MAHINDRA AND MAHINDRA FINANCIAL SERVICES LIMITED
ANNUAL REPORT 2011-2012
The members of
Mahindra & Mahindra Financial Services Limited
Your Directors are pleased to present their Twenty-second Report together
with the audited accounts of your Company for the Financial Year ended 31st
March, 2012. The summarised financial results of the Company are given
(Rs. in Crores)
March 2012 March 2011
Total Income 2,794.6 1,977.5
Less: Finance Costs 1,120.3 660.2
Expenditure 729.5 599.1
Depreciation/Amortisation 19.6 15.8
Total Expenses 1,869.4 1,275.1
Profit Before Tax 925.2 702.4
Less: Provision For Tax:
Current Tax 289.6 249.1
Deferred Tax 15.5 (9.8)
Profit After Tax for the Year 620.1 463.1
Add: Amount brought forward from Previous
Years 713.6 510.7
Amount available for Appropriation 1,333.7 973.8
General Reserve 62.0 46.3
Statutory Reserve 124.0 92.6
Proposed dividend on Equity Shares 145.6 104.0
Income-tax on proposed dividend 22.6 17.3
Excess provision for Corporate Dividend Tax
on Equity Shares of earlier year (0.4) -
Surplus carried to Balance Sheet 979.9 713.6
Your Directors are pleased to recommend a dividend of Rs.14 per Equity
Share of the face value of Rs. 10 each, payable to those Members whose
names appear in the Register of Members as on the Book Closure date. The
dividend including dividend tax will absorb a sum of Rs. 168.2 Crores (as
against Rs. 121.3 Crores on account of dividend of Rs. 10 per Equity Share,
paid for the previous year).
The overall disbursement registered a growth of 35.3 per cent at
Rs.19,504.3 Crores as compared to Rs. 14,419.9 Crores in the previous year.
Your Company during the year under review, continued to provide a wide
range of financial products and services to its customers through
diversification of its product portfolio within its vehicle financing
business as well as through the introduction and growth of other financial
products and maintained its market leadership position in rural and semi-
urban markets. Your Company has increased its presence in financing of
commercial vehicle, construction equipment, as well as, pre-owned vehicle
while maintaining aggressive growth in car financing, retaining its
leadership position in financing Mahindra range of vehicles and tractors in
addition to extending its lending to vehicles of other Original Equipment
Your Company has one of the largest network of branches amongst Non-Banking
Financial Companies operating in rural and semi-urban areas. Your Company`s
nationwide network of branches and locally recruited employees have
facilitated in developing and strengthening relationship with its
During the year under review, your Company continued to explore the
opportunities in the Micro Small and Medium Enterprises (MSME) segment as
well as in the emerging Gold Loan industry in India.
Income grew by 41.3 per cent to Rs. 2,794.6 Crores for the year ended 31st
March, 2012 as compared to Rs. 1,977.5 Crores for the previous year. Profit
Before Tax was 31.7 per cent higher at Rs. 925.2 Crores as compared to
Rs.702.4 Crores for the previous year. Profit After Tax grew at a healthy
rate of 33.9 per cent to Rs. 620.1 Crores as compared to Rs. 463.1 Crores
in the previous year.
Your Company has achieved a very important milestone of cumulatively
financing over two million customers since its inception. The number of
contracts entered into by the Company during the year was 4,66,416 as
against 3,67,774 in the previous year.
During the year under review, the Assets Under Management have crossed
Rs.20,000 Crores and stood at Rs. 20,643.0 Crores as at 31st March, 2012.
DISTRIBUTION OF MUTUAL FUND PRODUCTS:
During the year under review, the activity of distribution of Mutual Fund
Products (MFP) was carried out across 31 branches covering 14 States.
The amount of MFP outstanding through the Company`s Advisory Services,
aggregate of institutional and retail segment crossed an amount of Rs.875
Crores and the number of clients stood at 41,074.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT:
A detailed discussion on the Company`s operations is presented in the
chapter on Management Discussion and Analysis, which forms part of this
The global economy witnessed significant volatility during the year. While
growth and employment in the US economy appeared to be improving, the
crisis in the Euro Zone threatened to plunge the entire financial world
into turmoil. European Central Bank`s intervention has seemingly defused
the situation but it is expected that other steps need to be taken for the
threat of a crisis to recede. The deleveraging of the European Banks is
expected to affect capital flows to emerging markets and the resultant
liquidity crunch might drive up the interest rates.
Faced with global uncertainty, cyclical and structural factors, India`s
growth slowed down to less than 7 per cent for the Financial Year 2011-12.
While the services continued to grow at a rapid pace (8.7 per cent growth),
there was a sharp slowdown in industrial growth to 2.8 per cent. During the
year, inflation continued to be a key concern for the Reserve Bank of India
(RBI) and the various steps taken by it in the first half helped in
reducing the inflation rate to 6.9 per cent by March 2012. However, this
led to a steep rise in the interest costs and the weighted average lending
rates of the five major public sector banks increased from 11 per cent in
March 2011 to 12.8 per cent by March 2012. The slowdown in growth coupled
with high interest rates has led to a decline in investment rates.
