Money Consultants MAHINDRA FINANCE - · PDF file• Technology . EVALUATION OF ALTERNATIVES...

MAHINDRA FINANCE Money Consultants Eric Postma | Tom Epp Jesse Perry | Amanda Macdonald Asper School of BusinessB

AGENDA

Analysis of Opportunity

Evaluation of Alternatives

Recommendation

Financial Analysis

Risks & Risk Mitigation

KEY ISSUE

 How does Mahindra Finance continue to grow in an increasingly competitive market?

Analysis Alternatives Recommendation Finances Risks

ANALYSIS OF OPPORTUNITY

Mahindra & Mahindra

Mahindra Finance

Mahindra Insurance

Mahindra Housing Finance

Payment Bank


Tech Mahindra



Value Proposition

Trust and relationships

Customer service

Rural knowledge

Positive change



•  Loans, insurance •  Customized for needs of consumer Product •  Intermediate level interest rate (~14%) Price •  Rural India •  Focused on agriculture Place •  Relationships, trust, human capital •  Leverage existing M&M customers Promotion

ANALYSIS OF OPPORTUNITY: INDIA


69%

31%

Rural Urban

Rural India contributes 55.4% of national income

85.4 million farms

400,000 untapped villages

Trust and relationships are

critical!

ANALYSIS OF OPPORTUNITY: GOVERNMENT


•  42 million rural houses in seven years

•  20 million urban houses

Infrastructure

Programs

•  Payment banks •  Small finance banks

Financial Inclusion

ANALYSIS OF OPPORTUNITY: COMPETITORS


24%

15%

7% 22%

11%

9%

12% Bajaj Finance

Sundaram Finance

Cholamandalam investment

Shriram Transport Finance

Shriram City Union

Reliance Capital

Mahindra Finance

ANALYSIS OF OPPORTUNITY: NEW ENTRANTS


Payment Banks •  Reliance •  Aditya Birla Nuvo •  Airtel •  Vodafone

Small Finance Banks •  Ujjivan •  Janalakshmi •  Au Financiers •  Utkarsh

ANALYSIS OF OPPORTUNITY: NEW ENTRANTS


Strengths •  Local knowledge •  Customized products •  AAA rating

Concerns •  Effort intensive in

rural India •  Government restricts

financial product offerings

Threats •  New entrants •  Slowdown in rural

economy •  Urbanization

Opportunities •  Government reforms

and regulations •  Large unbanked

population •  Technology

EVALUATION OF ALTERNATIVES


•  Finance small loans, < 500RN •  Emerging market high ROE

Micro-financing

•  Branch into urban markets •  Offer similar financial services to expanding

urban market

Expand into urban market

•  Growth through capitalization of core strengths •  Rural development, leverage technology, expand

to China

Value Driven Growth

ALTERNATIVE 1 – MICRO-FINANCING


Advantages Disadvantages

Reputation

Low Value

Risky

Small Market

Prosperity

ROE

ALTERNATIVE 2 – EXPAND INTO URBAN MARKETS



Risky

Product Pairing

Low Margins

Competitive

Large Market

High Volume

ALTERNATIVE 3 – VALUE DRIVEN GROWTH



Low Competition

Experts

Untapped

Robust

Effort intensive

Omits Urban Potential

CRITERIA


Prosperity

Revenue Growth

ROE Trust Reputation

Key Strengths

CRITERIA MATRIX


Grow Prosperity

Revenue Growth

Return on Equity

Trust / Reputation

Key Strengths

Micro-Financing Y X Y X Y Urban Expansion X Y X Y X Value Driven Growth Y Y Y Y Y

RECOMMENDATION


Leverage Core Strengths for Sustainable

Growth

IMPLEMENTATION


Rural focus in India •  Focus on strengths and experience

Integrate education & technology • Grow prosperity

Expand into similar markets •  Rural China

RURAL EXPANSION


•  Trust and relationships •  No corporate guidelines

Experience & Success

•  250,000 – 400,000 villages •  Loans/Insurance/Tractors/Cars

Market Potential

•  Customized payments •  Agricultural harvest timing

Agricultural Customization

INTEGRATE EDUCATION & TECHNOLOGY


•  Education – grow prosperity •  Create demand for additional products •  Loan security / less volatility

Improved Agricultural Practices

•  Improved customer service •  Hand held devices – mobile •  Cost savings – reduced travel

Technological Advancements

•  Village leader - Toughbook •  Cost savings – local recruitment •  Build trust – life long customers

Village Commerce

CHINESE EXPANSION


•  High % rural •  Agricultural focus •  High growth potential

Similar Market

•  Customize to client needs • Grow prosperity – create demand •  Future sales

Utilize Successful Model

• Market research •  Relationship development •  Joint Venture – Government regulations

