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

Transcription

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

2 AGENDA Analysis of Opportunity Evaluation of Alternatives Recommendation Financial Analysis Risks & Risk Mitigation

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

4 ANALYSIS OF OPPORTUNITY Mahindra & Mahindra Mahindra Finance Tech Mahindra Mahindra Insurance Mahindra Housing Finance Payment Bank

5 ANALYSIS OF OPPORTUNITY Value Proposition Trust and relationships Customer service Rural knowledge Positive change

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

7 ANALYSIS OF OPPORTUNITY: INDIA 31% Rural India contributes 55.4% of national income 85.4 million farms Rural 69% Urban 400,000 untapped villages Trust and relationships are critical!

8 ANALYSIS OF OPPORTUNITY: GOVERNMENT Infrastructure Programs 42 million rural houses in seven years 20 million urban houses Financial Inclusion Payment banks Small finance banks

9 ANALYSIS OF OPPORTUNITY: COMPETITORS 9% 11% 12% 22% 7% 24% 15% Bajaj Finance Sundaram Finance Cholamandalam investment Shriram Transport Finance Shriram City Union Reliance Capital Mahindra Finance

10 ANALYSIS OF OPPORTUNITY: NEW ENTRANTS Payment Banks Reliance Aditya Birla Nuvo Airtel Vodafone Small Finance Banks Ujjivan Janalakshmi Au Financiers Utkarsh

11 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

12 EVALUATION OF ALTERNATIVES Microfinancing Finance small loans, < 500RN Emerging market high ROE Expand into urban market Branch into urban markets Offer similar financial services to expanding urban market Value Driven Growth Growth through capitalization of core strengths Rural development, leverage technology, expand to China

13 ALTERNATIVE 1 MICRO- FINANCING Advantages Disadvantages Small Market ROE Prosperity Risky Low Value Reputation

14 ALTERNATIVE 2 EXPAND INTO URBAN MARKETS Advantages Disadvantages Competitive Low Margins High Volume Large Market Product Pairing Risky

15 ALTERNATIVE 3 VALUE DRIVEN GROWTH Advantages Disadvantages Robust Untapped Experts Low Competition Omits Urban Potential Effort intensive

16 CRITERIA Prosperity Key Strengths Revenue Growth Trust Reputation ROE

17 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

18 RECOMMENDATION Leverage Core Strengths for Sustainable Growth

19 IMPLEMENTATION Rural focus in India Focus on strengths and experience Integrate education & technology Grow prosperity Expand into similar markets Rural China

20 RURAL EXPANSION Experience & Success Market Potential Agricultural Customization Trust and relationships No corporate guidelines 250, ,000 villages Loans/Insurance/Tractors/Cars Customized payments Agricultural harvest timing

21 INTEGRATE EDUCATION & TECHNOLOGY Improved Agricultural Practices Education grow prosperity Create demand for additional products Loan security / less volatility Technological Advancements Improved customer service Hand held devices mobile Cost savings reduced travel Village Commerce Village leader - Toughbook Cost savings local recruitment Build trust life long customers

22 CHINESE EXPANSION Similar Market High % rural Agricultural focus High growth potential Utilize Successful Model Customize to client needs Grow prosperity create demand Future sales Require Partnership Market research Relationship development Joint Venture Government regulations

23 SYNERGIES India Similar Markets China Prosperity Grows Demand Loans Insurance Tractors/Vehicles Conglomerate Expertise and Power IT Tractors Life Long Customers Future Financial Expansion

24 IMPLEMENTATION TIMELINE Development Mobile/Online Agriculture Training Commerce Training Rural Indian Expansion Village Expansion Agricutural Implementation Commerce Implementation Chinese Expansion Market Research Relationship Development Joint Venture Village Expansion ,000 30,000 30,000 30,000 30,000

25 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 ,980 Staffing additions Mobile and online banking Agricultural training Village Commerce & Equipment ,980 Market Research Chinese relationship development Chinese investment ,106 1, ,978 Net Cash Benefit ,147

26 FINANCES Revenue Projections - INR Millions FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenue 60,211 69,243 83, , , ,281 Total Expenses 46,610 53,602 64,322 80, , ,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

27 FINANCES Balance Sheet (forecast) - INR Millions FY 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 Total Equity 59,920 61,097 62,298 63,523 64,772 66,045 Non current Liabilities 175, , , , , ,168 Current Liabilities 151, , , , , ,173 Total Equity and Liabilities 386, , , , , ,386 Non- current assets 212, , , , , ,766 Current Assets 174, , , , , ,013 Total Assets 386, , , , , ,780 EPS 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%

28 FINANCES 2020 Revenues Profits ROA ROE Worst Case 143,482 21, % 32.9% Normal Case 182,281 27, % 41.8% Best Case 211,933 32, % 46.4%

29 KPIS & CONTROLS Key Performance Indicators & Controls FY 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%

30 RISKS & RISK MITIGATION Government regulations in China New competition in India Use local partners Tap existing Mahindra network Probability: High / Impact: Medium First to market built on trust and relationships Rural India is effort-intensive and complex market Probability: Medium / Impact: Low Urbanization Rural farms are stable industry Diversification with expansion to China Probability: Medium / Impact: Low

31 CONCLUSION Positive Change Transform rural lives Leverage Core Strengths for Sustainable Growth

32 APPENDIX Assumptions Training Program Village Commerce Staffing Additions Subsidiary Investment Normal Case Growth Rate Growth rates Growth rates Growth rates 1 program per 10 villages $200 USD per village (equipment cost and training) 50 new staff per year 49% equity stake in JV partnership 15% and 5% additionally each year 2% equity growth 10% long term asset and loan growth 4-6% current loan and asset growth