Liquidity conditions were tight throughout the year and the situation
aggravated post November 2011 when the liquidity deficit exceeded 1 per
cent of net demand and time liabilities (NDTL) of banks. To ease the
situation, RBI conducted significant Open Market Operations (OMOs) and cut
the Cash Reserve Ratio (CRR) by 125 basis points leading to an improvement
in the liquidity situation. It is expected that the scenario of tight
liquidity and high interest rates will continue in the Financial Year 2012-
Amidst the overall slowdown in the economy, the semi-urban and rural
markets, the focus areas of the Company, continued to witness rapid growth.
The combination of increased disposable incomes along with favourable
demographics led to a robust demand for various products and services in
these markets. Consequently, vehicle demand in rural areas grew at a faster
pace, an area which is core to the Company`s operations. With broad-basing
of economic activities in the rural areas and the governmental thrust on
rural infrastructure, it is expected that rural India will continue to grow
rapidly in the next year.
During the year under review, RBI continued its stance against inflation
and adopted a calibrated approach by hiking the Repo Rate five times
totalling to 175 basis points to contain the inflationary pressure, which
resulted in medium/long term interest rates moving up approximately by 150
basis points. Liquidity conditions remained in a deficit mode throughout
the year resulting in the increase of short term money market rate by 200
basis points. In order to mitigate the liquidity tightness, RBI conducted
OMOs and reduced CRR by 125 basis points during the last quarter of the
year. However, your Company was able to reduce the impact of increase in
the interest rates by ensuring that prudent Asset Liability Management
Guidelines are adhered to.
In its Monetary Policy for the Financial Year 2011-12, RBI discontinued the
priority sector status for bank loans to Non-Banking Financial Companies
(NBFCs), thereby placing additional pressure on NBFCs in raising funds.
During the year under review, your Company continued with its diverse
methods of sourcing funds in addition to regular borrowings like Secured
and Unsecured Debentures, Term Loans, Commercial Paper, etc., and
maintained prudential Asset/Liability match through out the year. Your
Company sourced long term loans from banks at attractive rates. Your
Company also issued Subordinated Debt amounting to Rs. 100.5 Crores and
successfully assigned receivables to the tune of Rs. 1,487.4 Crores.
During the year, your Company actively participated in a number of investor
meets both in India and abroad organised by reputed Global and Domestic
Broking Houses. Your Company also periodically conducted analysts` meets
and conference calls to communicate details of performance, important
developments and exchange of information.
The shareholders have by a Special Resolution passed by means of a Postal
Ballot Voting process on 1st March, 2012, approved the issue of Redeemable
Non-Convertible Preference Shares of an aggregate nominal amount not
exceeding Rs. 50 Crores, in the course of domestic offering.
As on 31st March, 2012, the Capital to Risk Assets Ratio (CRAR) of your
Company was 18.0 per cent as against the minimum requirement of 15.0 per
cent prescribed by RBI.
During the year under review, on the recommendation of the
Remuneration/Compensation Committee of your Company, the Trustees of the
Mahindra & Mahindra Financial Services Limited Employees` Stock Option
Trust have granted 42,426 Stock Options to Eligible Employees under the
`Mahindra & Mahindra Financial Services Limited Employees` Stock Option
Scheme-2010`. No new Options have been granted under the `Mahindra &
Mahindra Financial Services Limited Employees` Stock Option Scheme-2005`.
Details required to be provided under the Securities and Exchange Board of
India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 are set out in Annexure I to this Report.
The Company has complied with all the applicable regulations of the Reserve
Bank of India (RBI). As a prudent practice, your Company makes accelerated
provisioning for Non-Performing Assets (NPAs) than that required by RBI for
Standard Assets` Provisioning:
Pursuant to the Notification No. DNBS.222/CGM (US)-2011 dated 17th January,
2011 issued by the RBI for making a general provision at 0.25 per cent on
the outstanding standard assets of NBFCs, your Company has made a provision
of Rs.43.5 Crores as at 31st March, 2012, towards the same.
During the year under review, CRISIL Limited [CRISIL], has reafirmed the
rating to the Company`s Long-term Debt Instruments and Bank Facilities as
`CRISIL AA+/ Stable` and the Company`s Fixed Deposit Programme as
`FAAA/Stable`, respectively. The `AA+/Stable` rating indicates a high
degree of safety with regard to timely payment of financial obligations.
The rating on the Company`s Short-term Debt and Bank Loans has been re-
afirmed at `CRISIL A1+` (earlier P1+) which is the highest level of rating.
