Mahindra Finance: Accelera/ng Growth MOORE SCHOOL OF BUSINESS BRETT BURNS, ASHLING GRIFFIN, ELLIE GARDNER, ROSS HOGAN

Transcription

1 Mahindra Finance: Accelera/ng Growth MOORE SCHOOL OF BUSINESS BRETT BURNS, ASHLING GRIFFIN, ELLIE GARDNER, ROSS HOGAN 1

2 Mee/ng Objec/ves I. Analyze Mahindra s current posi8on in a changing environment II. Determine alterna8ves available for growth III. Recommend an inclusive strategy for markets, new opportuni8es, and new technologies IV. Detail how we recommend implemen8ng our strategy How can Mahindra become one of the top 50 globally admired brands by 2021?

3 Cri/cal Success Factors 3

4 Key Performance Indicators Reach 500,000 new customers Decrease NPA & Write Offs Raise margins > 15.5% Presence in new markets Top 50 globally admired brand

5 Analysis 5

6 SWOT Strengths Knowledge of Indian Market Diversified Business Units Weaknesses Rela8vely unknown Interna8onally Limited Urban penetra8on Opportuni8es Government Ini8a8ves Economic Factors in India Threats Large urban based Banks Micro- Finance 6

7 Our Customer Rural/Semi- urban Low Income Farmers Single- income family Low technology access Word of Mouth Customiza8on Flexible lending cycles

8 India 1.2 billion popula8on with 1.88 trillion GDP IMF: 7% growth through % rural popula8on Median age: 27 High increases in disposable income Growing role for technology

9 India s Banking Sector Credit Extended USD $1,089 B Total Deposits USD $1,479B Gov t Capital Infusion INR 69.6B (USD $1.05B)

10 New Government Ini/a/ves Smart Ci8es, AMRUT, Housing for All Urban renewal in 500 ci8es 6 Mil Homes/Yr for 7 Years Financial Inclusion Payment banks Finance Banks Increased Compe88on Housing Boom Greater Rural Development Income Technology

11 Rural Market Rural Urban Customer RelaLonship Face to Face Less Personal CompeLLon Low High Loan Product Customized Standardized Repayment Cyclical Steady UnderwriLng Village Authori8es Formal models 11

12 Lending Perspec/ve Mahindra s customer rela8onships in the rural community are essen8al and they do not want to get into stages beyond repayment Repayment Collateral Re- Possession Secondary Sale 12

13 Industry Forces New Entrants Supplier Power Exis8ng Compe88on Buyer Power Subs8tu8ons

14 Banking Compe/tors State 69.9B INR capital influx from Government State Bank of India partnership with Paypal to service micro, small & medium sized businesses (MSMEs) Private Yes Bank $220M investment from U.S. partnership (OPIC) to focus on MSMEs HDFC 90% of new branches in semi- urban and rural areas

15 Mahindra vs. Tradi/onal Banks Profit Margins Mahindra (NBFC) Public & Private Sector Banks Rural Presence 15

16 Compe//ve Scenario Sundaram Finance Shiram City Union Finance Mahindra Finance Market Cap Revenue ROA ROE Gross Non- Performing Assets 168,127 23, % 17.6% 1.45% 129,514 35, % 15.8% 3.1% 144,410 60, % 15.5% 5.9% Average ROA for all Indian Banks: 0.8% Change in RBI NPA Classifica8on

17 Mahindra Finance 14,200 employees genera8ng 60B revenue and 9.1B NI CAGR 26% INR 368.8B assets under management Vehicles, insurance, home finance, SMEs, fixed deposits, mutual funds

18 Recent Financial Performance: Mahindra Finance 29% 18.00% 14% 15.10% Revenue Growth Net Profit Margin

19 Financial Performance: Mahindra Finance Key Measures Posi8ve Net Interest Margin ROA: 3% (vs. 0.5% for urban banks) Net Credit Write- off: 2.4% Asset Por[olio Perfor ming Assets, 94.10% Gross Non- perfor ming Assets, 5.90%

