Rating Rationale Mahindra and Mahindra Financial Services Ltd. 30 May 2018 Brickwork Ratings reaffirms BWR AAA (Stable) ratings for Mahindra and Mahindra Financial Services Ltd. s (hereafter referred to as MMFSL or Company ) various Non-Convertible Debentures Issues aggregating to 2500.00 Crores. Particulars Brickwork Ratings (BWR) reaffirms the rating for the various debt issues of Mahindra & Mahindra Financial Services Limited ( MMFSL or the Company ) as detailed below: Issues Issue Size ( Cr) Amount Raised ( in Cr) Tenure Rating O/S (June 2017) Rating* Reaffirmed 2000 507.68 100 100 200 200 200 15 Outlook: Stable *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings Rating Reaffirmed Rationale/Description of Key Rating Drivers/Rating sensitivities: BWR has principally relied upon the audited financial results of the Company up to FY18, projections, publicly available information, and information/clarifications provided by the Company s management. The rating has factored, inter alia, the strength and support of MMFSL s parent Mahindra & Mahindra (M&M) Limited to the company, strategic importance of the company to M&M, its experienced & professional management, growing business profile, comfortable capital adequacy with diversified source of funding and adequate provision coverage for assets. The rating is however, constrained by asset quality issues, cyclical nature of the sectors catered to by MMFSL and the competitive landscape for NBFCs. Description of Key Rating Drivers Credit Strengths: Strategic importance of MMFSL: Mahindra and Mahindra Limited, India's largest tractor and utility vehicle manufacturer, holds 51.19% stake in MMFSL and the latter is of strategic 1 30 May 2018
importance M&M. In FY18 the parent has infused capital to the tune of 1055 crs. Around 40-50% of disbursement every year is for vehicles manufactured by M&M. Experienced Management: The Board consist of a total of nine Directors, out of which four are Independent Directors. The Chairman of the Board is Mr. Dhananjay Mungale, an Independent Director. Mr. Ramesh Iyer is the Vice-Chairman & Managing Director and Mr. V Ravi is the Executive Director & Chief Financial Officer of the Company. The company has a team of well-qualified and experienced professionals looking after credit, risk, marketing, audit and other support functions. Adequately capitalized: MMFSL is adequately capitalized with CRAR of 21.94 % as of March 31, 2018 which is well above the RBI s minimum stipulated requirement of 15% which allows the company to borrow funds and augment the growth of loan book. Sizeable loan portfolio: At a standalone level, the Company s Loans & Advances, have witnessed a YoY growth of 20.42%, an increase from 46,775.50 Crores as of March 31, 2017 to 55,101.20 Crores as of March 31, 2018. The portfolio is well diversified with exposure to various asset classes like Utility vehicles (26%), Tractors (18%), Cars (20%), Commercial Vehicles (13%), Pre owned Vehicles (14%) and SME financing (9%). Credit Risks: Stressed Asset Quality: Even though there is a marginal decrease in Gross NPA of the Company for FY18 which stood at 8.5% down from 9.0% as of March 31, 2017, the asset quality continues to be under stress; this is majorly because of its exposure to the seasonal nature of income of its customers in rural and semi-urban areas. However, the Company follows a conservative provisioning policy and asset classification with NPA recognition happening with the 90 dpd norm for FY18. Provision cover is around 58.10%. Analytical Approach For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). MMFSL is evaluated on a stand-alone basis; however, the ownership and support of M&M, and strategic importance of MMFSL for the business of M&M Ltd is taken note of. Rating BWR believes, Mahindra and Mahindra Financial Services Ltd s business risk profile will be maintained over the medium term. The Stable outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the asset quality goes down and profit margins show lower than expected figures due to increasing provision costs. 2 30 May 2018