CRISIL has, pursuant to Circular No. CIR/MIRSD/4/2011 dated 15th June, 2011
issued by the Securities and Exchange Board of India (SEBI) on
`Standardisation of Rating Symbols and Definitions` revised its rating
symbols and definitions with effect from 11th July, 2011. During the year
under review, Fitch Ratings India Private Limited has, after due
consideration, upgraded the Company`s National Long-term Rating instrument
and Lower Tier II Subordinated Debt programme to `Fitch AA+(ind)`/Stable
from `Fitch AA(ind)`/Positive. The `AA(ind)` national ratings denote a very
strong credit risk relative to other issuers or issues in the country. The
credit risk inherent in these financial commitments differs only slightly
from the country`s highest rated issuers or issues. Within a band of rating
symbols from `AA(ind)` to `B(ind)`, the signs "+" or "-" may be appended to
a rating to denote relative status within the rating category.
Brickworks Ratings India Private Limited has, during the year, re-afirmed
the "BWR AA+" rating with Positive outlook to the Company`s Long-term
Subordinated Debt Issue. `BWR AA+` stands for an instrument that is
considered to offer high credit quality/safety in terms of timely servicing
of principal and interest obligations.
FIXED DEPOSITS AND LOANS/ADVANCES:
As on 31st March, 2012, your Company has mobilised funds from Fixed
Deposits to the tune of Rs.1,670 Crores, with an investor base of over
85,000 investors. Your Company has initiated various measures towards
improvement of service levels to the Fixed Deposit holders. As a customer-
centric process, the Company has initiated the process of online repayment
directly to the customer`s account on maturity of the Fixed Deposit. In
cases where electronic transfer facility is not available, the repayment is
made through a post-dated cheque before the maturity date to the
depositors. As at 31st March, 2012, 708 deposits amounting to Rs.3.3 Crores
had matured for payment and remained unclaimed. The unclaimed deposits have
since reduced to 351 deposits amounting to Rs. 1.7 Crores. The particulars
of loans/advances and investment in its own shares by listed companies,
their subsidiaries, associates, etc., required to be disclosed in the
Annual Accounts of the Company pursuant to Clause 32 of the Listing
Agreement are furnished separately.
Your Company has taken a lead role in Financial Services Sector in India to
protect and sustain the rural livelihoods through a sustainable business
model. The model aims at transforming rural lives and driving positive
change in the community. From the Financial Year 2008-09 onwards, your
Company has taken steady but impactful steps towards sustainability by
charting out a roadmap of five years on Triple bottom line for balanced
approach towards economic activity, environmental responses and social
progress. In the Financial Year 2009-10, your Company released the Finance
Sector supplement stipulated by Global Reporting Initiative (GRI) giving an
overview of Product Portfolio and initiatives of Financial Literacy for
customers. Your Company`s Sustainability Report continues to attain A+
rating from GRI.
During the year, your Company enhanced the scope of Sustainability
Reporting to its two subsidiaries, viz. Mahindra Insurance Brokers Limited
and Mahindra Rural Housing Finance Limited. The Company has started with
initiatives like Online Drona (Induction) Program as well as Online
Appraisal aimed at reducing the consumption of paper. Your Company is glad
to inform that it was able to reduce 95 per cent of paper consumed in these
two processes. Your Company also gave an option to the shareholders to
avail of a copy of the Annual Report in electronic form instead of a
physical copy. Your Company continued installation of Solar Hybrid
Photovoltaic Power System at various branches, which operates on Solar
Power during day time. Around twenty-five branches have been installed
with Solar panels. Enquiry Management and Loan Application Process (EMLAP)
and Handheld Devices have led to complete automation of the field related
activities, which not only helped to achieve reduction in the Green House
Gas emissions but also resulted into reduced paper consumption and improved
the quality of service. Around 700 desktops have been replaced with Thin
Client for power efficiency in branches resulting in saving of around 125
watts of electricity per hour. Your Company continued with its focus on
enhancing the concept of sustainability in the minds of its employees,
vendors, suppliers and customers and has taken various initiatives for
conservation of water and energy as well as reduction of noise pollution.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES:
As a socially responsible citizen, the Mahindra Group continues to
contribute to the economic well being of the communities it interacts with
and enhance their social well being. The Mahindra Group has incessantly
been engaged in activities, which add value to the community around it.
Your Company has always been committed to the fact that, since corporations
are vital organs of the society, corporate interests must address societal
concerns for the sustainable development of the society and towards this
end your Company has played an active role in discharging its social
responsibilities. During the year under review, your Company continued to
involve itself in social welfare activities by contributing to recognised
Charitable Institutions, which specifically benefit the economically weaker
and socially disadvantaged sections of the society. Your Company has
sponsored 376 Nanhi Kalis, the flagship programme of the K.C. Mahindra
Education Trust, which supports the education of the disadvantaged girl
Your Company organised a nationwide Blood Donation Drive to re-affirm its
pledge to the society and collected 1,000 bottles of blood. During the year
under review, your Company also donated funds for purchase of ambulance to
numerous Charitable Institutions.