20 Performance by Division Revenue Net Income Customers served Net Margin Mahindra Home Finance Mahindra Insurance Brokers 3.2 billion 442 million 1.26 billion 429 million 82, % 1.1 million cases 34%

21 Mahindra Finance Structure Mahindra Finance Insurance Home Finance Small & Medium Enterprise (SME) Income: 1.26B INR Income: 3.2B INR 60 Branches, more Urban Focus 21

22 Growth Targets Insurance Home Finance SME Increase village presence from 140,000 to 240,000 (71%) in 4 years Grow to $1B disbursements from $150M to (>500%) by 2016 Achieve 40B INR by

23 Alterna/ves 23

24 Alterna/ves Conserva8ve Expansion Remain in rural markets Con8nue with current opera8ons Avoid expansionary policies Middle- Road Strategy Increased presence in rural markets Selected interna8onal expansion Capitalize on gov t ini8a8ves Aggressive Expansion Urban markets Heavy Interna8onal Expansion Maintain presence in rural

25 Decision Matrix Market expansion Brand Credit Quality Customer Rela8onships ConservaLve Strategic Aggressive Profitability

26 Decision Matrix Market expansion Brand Credit Quality Customer Rela8onships ConservaLve Strategic Aggressive Profitability

27 Implementa/on Plan 27

28 Our Plan Take Advantage of New Markets Created by Reforms Banking Expansion Technology Expansion Construc8on Equipment Home Insurance Strategic Interna8onal Expansion Acquisi8ons Pre- determined Criteria for Expansion Amer- Market Recycling Business Capture Addi8onal Revenues Add value through sustainability

29 Technology Expansion Mobile Banking: Tech Mahindra Expect Internet Explosion Move quickly to keep up with technology changes Compe88on: Vodafone, Airtel, Paypal Customer Appeal Tap N Pay Add to ATM loca8ons App Crea8on View all accounts with Mahindra Pay/view balances, request service, connect with local representa8ves

30 Banking Expansion Payment Bank Standalone ATM s Infrastructure Build on Ci8es with Renewal Projects Expand to Pre- Exis8ng Loca8ons where Feasible

31 Rural Housing Housing for All 42 million homes over 7 years Home financing opportuni8es Already have high market penetra8on Introduce Homeowner s Insurance as a loan add- on Copy vehicle model 31

32 Urban Capitaliza/on Smart City Atal Mission for Rejuvena8on and Urban Transforma8on AMRUT Housing for All More livable urban landscapes in 100 ci8es Urban renewal projects 20 million Houses Construc8on will be essen8al Increased demand for equipment Higher sales in commercial vehicles Extend financing opportuni8es beyond Mahindra vehicles 32

33 AUermarket Sales Vehicles & Financing Not just for newly produced tractors & light commercial vehicles Rural farmers and small companies have limited cash flow Can t purchase new equipment every few years Replacement parts are a quick and more inexpensive fix Margins on replacement parts much higher Extend financing on used vehicles & amermarket parts 33

34 Criteria for Interna/onal Expansion Low Household Debt/GDP Ra8o Avoid countries with large debt burden Large Unpenetrated Rural/SemiUrban Market Economic Growth Poten8al Regulatory Flexibility Countries to Consider: Africa: Nigeria, South Africa Indonesia Not Recommended: China Singapore

35 Singapore & China Singapore Late stages of market life cycle Very urban Banking & finance hub S8ff compe88on China Imports down 10 straight months Machinery fared worse Manufacturing is overcapacity & declining Massive uninhabited ci8es Restric8ve government policies on financial ins8tu8ons

36 Indonesia 200 million inhabitants Very wide spread popula8on Regained stability Recent government ini8a8ves: Curb corrup8on Improve infrastructure Increase housing Eased rules to encourage FDI

37 Nigeria Africa important component for future growth Nigeria: ¼ of world s popula8on by 2050 Among fastest growing popula8ons Economy & people Fast growing economies and popula8ons

38 Indonesia & Nigeria Acquisi8on of local players In8mate knowledge landscape Integrate technology and structure Indonesia: Firm with banking and financing Growth poten8al and compliments core competencies Nigeria: 800 million phones in Africa Mobile Banking NOT tradi8onal Brick & Mortar firms

