Mahindra Financial Rights Offer (July 2020) Review

Published on Wednesday, July 22, 2020 by Dilip Davda

• This is the second fast track rights issue offer of CY2020 amidst COVID-19 pandemic.
• MMFSL is a finance service arm of a well diverse Mahindra group.
• Rights issue is at a discount of around 67.5% on ex-right quote of Day One.
• Online application mode is strongly recommended.
• Shareholders should not miss this mini bonus like lucrative offer.

PREFACE

Amidst COVID-19 pandemic scare world over, we are set to see some changes in lifestyle as well as on security market process front. We have already seen a fast track mega rights offer from Reliance Industries that has set a net world record of generating funds in a shortest period of time. This issue has definitely leaded to new fast track issue process. Under the same process while we have seen entry of mega FPO from Yes Bank Ltd., we are witnessing yet another fast track rights issue from MMFSL.

ABOUT COMPANY

Mahindra & Mahindra Financial Services Ltd. (MMFSL) is one of the leading deposit taking non-banking finance companies with customers primarily in the rural and semi-urban markets of India. It is primarily engaged in providing financing for new and pre-owned auto and utility vehicles (including three wheelers), tractors, cars and commercial vehicles. MMFSL also provides housing finance; manage mutual funds, personal loans, financing to micro, small and medium enterprises, insurance broking and mutual fund distribution services. In addition, it provides wholesale inventory-financing to dealers and retail-financing to customers in the United States for purchase of Mahindra tractors and utility vehicles through Mahindra Finance USA LLC ('MF USA'), company's Associate, which has entered into a joint venture agreement with De Lage Landen Financial Services Inc., which is a member of the Rabobank group.

In August 2019, the company entered into a joint venture with Ideal Finance Limited to offer financing services in Sri Lanka. It is a part of the Mahindra group, which is one of the largest business conglomerates in India. On a consolidated basis MMFSL has established a pan-India presence, spanning 27 states and seven union territories through 1739 offices and 32682 employees, as of March 31, 2020. It primarily focuses on providing financing for purchases of auto and utility vehicles (including three wheelers), tractors, cars, commercial vehicles and construction equipment, and pre-owned vehicles which accounted for 27.7%, 16.4%, 19.2%, 15.3% and 18.1% of estimated total value of the assets financed by the company, respectively, for the Financial Year 2020. The company benefits from our close relationships with dealers and long-standing relationships with OEMs, which allows it to provide on-site financing at dealerships. It is also able to offer loan products to existing as well as new customers through direct marketing initiative.

Mahindra & Mahindra, MMFSL's promoter and the flagship company of the Mahindra group, had a market capitalization of Rs. 634.90 billion as of June 30, 2020. The Mahindra group operates in several businesses and has a strong presence in the automotive, farm-equipment, information technology, financial services, aerospace, real estate, hospitality and logistics businesses and after-market sales and services of pre-owned vehicles.

ISSUE DETAILS

To finance its plans for repayment/prepayment of certain borrowings (Rs. 1600 cr.), long term capital funding (Rs. 800 cr.), General corpus fund (Rs. 679.08 cr.), MMFSL is coming out with a rights issue of 617764960 equity share of Rs. 2 each at a fixed price of Rs. 50 per share to mobilize Rs. 3088.83 cr. This issue opens for subscription on 28.07.20 and will close on 11.08.20. MMFSL has offered rights shares in the ratio of 1 share for every 1 share held at a hefty discount, which is termed as a 'Mini Bonus' for the stakeholders. MMFSL is spending Rs. 9.8 cr. for this issue process.

After the issue, MMFSL's current paid up equity capital of Rs. 123.55 cr. will stand enhanced to Rs. 247.11 cr. At the exchange adjusted ex-right price of Rs. 138.90 per share on fully diluted post right issue equity, its market cap comes to Rs. 17167 cr. However, with the right issue discounted offer price, MMFSL is looking at a market cap of Rs. 6177.65 cr. Based on ex-right closing rate of Rs. 153.95 (22.07.20), market cap stands at Rs. 19021 cr.

This issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., BNP Paribas, Citigroup Global Markets India Pvt. Ltd., HDFC Bank Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., ICICI Securities Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd. and SBI Capital Markets Ltd., while Kfin Technologies Pvt. Ltd. is acting as registrar to the issue. . Post allotment, shares will be listed on BSE and NSE. It is advisable to follow online application process for this lucrative offer.

FINANCIAL PERFORMANCE

On financial performance front, on a consolidated basis, MMFSL has reported total income/net profits of Rs. 10430.86 cr. / Rs. 1867.28 cr. (FY19), Rs. 11996.46 cr. / Rs. 1085.82 cr. (FY20). Lower bottom line is attributed for higher finance cost, depreciation provisioning and impairment of financial instruments for the concluded fiscal. For Q1 of FY21, it has earned net profit of Rs. 432.12 cr. on total income of Rs. 3068.68 cr. MMFSL's NAV stood at Rs. 200.97 as on 30.06.2020. As on same date, MMFSL's debt equity ratio was 5.6. Currently its total debt stands at Rs. 65634 cr.

CONSLUSION

Shares of MMFSL turned ex-right on 22.07.20 and opened at Rs. 136.95, marked high/low of Rs. 159.50/134.30 and finally closed on day one at Rs. 153.95. It last quoted at Rs. 227.70 on cum-right basis (21.07.20). It has seen last 52 weeks high/low of Rs. 246/76 (adjusted for post right status). Considering its ex-right closing price of Rs. 153.95, this issue is at a discount of 67.5%. Thus this mini bonus like lucrative offer is worth grabbing. (Subscribe).

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. Above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

 (SEBI registered Research Analyst-Mumbai).