Require Partnership

SYNERGIES


Life Long Customers Future Financial Expansion

Conglomerate Expertise and Power IT Tractors

Prosperity Grows Demand Loans Insurance Tractors/Vehicles

Similar Markets India China

IMPLEMENTATION TIMELINE


2015Development

Mobile/OnlineAgriculture TrainingCommerce Training

Rural Indian ExpansionVillage ExpansionAgricutural ImplementationCommerce Implementation

Chinese ExpansionMarket ResearchRelationship DevelopmentJoint VentureVillage Expansion

30,000 30,000 30,000 30,000 30,000

2016 2017 2018 2019 2020

FINANCES


Cash Inflows (INR Millions) 1,177 1,201 1,225 1,249 1,274 6,125

Incremental Plan Costs (Cash Outflows) FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total(INR Millions) -‐ -‐ -‐ -‐ -‐ -‐ Village Expansion 396 396 396 396 396 1,980 Staffing additions 132 132 132 132 132 660 Mobile and online banking 165 99 -‐ -‐ -‐ 264 Agricultural training 13 15 17 19 21 84 Village Commerce & Equipment 396 396 396 396 396 1,980 Market Research 3 -‐ -‐ -‐ -‐ 3 Chinese relationship development -‐ 5 3 -‐ -‐ Chinese investment -‐ -‐ 7 -‐ -‐ 7

1,106 1,043 950 943 945 4,978

Net Cash Benefit 72 158 274 306 329 1,147

FINANCES


Revenue Projections -‐ INR MillionsFY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Revenue 60,211 69,243 83,091 103,864 135,023 182,281 Total Expenses 46,610 53,602 64,322 80,402 104,523 141,106 Profits Before Taxes 13,601 15,641 18,769 23,462 30,500 41,175 Profits after Taxes 9,249 10,636 12,764 15,955 20,741 28,000

Net profit 9,129 10,498 12,598 15,748 20,472 27,637

FINANCES


Balance Sheet (forecast) -‐ INR MillionsFY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Share Capital 1,128 1,139 1,151 1,162 1,174 1,186 Reserves & Surplus 58,299 59,465 60,654 61,867 63,105 64,367 Shareholders Funds 59,427 60,604 61,805 63,030 64,279 65,552 Minority Interest 493 493 493 493 493 493

Total Equity 59,920 61,097 62,298 63,523 64,772 66,045 Non current Liabilities 175,204 192,724 211,997 233,197 256,516 282,168 Current Liabilities 151,207 163,304 176,368 190,477 205,715 222,173 Total Equity and Liabilities 386,331 417,125 450,663 487,196 527,003 570,386 Non-‐current assets 212,210 233,431 256,774 282,452 310,697 341,766 Current Assets 174,121 184,568 195,642 207,381 219,824 233,013

Total Assets 386,331 417,999 452,416 489,832 530,520 574,780

EPS 8.09 9.21 10.95 13.55 17.44 23.31 Return on Assets 2.4% 2.5% 2.8% 3.2% 3.9% 4.8%Return on Equity 15.2% 17.2% 20.2% 24.8% 31.6% 41.8%

FINANCES


Revenues Profits ROA ROEWorst Case 143,482 21,754 4.8% 32.9%Normal Case 182,281 27,637 4.8% 41.8%Best Case 211,933 32,133 4.8% 46.4%

2020

KPIS & CONTROLS


Key Performance Indicators & ControlsFY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Incremental number of villages 30,000 30,000 30,000 30,000 30,000 Training programs completed 17,000 20,000 23,000 26,000 29,000 Number of new accounts (incremental) 15,000 15,000 15,000 15,000 Default rate <5% <5% <5% <5%

RISKS & RISK MITIGATION

•  Use local partners •  Tap existing Mahindra network •  Probability: High / Impact: Medium

Government regulations in China

•  First to market built on trust and relationships •  Rural India is effort-intensive and complex market •  Probability: Medium / Impact: Low

New competition in India

•  Rural farms are stable industry •  Diversification with expansion to China •  Probability: Medium / Impact: Low

Urbanization


CONCLUSION

Positive Change Transform rural lives Leverage Core Strengths for

Sustainable Growth


APPENDIX


Assumptions

Training Program 1 program per 10 villagesVillage Commerce $200 USD per village (equipment cost and training)Staffing Additions 50 new staff per yearSubsidiary Investment 49% equity stake in JV partnershipNormal Case Growth Rate 15% and 5% additionally each yearGrowth rates 2% equity growthGrowth rates 10% long term asset and loan growthGrowth rates 4-‐6% current loan and asset growth

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