. As such, loans
assigned can qualify as priority sector loans. However, securitized assets do not qualify as
priority sector loans. As banks buy assets from MMFSL only to meet priority sector requirements,
MMFSL assigns loans rather than securitizing them. The RBI has specific guidelines on how
banks should account for securitized assets. There are no guidelines for loan assignments. The
seller of loans in a securitization transaction has to provide for first loss on assets and deduct it
from Tier I capital. The seller of loans in an assignment transaction has to provide capital on
credit enhancement which ranges from 15-20% of the loans assigned.
Why does MMFSL do loan assignments not securitization: Management explained that
banks prefer loan assignments rather than securitization, as loans assigned can be treated as
securitized transactions.
Addressing concerns around accounting of loan assignments: Some investors are
concerned about the accounting of income from assignments by MMFSL. In the absence of
specific guidelines, MMFSL upfronts income from loans assigned rather than amortizing it. The
RBI requires that income from securitization needs to be amortized over the life of the asset
rather than be recognized upfront. But it has no specific guidelines for loans assigned. Investors
wonder why MMFSL upfronts income from loans assigned. They argue that principles of income
accounting for securitization should also apply to assignments. According to MMFSL 1) While
they upfront income on loans assigned, they also upfront collections charges of ~2% which can
be actually amortized over 3 years. To be conservative, they also make upfront contingency
provisions suggested by their auditors. MMFSL has been making provisions of 3-4% upfront on
loans assigned which are higher than the historical loss ratio of ~2%. If the loan assigned turns
bad, MMFSL does not convert the general upfront provisions into specific provisions. Rather it
makes fresh NPL provisions through the profit and loss account, over and above the existing
general provision. As such the company believes that the accounting policy for loan assignments
is conservative not aggressive. 2) The company has an internal policy that they will not securitize
more than 15% of assets. Some of their competitors securitize larger portions. 3) MMFSL also
believes that capital associated with loan assignments and loan securitizations are similar. In a
securitization transaction, the company has to deduct the first loss from Tier I capital. If MMFSL
were to do a securitization transaction they would deduct 2% from Tier I as first loss. 2% is
MMFSL’s historic loss rate. As opposed to this, in loan assignments the company has to provide
for credit enhancement of an average of 18% of the loan value. The company is required to
provide capital towards this enhancement. For credit enhancement of 18%, they will provide
capital of 12% which works out to 2.2%, similar to the 2% capital requirement in securitization
explained above.
Income from loans assigned declined yoy for MMFSL in 4QFY11: The amount of income
from loans assigned remained stable qoq for MMFSL at Rs230m in 4Q FY11 but has declined
significantly yoy. Last year assignment income in 4Q FY10 was high at Rs585m. Securitization
deals are now benchmarked to the base rate which has lowered the income from these deals.
Last year in 4Q FY10 MMFSL struck deals at 3-4% because of a surplus liquidity in the system.
However, with the implementation of the base rate in FY11, banks now cannot buy securitized
loans at below the base rate. Also interest rates in the system have risen putting further pressure
on securitization deals. Even so, management has tried to protect the net earnings on these
deals. While the rates are no longer very low, MMFSL now separately recovers collection
charges from banks to compensate for the lower assignment income. The collection income
however has to be amortized over the life of the asset and cannot be accrued upfront, while
income from securitization is accrued upfront. Had the collection income been accrued upfront
along with the other securitization income, total revenues from securitization in 4Q FY11 would
have been higher by around Rs150m.
Regulatory risks in loan assignments: There is a risk that the RBI may apply accounting
principles of securitization to loans assigned or do away with loans assigned and only allow
securitization. The RBI has been debating this for the last two years. We believe banks will
continue to lobby for loan assignments as these are an easy and low risk source of meeting
priority targets.
Asset quality
Asset quality for MMFSL improved substantially in FY11 with gross NPLS declining 10% yoy.
Management explained that not only has the total value of NPLs declined but the number of NPL
accounts have also reduced. Management indicated that the final loss ratio following the
economic downturn in 2008 was low at ~1.5%. While NPLs spurted in FY08/FY09, most bad
loans were recovered over time.
The number of repossessed vehicles at 1,380 are lower by ~30% yoy.
Management believes that improving cash flow of their customers and declining loan to value
ratios augur well for future asset quality.
Risk adjusted margins likely to remain stable
While gross margins will decline as the loan mix shifts towards lower risk vehicles, on a risk
adjusted basis margins will remain stable.
In addition, management indicated that they will push for manufacturer / dealer subventions to
make loans more attractively priced for their customers.
Income from securitization has come down after the base rate was implemented. For FY12,
MMFSL plans to securitize Rs13bn worth of loans.
Management indicated that banks are lending to them at the base rate given their good financials
which is the lowest possible rate for an NBFC.
Fresh equity after 18 months
MMFSL believes that the current capital is enough to fund asset growth for the next 18 months.
They will require fresh capital in 18 months assuming growth of 30-35% in loans.
Structural growth drivers in place
Management believes that structural growth drivers are in place. Rural/semi urban household
incomes remain strong due to government stimulus, better farm output and most importantly local
infrastructure projects that have created non-farm employment opportunities in the rural areas.
Due to better cash flows, loan to value ratios have declined across products. Customers are now
willing to pay 30-35% in cash against 15% earlier. This augurs well for future asset quality.