During the year under review, your Company contributed Rs.460.73 Lacs
towards CSR to various Non Governmental Organisations for charitable
During the year under review, your Company was awarded the NASSCOM IT User
Awards 2012, the National Awards for IT Excellence, the Edge VD (Virtual
Desktop) Award 2011, the Edge BI (Business Intelligence) Award 2011, SKOCH
Digital Inclusion Award 2011, InfoSecurity Top 100 CISO Award 2011 and IT
Next 100 (Future CIO) Award.
Your Company has won the Asia`s Best Employer Brand Awards 2011 as well as
the Award for Best Corporate Social Responsibility (CSR) Practices. The
Company was also bestowed with the Indian Development Foundation CSR Award
for its excellent contribution and support towards blanket mobilisation
drive for leprosy patients in October, 2011. Your Company was ranked 4th in
the Financial Services Sector by the Great Places to Work Institute.
Mr. Uday Y. Phadke resigned as the Vice-Chairman of the Company with effect
from 24th October, 2011. Mr. Phadke continues to be a Non-Executive
Director of the Company.
Mr. Uday Y. Phadke, Non-Executive Director and Mr. M. G. Bhide, Independent
Director, retire by rotation at the forthcoming Annual General Meeting and,
being eligible, offer themselves for re-appointment.
A report on Corporate Governance along with a certificate from the Auditors
of the Company regarding the compliance with conditions of Corporate
Governance as also the Management Discussion and Analysis Report as
stipulated under Clause 49 of the Listing Agreement are annexed to this
DIRECTORS` RESPONSIBILITY STATEMENT:
Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors,
based on the representation received from the Operating Management, and
after due enquiry, confirm that:
i) in the preparation of the annual accounts, the applicable accounting
standards have been followed;
ii) they have, in the selection of the accounting policies, consulted the
Statutory Auditors and these have been applied consistently and reasonable
and prudent judgments and estimates have been made so as to give a true and
fair view of the state of affairs of the Company as at 31st March, 2012 and
of the profit of the Company for the year ended on that date;
iii) proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
iv) the annual accounts have been prepared on a going concern basis.
Mahindra Insurance Brokers Limited
The year under review represents the eighth year of insurance broking
operations of your Company`s wholly-owned subsidiary Mahindra Insurance
Brokers Ltd. (MIBL). During the year under review MIBL`s Direct Broking
license was renewed by the Insurance Regulatory and Development Authority
(IRDA) with effect from 18th May, 2010 for a period of three years. The
category of broker licence was subsequently upgraded from Direct to a
Composite Broking licence, enabling MIBL to undertake Reinsurance broking
business in addition to its existing Direct insurance broking for Life and
During the year, MIBL crossed the 7,00,000 mark in terms of policies
serviced, with a total of 7,03,730 policies for both Life and Non-Life
Retail business lines. The customised Life Insurance covers "Mahindra Loan
Suraksha" and "Sampoorna Suraksha" continued to receive an encouraging
response and grew by 33 per cent from 2,73,138 lives covered with a Sum
Assured of Rs.6,193.7 Crores in the Financial Year 2010-11 to 3,63,691
lives covered with a Sum Assured of Rs. 8,255.0 Crores in the Financial
Year 2011-12, with a substantial portion being covered in the rural
markets. During the year, MIBL achieved a growth of 43.1 per cent in Net
Premium generated for the Corporate and Retail business lines increasing
from Rs.289.2 Crores (Gross Premium Rs. 318.6 Crores) in the Financial Year
2010-11 to Rs. 413.8 Crores (Gross Premium Rs.456.2 Crores) in the
Financial Year 2011-12, crossing a milestone of Rs.400 Crores Gross
The Income decreased by 10.0 per cent from Rs.51.8 Crores in the Financial
Year 2010-11 to Rs.46.6 Crores in the Financial Year 2011-12. The Profit
Before Tax decreased by 38.9 per cent from Rs.32.9 Crores to Rs.20.1
Crores, and the Profit After Tax decreased by 38.0 per cent from Rs.21.8
Crores to Rs.13.5 Crores during the same period.
