The Future of Mahindra Finance

Transcription

1 The Future of Mahindra Finance A PRESENTATION TO: MAHINDRA FINANCE UPPER MANAGEMENT BROCK CONSULTING ABDUL, VERA, KAJSA, YANQI

2 Problem and SoluKon Problem: What is the future growth strategy (5 years) for Mahindra Finance? Solu+on: 3 phases

3 Task What are the future possibili>es for Mahindra Finance and what is the roadmap to success?

4 Key Challenges 1. Domes>c or Interna>onal Expansion? 2. Rural or urban customers? 3. Asset management or payment bank? How to leverage new technology? What capabili>es are required?

5 Vision Drive financial inclusion across India through technology. Become one of the top 50 globally admired brands by 2021.

6 Agenda Current Situa>on Qualita>ve Analysis Alterna>ves Quan>ta>ve Analysis Recommenda>on Implementa>on Risk Management Conclusion

7 QualitaKve Analysis

8 Current SituaKon Non- banking finance company (NBFC) pioneered a rural financing strategy Accept No Limits, Alternate Thinking, and Drive Posi>ve Change New government May 2014 Compe++ve advantage: Strong understanding of rural Indian consumer and tailor- made loans Well- diversified funding mix to contain cost of borrowing Currently lagging behind compe>tors Revenue: INR 60,609 million

9 Mahindra Finance Product PorQolio Vehicle Financing Pre- Owned Vehicles financing SME Financing Personal Loans Mutual Fund Distribu>on FINSMART Insurance Broking MIBL Housing Finance MRHFL

10 Product Life Cycle Growth Insurance Personal loan SME Financing Vehicle Financing Time

11 Market Analysis: India Popula>on Rural: Pure farm household 26% Farm with non- farm income 22% Agriculture labor only 10% Non- farming including casual labor 42% Rural Urban

12 Target Market Rural consumer without bank accounts who use cash- based transac>ons Typically engaged in agriculture and related ac>vi>es Average age below 30 Reliant on word of mouth in rural India

13 Industry Analysis Market size India covers world 21% unbanked popula>on Government Support Opening 185m bank accounts in 2015 Economic situa>on Banking industry withstood world economy recession 833 million popula>on JAM framework Slowdown in rural ecomony

14 SWOT Strength: Deep domain knowledge Digital wallet Flexibility in developing finance product Weakness: Limited experience in rural market

15 SWOT Opportunity: Growing middle class Explosion digital tech in finance service industry Threats: Domes+c and global compe++on

16 AlternaKve Analysis

17 Challenge 1: DomesKc vs. InternaKonal? DOMESTIC High growth poten>al Rural India = 833 million people 250,000 villages leg to e served Customized loans Leverages compe>>ve advantage INTERNATIONAL South Korea Acquisi>ons Joint Venture South Africa Already selling tractors and vehicles USA Joint Venture for asset financing and tractor opera>ons China M&M has strong presence Rural availability

18 InternaKonal JusKficaKon Ability to understand consumer needs Customer- driven and customer- focused Adaptable to changing environment Success is achievable in Interna>onal markets in the long- term!

19 Challenge 2: Rural vs. Urban? RURAL Comprises 69% of total Indian popula>on Opportunity to reach 250,000 villages Strong base of pa>ent shareholders High cost of travel limita>ons of infrastructure Technology allows for speedier service S+ck with what we re good at! URBAN Highly compe>>ve Na>onal Banks Private Banks Asset Finance Companies Small fish in a large sea Not offering lending rates at compe>>ve level Banks: 0.5% lending rate Mahindra: 3.0% lending rate Not profitable

20 Challenge 3: Asset Financing vs. Payment Bank? ASSET FINANCING Historically successful Leverages experience and knowledge of customer base Subsidiaries FINSMART: Mutual Funds MIBL: Insurance Broking MRHFL: Housing Financing Customer- driven with customized financing PAYMENT BANK Recent government approval Digital India Click and brick model Reach for underserved customers Tap n Pay: meet demands for growing economy Understanding of rural market + digital capabili+es

21 CapabiliKes Needed Human Capital Quality field agents and branch employees Alen>on to service quality Understand consumer needs Tech Mahindra Lower costs due to technology- enabled branches, like compe>tors Mobile and internet banking services aligned with new bank accounts