39 Social Responsibility Goal: Being among top 50 most admired global brands Previously Stated: Not a social responsibility business Sustainability: Steel Scrap Recycling Business with Tata Top producer and consumer of steel in India 39

40 Social Responsibility Steel industry experience One of largest steel producing na8ons One of the most polluted na8ons 6 of top 10 most polluted ci8es Vehicle manufacturing Parts & vehicles Housing Boom & Urban Renewal High demand for construc8on inputs 40

41 Growth in Capacity Invest in Technology and R&D Recruit and hire somware development team Recruit and hire fraud/privacy protec8on personnel Construc8on and Insurance Expansion Salesmen and finance professionals Marke8ng Campaign Physical loca8ons Banking Loca8ons 50 ci8es per year 41

42 Budget In millions of INR Staff /year Technology Acquisi8on TBD Infrastructure Key AssumpLons: Addi8onal INR 400,000 per employee $1.4M USD ini8al investment in mobile plasorm technology Con8nuing investment in Cash Management systems Infrastructure for ATMs

43 Pro Forma Financials Pro Forma Income Statement In millions of INR Revenues from Operations 60,211 72,253 93, ,411 Other Income 398 6,503 8,454 10,567 Total Revenue 60,609 78, , ,978 Employee Expenses 5,671 5,771 5,791 5,811 Finance Costs 26,430 28,901 37,572 46,965 Dep and Amortization Provisions and Write Offs 8,491 9,688 10,988 12,273 Others 5,563 6,077 6,588 7,050 Total Expenses 46,610 50,896 61,400 72,562 Profits before Tax 13,999 27,860 40,983 55,416 Tax 4,750 9,472 13,934 18,842 Minority Interest Net Profit 9,129 18,026 26,517 35,856

44 Pro Forma Financials Key Assumptions Revenue growth 20.0% 30.0% 25.0% 25.0% 25.0% Employee Expenses 100M 20M 20M 20M 20M Tax rate 34.0% 34.0% 34.0% 34.0% 34.0% Finance costs 40.0% 40.0% 40.0% 40.0% 40.0% Minority Interest 1.3% 1.3% 1.3% 1.3% 1.3%

45 Financial Considera/ons Repayment Abili8es Seasonality of cash flow Payment structure Collec8ons 80% cash Cash management system Asset/Liability Matching Dura8on of borrowings matches dura8on of loans extended

46 Key Performance Indicators Reach 500,000 new customers Decrease NPA & Write Offs Raise margins > 15.5% Presence in new markets Top 50 globally admired brand

47 Risks and Mi/ga/ons Risks MiLgaLons Severity/ Likelihood Security of cash based economy ATM design, fraud proteclon Medium Global economic slowdown Avoid high risk markets Medium Increased compellon Unique diversified CA (rates) High Insufficient Infrastructure Government collaboralon Low Exchange rate risk Hedge High 47

48 Appendix Mee8ng Objec8ves Cri8cal Success Factors SWOT Our Customer India New Government Ini8a8ves Rural Market Lending Perspec8ve Performance by Division Growth Targets Mahindra vs. Tradi8onal Banks Alterna8ves Our Plan Banking Expansion Technology Expansion Rural Housing Urban Capitaliza8on Amermarket Sales Criteria for Interna8onal Expansion Social Responsibility Pro Forma Financials Risks and Mi8ga8ons 48

49 Con/ngency Plan RISK Rural compe88on proves to be too great MITIGATION Acquire a small to midsize financial firm with a presence in urban Indian markets If Tata says No to partnership Buy Back program, recycling partnership with municipali8es & leverage logis8cs branch 49

50 South Africa Expand business model Extend financing and insurance to vehicles Implement Amermarket business This will compliment our future growth model in Africa 50

51 Opportunity Mortgage Encourage prepayments Recognized land value to reduce down payment Leverage insurance business Insurance Achieving 40% CAGR in revenues, profits & cases handled Entrance into health insurance SME Leverage Mahindra suppliers and dealers 51