The decrease in Income and consequent decline in profits was due to the
impact of the clarificatory Circular issued by the IRDA on Group Insurance
Guidelines. The Guidelines became effective from 1st April 2011. MIBL has
re-engineered its processes in line with the clarified Guidelines and has
recommenced business income on the affected Group Insurance business, in
Mahindra Rural Housing Finance Limited:
Mahindra Rural Housing Finance Limited (MRHFL) has during the year ended
31st March, 2012, disbursed loans aggregating Rs. 266.75 Crores (previous
year Rs. 203.63 Crores). The Profit After Tax for the year ended 31st
March, 2012 was Rs. 11.91 Crores (previous year Rs. 8.86 Crores). The
outstanding loan portfolio as on 31st March, 2012 stood at Rs. 535.23
Crores. MRHFL continued its focus on serving customers in rural India. More
than 90 percent of the loans disbursed were to customers in villages having
an average annual household income of less than Rupees Two Lacs. During the
year under review, over 32,000 households were given home loans. As against
this, since inception, MRHFL had given loans to approximately 30,000
households till 31st March, 2011. The housing loans sanctioned during the
year ended 31st March, 2012 were Rs. 292.16 Crores as against Rs. 263.05
Crores sanctioned during the previous year. The cumulative loans sanctioned
by MRHFL as at the end of the Financial Year 2011-12 was Rs. 718.44 Crores
as compared to Rs. 426.28 Crores in the previous year. The cumulative loan
disbursement at the end of the year stood at Rs. 607.36 Crores as compared
to Rs. 340.61 Crores in the previous year. MRHFL has been expanding its
geographical presence, by leveraging the infrastructure of your Company,
and currently operates in the states of Maharashtra, Gujarat, Rajasthan,
Tamilnadu, Andhra Pradesh, Kerala, Karnataka and Madhya Pradesh.
Mahindra Business & Consulting Services Private Limited:
Mahindra Business & Consulting Services Private Limited (MBCSPL) provides
staffng services mainly for your Company and its subsidiaries viz. MIBL and
MRHFL and the ultimate parent company, viz. Mahindra & Mahindra Limited. As
at 31st March, 2012 MBCSPL had on its rolls 6,096 employees who were
deputed to these companies to provide services under ongoing contracts.
MBCSPL earns its income in the form of fees towards staffng services.
MBCSPL registered a Profit After Tax of Rs. 7.06 Lacs for the year ended
31st March, 2012 as compared to Rs. 54.43 Lacs in the previous year.
The Statement pursuant to section 212 of the Companies Act, 1956,
containing details of the Company`s subsidiaries is attached.
In accordance with the General Circular No. 2/2011 dated 8th February, 2011
issued by the Ministry of Corporate Affairs, Government of India, the
Balance Sheet, Statement of Profit and Loss and other documents of the
subsidiary companies are not being attached to the Balance Sheet of the
The Company Secretary will make available the Annual Accounts of the
subsidiary companies and the related detailed information, upon receipt of
request from any Member of the Company interested in obtaining the same.
However, as directed by the Central Government, the financial data of the
subsidiaries have been separately furnished forming part of the Annual
Report. These documents will also be available for inspection at the Head
Office of the Company and at the Office of the respective subsidiary
companies, during working hours up to the date of the Annual General
Meeting. The Company shall also put the details of accounts of individual
subsidiary companies on its website www.mahindrafinance.com.
CONSOLIDATED FINANCIAL STATEMENTS:
The Consolidated Financial Statements of the Company and its three
subsidiaries viz. MIBL, MRHFL and MBCSPL, prepared in accordance with
Accounting Standard 21 prescribed by The Institute of Chartered Accountants
of India, form part of this Annual Report. The Consolidated Financial
Statements presented by the Company include the financial results of its
subsidiary companies and its joint venture viz. Mahindra Finance USA LLC.
Messrs. B.K. Khare & Co., Chartered Accountants, retire as Auditors of the
Company at the forthcoming Annual General Meeting and have given their
consent for re-appointment. The shareholders would be required to elect
Auditors for the current year and fix their remuneration.
As required under the provisions of section 224(1B) of the Companies Act,
1956, the Company has obtained a written certificate from Messrs. B. K.
Khare & Co., Chartered Accountants, to the effect that their reappointment,
if made, would be in conformity with the limits specified in the said
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS
The particulars relating to the energy conservation, technology absorption
and foreign exchange earnings and outgo, as required under section
217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are given in
Annexure II to this Report.
PARTICULARS OF EMPLOYEES:
AS REQUIRED UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 AND THE RULES
The Company had three employees who were in receipt of remuneration of not
less than Rs. 60,00,000 during the year ended 31st March, 2012 or not less
than Rs. 5,00,000 per month during any part of the said year. However, as
per the provisions of section 219(1) (b)(iv) of the Companies Act, 1956,
the Directors` Report and Accounts are being sent to all the Shareholders
of the Company excluding the Statement of particulars of employees. Any
Shareholder interested in obtaining a copy of the Statement may write to
the Company Secretary of the Company.
