A farmer examines an ivy gourd at a field in Kempalinganapura, Bengaluru Rural district in Karnataka. Photographer: Prashanth Vishwanathan/Bloomberg

M&M Finance Says Untapped Rural Demand To Drive Growth

Mahindra & Mahindra Financial Services Ltd. will focus on rural India where it is seeing signs of a pick up in economic activities.

The factors such as two successive normal monsoons, farm loan waivers and new infrastructure projects by the government augur well for business, the non-banking financial company said in its annual report. It listed automobile and rural housing as segments that offer tremendous scope for growth.

Here are a few highlights from the report:

Rural Turnaround

Two successive years of normal monsoon, minimum support price hikes, direct benefit transfers and farm loan waivers contributed to disposable incomes in the year ended March 2018. The company attributes improvement in its performance—both in sales as well as overall collections—to the positive rural sentiment. A recovery in demand for commercial vehicles on the back of new road and highway projects being undertaken and projects in smart cities also aided growth. Mahindra Finance’s standalone net profit more than doubled to Rs 892 crore in the year ended March 2018.

Rural Focus To Continue

The lender which has significant presence in semi-urban and rural areas is betting on the untapped automobile demand from rural areas. The Indian automobile industry seeks to double sales over the next decade, led by steady growth in rural areas. It’s expected to grow due to relatively untapped segments, including demand from youth, women and the aspiration for luxury cars, according to the annual report.

We believe, India’s next level of growth is likely to emerge from its villages.
Excerpts From Mahindra Finance Annual Report 2017-18

Positive Outlook On Auto And Rural Housing

The company sees the seventh pay commission, salary revisions by states and the highway construction project ‘Bharatmala’ giving a fillip to the commercial vehicles segment. The Rs 63,800-crore support package for the agricultural and allied sectors announced in the Union Budget 2018-19, incomes by 2022, increasing spends on irrigation and improving crop productivity by increasing on-field mechanisation augur well for structural tractor demand growth. Mahindra Finance is the largest Indian tractor financier.

Growing housing demand is expected to offer tremendous scope for growth, the report said. “We’re among the few housing finance companies with a dominant focus on rural housing. We’ve also been actively exploring opportunities in the affordable housing space to grow and diversify our customer base and tap onto the emerging opportunities in the sector,” the annual report said.

Open To Acquisitions

Under-penetration in the NBFC market provides emerging opportunities for growth in financial services in the urban and rural economies. And the company is considering acquisitions but at the right price.

At Mahindra Finance, our sound financials provide us significant scope to explore organic and inorganic long-term growth opportunities. While we are open to assets that may be available at competitive valuations for inorganic growth, we are equally keen on pursuing organic opportunities.
Mahindra Finance Annual Report 2017-18

The recent rules by the government allowing higher load carrying capacity for trucks would determine how the commercial-vehicle demand gets impacted and that would have a bearing on the loan growth for commercial vehicle financiers, including Mahindra Finance.

Shares of the NBFC have risen 31 percent in the last one year, outperforming the benchmark index Nifty’s gain of 11.5 percent.