Mahindra  Finance:  Accelera/ng  Growth MOORE  SCHOOL  OF  BUSINESS

BRETT  BURNS,  ASHLING  GRIFFIN,  ELLIE  GARDNER,  ROSS  HOGAN

1  

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?    

Cri/cal  Success  Factors

3  

Key  Performance  Indicators

Reach  500,000  new  customers  

Raise  margins  >  15.5%  

Decrease  NPA  &  Write  Offs  

Presence  in  new  markets  

Top  50  globally  admired  brand  

Analysis

5  

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  

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Our  Customer Rural/Semi-­‐

urban   Low  Income   Farmers  

Single-­‐income  family  

Low  technology  access  

Word  of  Mouth  

Customiza8on  

Flexible  lending  cycles  

India

1.2  billion  popula8on  with  1.88  trillion  GDP  

IMF:  7%  growth  through  2024  

Median  age:  27  High  increases  in  

disposable  income  

 69%  rural  popula8on  

Growing  role  for  technology  

India’s  Banking  Sector

USD  $1,089  B  

Credit  Extended  

USD  $1,479B  

Total  Deposits  

INR  69.6B  (USD  $1.05B)  

Gov’t  Capital  Infusion  

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  

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    

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Lending  Perspec/ve  

Repayment  

Collateral  Re-­‐Possession  

Secondary  Sale  

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Mahindra’s  customer  

rela8onships  in  the  rural  community  are  essen8al  and  they  do  not  want  to  get  into  stages  beyond  repayment  

Industry  Forces

Exis8ng  Compe88on  

New  Entrants  

Buyer  Power  

Subs8tu8ons  

Supplier  Power  

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  

Mahindra  vs.  Tradi/onal  Banks

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Rural  Presence  

Profit  Margins  

Mahindra  (NBFC)  

Public  &  Private  Sector  Banks  

Compe//ve  Scenario Market  Cap  

Revenue   ROA   ROE   Gross  Non-­‐Performing  Assets  

Sundaram  Finance  

168,127   23,690   2.4%   17.6%   1.45%  

Shiram  City  Union  Finance  

129,514   35,320   3.2%   15.8%   3.1%  

Mahindra  Finance  

144,410   60,609   2.5%   15.5%   5.9%  

Average  ROA  for  all  Indian  Banks:  0.8%  

Change  in  RBI  NPA  Classifica8on  

Mahindra  Finance

14,200  employees  genera8ng  60B  revenue  and  9.1B  NI  

INR  368.8B  assets  under  management  

CAGR  26%  

Vehicles,  insurance,  home  finance,  SMEs,  fixed  deposits,  mutual  funds  

Recent  Financial  Performance:  Mahindra  Finance

29%  

18.00%  14%   15.10%  

Revenue  Growth   Net  Profit  Margin  

2014   2015  

Financial  Performance:  Mahindra  Finance

Gross  Non-­‐performing  Assets,  5.90%  

Performing  Assets,  94.10%  

Asset  Por[olio  Key  Measures  

Posi8ve  Net  Interest  Margin    

ROA:  3%  (vs.  0.5%  for  urban  banks)  

Net  Credit  Write-­‐off:  2.4%  

Performance  by  Division

Revenue   Net  Income   Customers  served  

Net  Margin  

Mahindra  Home  Finance  

3.2  billion   442  million  

82,000   13.8%  

Mahindra  Insurance  Brokers  

1.26  billion   429  million  

1.1  million  cases  

34%  

Mahindra  Finance  Structure Mahindra  Finance  

Insurance    

Income:    1.26B  INR  

Home  Finance  

Income:    3.2B  INR  

Small  &  Medium  Enterprise  (SME)  

60  Branches,  more  Urban  

Focus  

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Growth  Targets

Insurance  

Increase  village  presence  from  

140,000  to  240,000  (71%)  in  4  years  

Home  Finance    

Grow  to  $1B  disbursements  from  $150M  to  (>500%)  by  

2016  

SME  

Achieve  40B  INR  by  2015  

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Alterna/ves

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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    

Decision  Matrix ConservaLve   Strategic   Aggressive  

Market  expansion  

Brand  

Credit  Quality  

Customer  Rela8onships  

Profitability  

Decision  Matrix ConservaLve   Strategic   Aggressive  

Market  expansion  

Brand  

Credit  Quality  

Customer  Rela8onships  

Profitability  

Implementa/on  Plan

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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  

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  

Banking  Expansion

Payment  Bank    • Standalone  ATM’s  

Infrastructure  • Build  on  Ci8es  with  Renewal  Projects  • Expand  to  Pre-­‐Exis8ng  Loca8ons  where  Feasible  