For and on behalf of the Board
Mumbai, 23rd April, 2012
ANNEXURE I TO THE DIRECTORS` REPORT FOR THE FINANCIAL YEAR ENDED 31ST
Information to be disclosed under the Securities and Exchange Board of
India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Employees Stock Option Employees Stock Option
Scheme 2005 (ESOS-2005) Scheme 2010 (ESOS-2010)
(a) Options 32,94,966 2,93,991
Employees Stock Option Scheme 2005 (ESOS-2005)
(b)The pricing Grant-1 Grant-2
formula Granted on 7th Granted on
December, 2005 24th July, 2007
Priced at a At a discount
discount of Rs. of 5 per
15 on Fair Value cent on the
of Rs.66 based average price
on the valuation ( preceding
obtained from the specified
an independent date(#) - 24th
valuer based on April, 2007
Net Asset Value/
Employees Stock Option Scheme 2005 (ESOS-2005)
(b) The pricing Grant-3 Grant-4
formula Granted on Granted
25th March, on 18th
2008 September, 2008
At a discount At a discount
of 5 per of 5 per
cent on the cent on the
average price average price
( preceding ( preceding
the specified the specified
date (#) -18th date (#) -18th
January, 2008 September, 2008
Employees Stock Option Scheme 2010 (ESOS-2010)
(b) The pricing Grant-1 Grant-2
formula Granted on Granted on
February, January, 2012
At Face Value At Face Value
of Rs.10/- per of Rs.10/- per
Equity Share Equity Share
Employees Stock Option Scheme - 2005:
( Average Price: Average of the daily high and low of the prices for the
Company`s Equity Shares quoted on National Stock Exchange of India Limited
during 15 days preceding the specified date.
(#) The Specified Date: Date on which the Remuneration/Compensation
Committee decided to recommend to the Mahindra & Mahindra Financial
Services Limited Employees` Stock Option Trust (Trust), the grant of
Employees Stock Option Scheme - 2010:
The Specified Date:
22nd October, 2010
(c) Options stand vested on 31st March, 2012:
i) Employees Stock Option Scheme - 2005: 24,51,331
ii) Employees Stock Option Scheme - 2010 : 50,181
(d) Options exercised:
i) Employees Stock Option Scheme - 2005: 23,07,920
ii) Employees Stock Option Scheme - 2010: 32,471
(e) The total number of shares arising as a result of exercise of options:
i) Employees Stock Option Scheme - 2005: 23,07,920 Equity Shares of Rs.10
each. These were transferred from the Trust to the eligible employees.
ii) Employees Stock Option Scheme - 2010 : 32,471 Equity Shares of Rs. 10
each. These were transferred from the Trust to the eligible employees.
(f) Options lapsed:
i) Employees Stock Option Scheme - 2005: 7,49,671
ii) Employees Stock Option Scheme - 2010: 1,785
(g) Variation of terms of options:
i) Employees Stock Option Scheme - 2005:
At the Seventeenth Annual General Meeting of the Company held on 23rd July,
2007, the Mahindra & Mahindra Financial Services Limited Employees` Stock
Option Scheme was amended to provide for recovery from the eligible
employees, the fringe benefit tax in respect of options which are granted
to or vested in or exercised by, the eligible employees on or after the 1st
day of April, 2007.
ii) Employees Stock Option Scheme - 2010 :
(h) Money realised by exercise of options:
i) Employees Stock Option Scheme - 2005: Rs.18,09,83,388
ii) Employees Stock Option Scheme - 2010: Rs. 3,24,710
These monies have been received by the Trust.
(i) Total number of options in force:
i) Employees Stock Option Scheme - 2005 : 2,37,375
ii) Employees Stock Option Scheme - 2010 : 2,59,735
(j) Employee-wise details of options granted under Employees Stock Option
Scheme - 2005 and Employees Stock Option Scheme - 2010 to:
(i) Senior Managerial Personnel:
As per statement attached
(ii) Any other employee who receives a grant in any one year of option
amounting to 5 per cent or more of option granted during that year:
(iii) Identified employees who were granted option, during any one year,
equal to or exceeding 1 per cent of the issued capital (excluding
outstanding warrants and conversions) of the Company at the time of grant:
(k) Diluted Earnings Per Share (EPS) pursuant to issue of shares on
exercise of option calculated in accordance with Accounting Standard (AS)
20 `Earnings per Share`:
(l) Where the Company has calculated the employee compensation cost using
the intrinsic value of the Stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the company shall also be disclosed.
The Company has calculated the employee compensation cost using the
intrinsic value of stock options granted under Employees Stock Option
Scheme - 2005 and Employees Stock Option Scheme - 2010. Had the fair value
method been used, in respect of stock options granted, the employee
compensation cost would have been lower by Rs. 51.03 lacs, profit after tax
higher by Rs. 51.03 lacs and the basic and diluted earnings per share would
have been higher by Rs. 0.05 and Rs. 0.04 respectively.
(m) Weighted-average exercise prices and weighted-average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
Employees Stock Option Scheme - 2010: Grant dated 25th January, 2012
Exercise Price (Rs.) 10.00
Fair Value (Rs.) 586.55
(n) A description of the method and Employees Stock Option Scheme-2010:
significant assumptions used during Grant dated 25th January, 2012-The
the year to estimate the fair values Fair Value of stock options granted
of options, including the following on 25th January, 2012 have been
weighted average information: calculated using Black-Scholes
Options pricing formula and the
significant assumptions made in
this regard are as follows:
(i) risk-free interest rate, 8.1 per cent
(ii) expected life, 5.5 years
(iii) expected volatility, 46.1 per cent
(iv) expected dividends, and 2.1 per cent
(v) The price of the underlying Rs.665.7
share in market at the time of
* Refer Note No. "28" under Notes to the Accounts in the Annual Accounts of
the Annual Report.