22 Decision Matrix 1. Domes+c vs. Interna+onal Rural vs. Urban Asset Financing vs. Payment Bank Profitability Both Rural Both Feasibility Both Rural Both Risk Both Rural Both Strategic Fit Both Rural Both Compe>>ve Advantage Both Rural Both

23 QuanKtaKve Analysis

24 CompeKtor Analysis Revenue ( in million) Mahindra Reliance Shiram City Union Shriram Transport Cholamandalam Sundaram Bajaj

25 CompeKtor Analysis 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Number of Employees

26 CompeKtor Analysis 25.00% ROE 20.00% 15.00% 10.00% 5.00% 0.00%

27 Stakeholder Analysis Shareholders Customers Government Management Employees

28 Current Financial SituaKon: ( in INR million) Total Revenue Total Revenue growth 14.33% Net Profit 9129 Net Profit growth % ROE 15.50% Industry average ROE 15.30% Debt ra+o 84.00% Interest coverage ra+o % 250, , ,000 Rural village

29 Financials: Dupont Analysis ROE (return on equity) profitability: Net profit margin(ni/s) efficiency: Total asset turnover(s/a) leverage: equity mul>plier(a/e)

30 Financials: Dupont Analysis net profit margin asset turnover equity mul+plier ROE growth net profit margin asset turnover equity mul+plier ROE

31 Financials: Dupont Analysis 0.50 Growth rate in net profit margin asset turnover equity mul>plier ROE Correla>on net profit margin asset turnover equity mul>plier ROE NPM is the key driver of your ROE

32 ProjecKon : AssumpKon in Village coverage rate: villages per year ( 250,000/24) Revenue growth rate: 14.33%( current growth ) 4.17%(new village market) 5%(house financing) 3% (SME Financing) in % (SME Financing) in Total Growth rate 26.5% in Total Revenue( in INR million) % in

33 ProjecKon: expenses Technology IT infrastructure X X Web X X App X X Maintanence X X X NFC & Prepaid wallet Tech development X X X X X Vendor POS X X X X X User Card X X X X X Partnership with PayPal X X X X X Physical & HR new rural centers X X X X X tech support for field execu>ves X X X X X cross training for field execu>ves X X X X X Global expansion RSA X X SK X X China X X USA X X

34 ProjecKon: Income Net Income ( in INR million)

35 Direct CompeKtors - NBFC 1. Bajaj 2. Sundaram 3. Cholamandalam 4. Shriram Transport 5. Shiram City Union

36 Other CompeKtors Without Coopera>ves With Coopera>ves Public Sector Banks Foriegn Banks Private Sector Banks Regional Banks Urban Coopera>ve Bank Rural Coopera>ve Bank Public Sector Banks Foriegn Banks Private Sector Banks Regional Banks Public and Private banks are increasing their presence in the semi- rural and rural

37 ImplementaKon Plan

38 ImplementaKon Phased Approach India (S & M) Click and brick: OMNI Channel physical and digital Digital India: NFC & Prepaid Wallet Global expansion (M & L)

39 ImplementaKon Plan Steps Short- Term (1 Year) Open 100 (20 per year) Rural Centers to serve the 250K villages in Rural and Semi- Rural India Med- Term (2-3 Years) Long- Term (4-5 Years) X X X Development of IT infrastructure to support online banking (Website and App), low cost centers, field execs x x Development of NFC and Prepaid Wallet Technology, POS expenses, user cards / mob App (185 M new accounts were opened. Minimal land lines in Rural and semi- Rural India, lots of Mobile phones) x Cross train field execu>ves to cross- and up- sell mul>ple products such as mortgages, loans, insurance x Partnership with Pay Pal to support payment bank and small payments for NFC/digital wallet Global expansion star>ng with RSA S.K China USA x

40 Risk MiKgaKon RISKS 1. Compe>tors MITIGATION Compe>>ve advantage 2. Change of Gov in India Ac>ve engagement 3. Tech Savviness of Indian users Educa>on 4. Pay Pal Partnership Develop own system 5. Foreign Country Gov / Legal Ac>ve enagagement

41 Risk Matrix Probability and Impact dimensions. No risks are high risk

42 Conclusion Task: Iden>fy possibili>es and build a road map for the future Recommenda+on: Leverage compe>>ve advantage Ability to achieve customer reach targets of 500,000 by 2016 Our recommenda>on closes the gap for Mahindra to realize the vision of being one of the top 50 global companies by 2021.