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  

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Urban  Capitaliza/on  

Smart  City  

More  livable  urban  landscapes  

in  100  ci8es  

Atal  Mission  for  Rejuvena8on  and  

Urban  Transforma8on  AMRUT  

Urban  renewal  projects  

Housing  for  All  

20  million  Houses  

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Construc8on  will  be  essen8al  •  Increased  demand  for  equipment  • Higher  sales  in  commercial  vehicles  •  Extend  financing  opportuni8es  beyond  Mahindra  vehicles  

AUermarket  Sales

• Not  just  for  newly  produced  tractors  &  light  commercial  vehicles  

Vehicles  &  Financing  

• Can’t  purchase  new  equipment  every  few  years  • Replacement  parts  are  a  quick  and  more  inexpensive  fix  

Rural  farmers  and  small  companies  have  limited  cash  flow  

Margins  on  replacement  parts  much  higher  

Extend  financing  on  used  vehicles  &  amermarket  parts    

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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  

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  

Indonesia 200  million  inhabitants  

Very  wide  spread  popula8on  

Regained  stability  

Recent  government  ini8a8ves:  •  Curb  corrup8on  •  Improve  infrastructure  •  Increase  housing  •  Eased  rules  to  encourage  FDI  

Nigeria Africa  important  component  for  future  growth  

¼  of  world’s  popula8on  by  

2050  

Fast  growing  economies  and  popula8ons  

Nigeria:  

Among  fastest  growing  popula8ons  •  Economy  &  people  

Indonesia  &  Nigeria

•  In8mate  knowledge  landscape  •  Integrate  technology  and  structure  

Acquisi8on  of  local  players  

•  Firm  with  banking  and  financing  •  Growth  poten8al  and  compliments  core  competencies  

Indonesia:  

•  800  million  phones  in  Africa  • Mobile  Banking  NOT  tradi8onal  Brick  &  Mortar  firms  

Nigeria:  

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  

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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  

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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    

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Budget

0-­‐1   2-­‐3   4+  

Staff   100   40   20/year  

Technology   90   50   30  

Acquisi8on   -­‐   1500   TBD  

Infrastructure   500   300   300  

Key  AssumpLons:  Addi8onal  Staff  @  INR  400,000  per  employee  

$1.4M  USD  ini8al  investment  in  mobile  plasorm  technology  Con8nuing  investment  in  Cash  Management  systems  

Infrastructure  for  ATMs  

In  millions  of  INR  

Pro  Forma  Financials Pro  Forma  Income  Statement

In  millions  of  INR

2015 2016 2017 2018Revenues  from  Operations 60,211           72,253                 93,929                 117,411              Other  Income 398                       6,503                     8,454                     10,567                  Total  Revenue 60,609           78,756                 102,383           127,978              Employee  Expenses 5,671               5,771                     5,791                     5,811                      Finance  Costs 26,430           28,901                 37,572                 46,965                  Dep  and  Amortization 455                       458                           461                           464                              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 120                       361                           532                           719                              Net  Profit 9,129               18,026                 26,517               35,856                  

Pro  Forma  Financials   Key  Assumptions

2016 2017 2018 2019 2020Revenue  growth 20.0% 30.0% 25.0% 25.0% 25.0%Employee  Expenses 100M 20M 20M 20M 20MTax  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%

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  

Key  Performance  Indicators

Reach  500,000  new  customers  

Raise  margins  >  15.5%  

Decrease  NPA  &  Write  Offs  

Presence  in  new  markets  

Top  50  globally  admired  brand  

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  

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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  

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Con/ngency  Plan RISK  

  Rural  compe88on  proves  to  be  too  great  

  If  Tata  says  “No”  to  partnership  

MITIGATION  

  Acquire  a  small  to  midsize  financial  firm  with  a  presence  in  urban  Indian  markets  

  Buy  Back  program,  recycling  partnership  with  municipali8es  &  leverage  logis8cs  branch  

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South  Africa

Expand  business  model  

Extend  financing  and  insurance  to  vehicles  

Implement  Amermarket  business  

This  will  compliment  our  future  growth  model  in  Africa  

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Opportunity •  Encourage  prepayments  •  Recognized  land  value  to  reduce  down  payment  

•  Leverage  insurance  business  Mortgage  

•  Achieving  40%  CAGR  in  revenues,  profits  &  cases  handled  

•  Entrance  into  health  insurance  Insurance  

•  Leverage  Mahindra  suppliers  and  dealers  SME  

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