Bullish on Growth: Management remains extremely bullish on growth, clearly
an exception to the overall tone of significant slowdown. Management at the
minimum intends to double their current ~Rs200bn loan book in 3 yrs and
believe that they will achieve their 2x size faster than 3yrs as they continue to
penetrate new OEMs and add new product categories.
Adding new growth drivers: Mahindra's biggest advantage is that it is well
diversified in 4-5 product categories and management is adding new product
categories. Mahindra Finance plans to build a SME book largely lending to the
Mahindra ecosystem. Also apart from penetrating new OEMs in most of its
product categories, they plan to increase the share of high yielding 2nd hand
vehicle portfolio to 12-15% of their loan book from 7-8% currently.
Positioned to benefit from an easing rate cycle: Margins have come off over the
last 6 qtrs as Mahindra Finance has not passed on the entire rate hikes to
customers and with an easing rate cycle, expects margins to improve over FY13-
14. Long term funding rates have already come off by 20-30bps and with limited
dependence on direct assignments, MMFS expects margins to improve.
Asset quality ‐ Maintaining LTV discipline key: Management believes that they
have had a tight control on LTVs (avg. 66-67%) in spite of the high growth and
hence does not expect large negative asset quality surprises. Tractor portfolio
could have been partially exposed to the low monsoon but recent pickup is
positive. We factor in ~170bps of credit costs from ~100bps delivered in FY12
and hence some pick up delinquencies in Tractor/CV book is factored by us and
the street.
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