STATEMENT ATTACHED TO ANNEXURE I TO THE DIRECTORS` REPORTFOR THE FINANCIAL
YEAR ENDED 31ST MARCH, 2012:
Names of Directors and Employees Stock Option Scheme 2005
Senior Managerial Persons No. of No. of
to whom Stock Options Options Options
have been granted granted in granted in
December, July, 2007
Mr. Bharat N. Doshi 2,00,000 12,135
Mr. Uday Y. Phadke 10,000 4,042
Dr. Pawan Goenka 10,000 2,021
Mr. Manohar G. Bhide 10,000 Nil
Mr. Dhananjay Mungale 10,000 Nil
Mr. Piyush Mankad 10,000 Nil
Ms. Rama Bijapurkar N/A N/A
Mr. Ramesh Iyer 1,00,000 19,580
Mr. V. Ravi 60,000 11,207
Mr. Rajesh Vasudevan 10,000 3,326
Mr. Dinesh Prajapati 12,000 3,876
Mr. Suresh Shanmugam 7,500 3,027
Mr. Gurdev Mehta 14,000 3,075
Mr. Richard Clement 7,500 1,665
Mr. H.S. Kamath 7,500 1,628
Mr. Rajnish Agarwal 7,000 1,379
Mr. R. Balaji N/A N/A
Names of Directors and Employees Stock Option Scheme 2005
Senior Managerial Persons No. of No. of
to whom Stock Options Options Options
have been granted granted in granted in
March, 2008 September, 2008
Mr. Bharat N. Doshi Nil 14,051
Mr. Uday Y. Phadke Nil 14,051
Dr. Pawan Goenka Nil 3,513
Mr. Manohar G. Bhide Nil Nil
Mr. Dhananjay Mungale Nil Nil
Mr. Piyush Mankad Nil Nil
Ms. Rama Bijapurkar N/A 10,000
Mr. Ramesh Iyer 19,106 24,366
Mr. V. Ravi 10,846 13,832
Mr. Rajesh Vasudevan 3,665 4,674
Mr. Dinesh Prajapati 4,292 5,473
Mr. Suresh Shanmugam 3,223 4,110
Mr. Gurdev Mehta 3,150 4,017
Mr. Richard Clement 1,311 1,671
Mr. H.S. Kamath 2,745 3,500
Mr. Rajnish Agarwal 1,059 1,801
Mr. R. Balaji N/A 5,408
Names of Directors and Employees
Senior Managerial Persons Stock Option
to whom Stock Options Scheme 2010
have been granted No. of Options granted in February, 2011
Mr. Bharat N. Doshi Nil
Mr. Uday Y. Phadke 33,478
Dr. Pawan Goenka Nil
Mr. Manohar G. Bhide Nil
Mr. Dhananjay Mungale Nil
Mr. Piyush Mankad Nil
Ms. Rama Bijapurkar Nil
Mr. Ramesh Iyer 40,028
Mr. V. Ravi 15,563
Mr. Rajesh Vasudevan 4,372
Mr. Dinesh Prajapati 5,397
Mr. Suresh Shanmugam 3,872
Mr. Gurdev Mehta 4,288
Mr. Richard Clement 1,662
Mr. H.S. Kamath 3,423
Mr. Rajnish Agarwal 3,386
Mr. R. Balaji 5,166
* All the above options have been exercised.
ANNEXURE II TO THE DIRECTORS` REPORT FOR THE FINANCIAL YEAR ENDED 31ST
Particulars as per the Companies (Disclosure of Particulars in the Report
of Board of Directors) Rules, 1988 and forming part of the Directors`
Report for the Financial Year ended 31st March, 2012.
A. Conservation of Energy:
a) Energy Conservation measures taken:
The operations of your Company are not energy-intensive. However, adequate
measures have been initiated to reduce energy consumption.
b) Additional investments and proposals, if any, being implemented for
reduction of consumption of energy:
c) Impact of the measures taken/to be taken at (a) & (b) above for
reduction of energy consumption and consequent impact on the cost of
production of goods:
These measures are expected to reduce the energy consumption.
d) Total energy consumption and energy consumption per unit of production
as per Form-A of the Annexure to the Rules in respect of Industries
specified in the Schedule:
B. Technology Absorption:
Research & Development (R&D):
1. Areas in which R & D is carried out None
2. Benefits derived as a result of the above
efforts Not Applicable
3. Future plan of action None
4. Expenditure on R & D Nil
5. Technology absorption, adaptation and
6. Imported Technology for the last 5 years None
C. Foreign Exchange Earnings And Outgo:
The information on foreign exchange outgo is furnished in the Notes to the
Accounts. There were no foreign exchange earnings during the year.