The customer profile has changed. Earlier most customers were employed in the farm sector.
Incrementally the customer mix of MMFSL is shifting towards professionals (teachers, doctors),
traders and project contractors.
MMFSL has very good knowledge of local markets which is particularly helpful for new
businesses such as rural housing finance.
Incremental growth drivers for FY12E
MMFSL has shifted away from financing only parent M&M’s vehicles. The current mix between
M&M and other vehicles is 50:50. MMFSL is already the #3 financier of Maruti cars after HDFC
Bank and SBI. Maruti is now using MMFSL for financing its second-hand cars, which will be an
additional growth driver.
Heavy duty tractors of companies like Punjab Tractors are in demand for construction work.
Contractors attach excavators to these tractors or use these for transportation of material.
MMFSL sees good growth in financing tractors of Punjab Tractors.
MMFSL also sees good growth from financing the new heavy duty trucks launched by parent
M&M called Mahindra Navistar.
MMFSL has a customer base of 1.5M customers. It had earlier not made cross selling or direct
marketing efforts. The company is now spending on direct marketing to leverage its existing
customer base. This will reduce the company’s dependence on manufacturers. In addition, it will
help cross sell new products such as life and SME insurance.
MMFSL plans to leverage its good knowledge of the local markets to expand the balance sheet of
its rural housing finance company. It plans to grow the rural housing finance balance sheet from
the current Rs2bn to Rs10bn by 2015. The average size of housing loans is small at Rs200,000
and the lending rate is high at 18%. The loans are against the mortgage of land. No other large
NBFC caters to the rural housing segment due to poor knowledge of the local markets and
resistance of customers to mortgage land. Only existing players with strong local brand reputation
can therefore cater to rural housing.
Management plans to add 50 new branches in FY12E. MMFSL added 90 branches in FY11.
Key result highlights:
Net profit grew 35% qoq and 12% yoy in 4Q FY11 to Rs1.6bn.
The qoq growth in profit is strong at 35% driven by strong loan growth and expanding margins.
The yoy growth in net profit at 12% is subdued because of lower securitization income and
higher general provisions mandated by the RBI for FY11. The bank has made higher general
provisions of Rs310m in 2H FY11 as required by the RBI - of this Rs280m was made in 3Q
FY11 and Rs30m in 4Q FY11. Both lower securitization and higher general provisions are
now captured in the base and are unlikely to have a negative impact on yoy earnings from 1Q
FY11.
Disbursements of Rs39.6bn grew 44% yoy but declined 6% qoq. QoQ decline in
disbursements in 4Q is normal for MMFSL as 3Q is usually the strongest quarter for
disbursements given the festive season.
Loans grew strongly at 40% yoy and 6% qoq. Loans have been reclassified for all quarters.
Figures for the prior quarters are therefore marginally higher than those reported earlier.
Gross spread on loans including securitization came in at 13% in 4Q FY11 against 12% in 3Q
FY11. Gross spread excluding securitization came in at 12.7% in 4Q against 11.6% in 3Q.
The good improvement in qoq spreads can be attributed mainly to 1) hike in lending rates
(50bps in December and 25bps in January), 2) higher loan recoveries in 4Q and 3) to a very
small extent to the new issue that happened in end February 2011. Every year, recoveries for
MMFSL are the strongest in 4Q which is why 4Q NIMs are the strongest. Also recoveries are
the weakest in 1Q which is why normally margins decline qoq in the first quarter. Gross
spread declined yoy due to lower securitization income and higher cost of funds.
The amount of securitization is stable qoq at Rs230m in 4Q FY11 but has declined
significantly yoy. Last year securitization income in 4Q FY10 was high at Rs585m.
Securitization deals are now benchmarked to the base rate which has lowered the income
from these deals. Last year in 4Q FY10 MMFSL struck deals at 3-4% because of a surplus
liquidity environment in the system. However with the implementation of the base rate in FY11,
banks now cannot buy securitized loans at below the base rate. Also interest rates in the
system have risen putting further pressure on securitization deals. Even so, management has
tried to protect the net earnings on these deals. While the rates are no longer very low,
MMFSL now separately recovers collection charges from banks to compensate for the lower
securitization income. The collection income however has to be amortized over the life of the
asset and cannot be accrued upfront, while income from securitization is accrued upfront. Had
the collection income been accrued upfront along with the other securitization income, total
revenues fro securitization in 4Q FY11 would have been higher by around Rs150m.
Staff costs rose sharply by 51% qoq. The company has made provisions of Rs400m as onetime
special bonus to employees. In addition, the company has provided for regular bonuses
of Rs100m which it provides for every year in 4Q. Excluding the bonus component, staff costs
have grown at a more moderate pace of 6% qoq. On a yoy basis, staff costs have grown 25%
yoy.
MMFSL plans to add 50 branches in FY12E against 90 branches in FY11E. Due to lower
number of branches to be added in FY12E cost to income ratio will decline yoy.
Asset quality continues to be strong with gross NPLs declining 23% qoq and 11% yoy.
Subsidiaries continue to perform well. Mahindra Insurance Brokers grew its net profit by 152%
qoq in 4Q. Mahindra Housing grew net profit by 115% qoq in 4QFY11.
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