About the Company Mahindra & Mahindra Financial Services Limited (MMFSL) is an RBI registered systemically important deposit taking NBFC. It is a subsidiary of Mahindra and Mahindra Limited, one of India s leading tractor and utility vehicle manufacturers. MMFSL has its Corporate office in Mumbai and its operation is focused in the rural and semi-urban areas. M&M has around 51.19% shareholding in MMFSL as of March 31, 2018. It is listed on NSE & BSE. MMFSL has subsidiaries which are into Insurance Broking, Rural Housing Finance, Asset management etc. It is primarily in the business of financing purchase of new and pre-owned auto and utility vehicles, tractors, cars, commercial vehicles, construction equipment and SME financing. It has 1,284 offices covering 27 states and 4 union territories in India, with over 5.34 million customer contracts since inception, as of March 31, 2018. Company Financial Performance On a standalone basis, AUM has increased from 46,775.50 Cr as of March 31, 2017 to 55,101 Cr as of March 31, 2018, an y-o-y growth of 17.8%. GNPA for the year stood at 8.5% marginally decreased from 9% in FY17. Provision coverage ratio has also marginally decreased from 61.80% in FY17 to 58.10% in FY18. On a standalone basis, Total Income from Operations stood at 7,147.1 Crores for FY18 compared to 6,173.9 Crores for FY17, a y-o-y growth of ~16%. Net Income from Operations (Total Income from Operations net of Finance Cost) for the Company stood at 4,146.7 Crores for FY18 compared to 3,316.5 Crores for FY17. Net Interest Margin increased by 40 bps from 7.09% for FY17 to 7.53% for FY17. PAT has substantially increased from 400.2 Crores for FY17 to 891.9 Crores for FY18. Return on Asset for the same period was around 1.90%. Key Financials: Particulars FY17 (Audited) FY18 (Audited) AUM ( in Cr) 46,775.50 55,101.20 NII ( in Cr) 3,316.50 4,146.70 NIM (%) 7.09 7.53 PAT ( in Cr) 400.20 891.90 TNW ( in Cr) 6474.12 9295.86 CRAR (%) 17.20 21.94 GNPA (%) 9.00 8.50 NNPA (%) 3.60 3.80 PCR (%) 61.80 58.10 3 30 May 2018
Rating History for the last three years Sl. No. 1 Instrument 2 3 4 Instrument Details: Current Rating (May 2018) 2000 100 200 200 Rating History 2017 2016 2015 2014 NA NA NA Instrument Issue Date Amount ( Cr) Coupon Maturity Date ISIN Particulars 10-Nov-09 25.00 9.85% 11-Nov-19 INE774D08JR6 20-Nov-09 75.00 9.85% 20-Nov-19 INE774D08JS4 Rating 26-Nov-10 200.00 9.80% 25-Jan-21 INE774D08KV6 28-Aug-14 10.00 9.60% 28-Aug-24 INE774D08LH3 3-Sep-14 5.00 9.60% 3-Sep-24 INE774D08LI1 24-July-17 50.00 7.75% 24-July-24 INE774D08MH1 24-July-17 9.32 7.85% 24-July-24 INE774D08MI9 24-July-17 0.22 7.90% 24-July-27 INE774D08MJ7 24-July-17 447.02 8.00% 24-July-27 INE774D08MK5 24-July-17 1.12 7.95% 24-July-32 INE774D08ML3 24-July-17 642.84 8.05% 24-July-32 INE774D08MM1 Hyperlink/Reference to applicable Criteria General Criteria Approach to Financial Ratios For any other criteria obtain hyperlinks from website 4 30 May 2018
Analytical Contacts Manjunatha MSR Head -Ratings Administration analyst@brickworkratings.com Media media@brickworkratings.com Relationship Contact bd@brickworkratings.com Phone: 1-860-425-2742 For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com/download/complexitylevels.pdf Investors queries can be sent to info@brickworkratings.com. About Brickwork Ratings Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, has also been accredited by RBI and empaneled by NSIC, offers Bank Loan,, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a Nationalized Bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations. BWR has rated debt instruments/bonds/bank loans, securitized paper of over 10,00,000 Cr. In addition, BWR has rated over 6300 MSMEs. Also, Fixed Deposits and Commercial Papers etc. worth over 24,440 Cr have been rated. DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented as is without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons. 5 30 May 2018