Mahindra's acquisition of Punjab Tractors (PTL) is likely to significantly benefit its captive finance arm Mahindra & Mahindra Financial Services (MMFSL) or 'Mahindra Finance'. Not only will the M&M's acquisition of PTL grow MMFSL's asset base but also give it much needed growth in the northern market where it has a major presence without matching business volumes, given the relatively e limited presence ofMahindra built tractors.
Mahindra Finance, floated more than a decade ago as a captive finance arm of M&M, finances around 32,000 to 34,000 tractors per annum sold by M& M across the country. It is looking at adding another 10,000 to 12,000 'Swaraj' branded tractors sold by PTL by next month through latter's dealers and its outlets. As of last December, the company had around 398 branches operational across the country with around 130 branches in the northern region of which around 70 branches are concentrated in Uttar Pradesh, Punjab and Haryana itself, the key markets for PTL. 'PTL acquisition will lead to incremental assets growth of around Rs 350 to Rs 360 crore per annum beginning this fiscal itself which could be further securitised at average rate of around eight percent rate making it (PTL acquisition) hugely beneficial for us,' said Managing Director, Mahindra Finance, Ramesh Iyer.
Logan portfolio
He further adds that the company is also expecting to deepen its footprint in passenger car finance business significantly. The company which tied up with Maruti Udyog last year has had a good experience at financing passenger cars and is looking at a steady asset growth by financing around 3,500 to 4,000 Maruti cars every month mainly in rural and semi urban areas through Maruti dealerships, and its own outlets. It is now looking to add to this passenger car finance portfolio by having a significant share of financing Logan, launched recently by M&M in a joint venture with France's Renault which will be sold largely through existing dealerships of M&M which sell its Scorpio SUV. The company is looking at financing around 8,000 to 10,000 Logans this year. Notably this additional assets in the form of financing PTL tractors and Logan will be added to its balance sheet without putting much of an effort in terms of sales network, administrative and logistical costs. The company could be looking to grow its incremental assets in terms of financing tractors and passenger cars to the tune of around Rs 650 to Rs 700 crore annually without considering additional financing business from two wheelers and other consumer durables to its existing customer base of more than 2 lakh borrowers.
Acquisition synergy
In a recent conference call with analysts after PTL acquisition by M&M, Executive Director and Chief Financial Officer, M&M, Bharat Doshi pointed out the synergies and spinoff benefits of PTL acquisition primarily in terms of opportunity to grow Mahindra Finance's assets and access to foundry and engine plants of the Swarajgroup as the reason for paying premium valuation.
Due to its positioning as a non-banking finance company, Mahindra Finance has very limited competition in rural markets where it predominantly finances tractors. This portfolio, which is regularly securitised, qualifies as a priority sector lending for banks and financial institutions and has a good demand enabling Mahindra Finance to offer securities, backed by these tractors portfolio, at rates of as low as eight percent much below the comparable asset class currently. Securitisation is a process of conversion of illiquid assets like passenger car, commercial vehicle or tractor loan portfolio into marketable securities. Mahindra Finance actively securitises its asset portfolio and is amongst the largest issuer of such securities in the market.
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