For and on behalf of the Board
Mumbai, 23rd April, 2012
Particulars of loans/advances and investment in its own shares by listed
companies, their subsidiaries, associates, etc., required to be disclosed
in the Annual Accounts of the Company pursuant to Clause 32 of the Listing
Loans and advances in the nature of loans to subsidiaries:
(Rs. in Crores)
Name of the Company A B
Mahindra Rural Housing Finance Limited 33.99 178.71
Mahindra Business & Consulting Services 13.75 13.75
A = Balance as on 31st March, 2012
B = Maximum Outstanding during the year
The Company has not made any loans and advances in the nature of loans to
associates or loans and advances in the nature of loans where there is no
repayment schedule or repayment beyond seven years or no interest or
interest below section 372A of the Companies Act, 1956.
Management Discussion and Analysis:
GLOBAL ECONOMIC REVIEW:
The financial year 2011-12 will be remembered for volatilities across the
economic and political spectrum: sluggish global economic growth, political
instability across the Middle East and North Africa, deepening European
crisis and fragile US recovery. Although extensive liquidity infusions by
the European Central Bank (ECB) have reduced stress in the global financial
markets, an acceptable solution to the euro crisis is still not in sight.
Saddled with ballooning foreign debt, Greece is in its fifth consecutive
year of recession. The uncertainty has brought the economy to a standstill.
This might result in the withdrawal of Greece from Euro.
The emerging economies are also witnessing slowdown, owing to global
repercussions and domestic challenges. The World Bank has predicted a
modest global GDP growth of 2.5% in 2012, increasing to 3% in 2013 and 3.3%
INDIAN ECONOMIC REVIEW:
The domestic economy belied all expectations and witnessed 6.5% growth in
FY2011-12, the lowest in nine years. The reasons are not far to seek: tight
monetary control measures, persistently high inflation, spiralling fuel
cost, growing fiscal deficit, slow infrastructure investments, policy
inertia, contracting exports and imports and weakening rupee. These factors
have all contributed to arrest the economy`s northbound ride. Besides,
global turbulence has considerably impacted India`s economic performance.
While the rupee depreciation made imports expensive for India, however it
did not help exports owing to the global slowdown. While the declining
trend in imports of capital goods has lowered India`s trade deficit, it
confirms industrial slowdown.
Notwithstanding adversities, India`s long-term economic prospects continue
to be bright, compared to most countries of the world. The World Bank
expects India`s economy to expand by 6.9% during 2012-13, going against the
tide of widespread pessimism. With the continuing uncertainty in Euro the
present scenario for exports is not encouraging.
GROWTH DRIVERS OF THE INDIAN ECONOMY:
India is among the world`s youngest nations with a median age of 25 years,
compared to 43 years in Japan and 36 years in the US. This, in turn would
result in more than 55% working-age population by 2025. With more than 25%
of the world`s working population, India can continue to be competitive
Increasing per capita income:
India`s per capita income is escalating: it crossed the Rs. 50,000 mark in
FY`2011 and touched Rs. 53,331 in FY`2012, growing 16.9% from the previous
year (Source: Advance Estimates on National Income released by Central
Statistical Office (CSO) during Jan 2012).
Growing consumer spend:
Home to over 222 Million households, India`s private consumption is
expected to touch US$ 2020 Billion by 2016-17. Buoyed up by growing
disposable income and rural consumption, the consumer credit market is
Reform-focussed governance and significant initiatives under the Twelfth
Five Year Plan will accelerate economic growth.
(Source: Indian Brand Equity Foundation)
INDIA`S NBFC INDUSTRY OVERVIEW:
India`s non-banking financial institutions have experienced sterling
progress, strengthening the country`s journey towards inclusive growth.
The Government`s initiatives have further fuelled sectoral growth, as NBFCs
primarily cater to the financing needs of rural and semi-urban India.
India`s securitisation market grew 15% in value terms during 2011-12, while
number of transactions grew 32%, according to a report published by ICRA
Ratings on Indian Securitisation Market during May 2012.
A recent study done by CRISIL emphasises that NBFCs are well positioned to
establish a strong presence in the retail finance space. According to the
study, NBFCs` retail loan portfolio will rise to over Rs. 4 Lac Crore by
the end of fiscal year 2012-13, by which time the segment will match the
non-mortgage retail lending portfolio of banks.
Accordingly, the Assets Under Management (AUM) of retail NBFCs is projected
to grow from USD 49.4 Billion in 2011 to USD 60.2 Billion in 2012.
PERFORMANCE OF KEY INDUSTRY SEGMENTS:
A combination of firm interest rates, escalating fuel prices and sticky
inflation has severely dented India`s automobile industry growth. Against
the backdrop of around 30% growth over the preceding few years, the
industry registered only 12% growth in FY`2012, lowering the scope of
vehicle financing (Source: The Indian Brand Equity Foundation). In
addition, sluggish financial activity impacted the medium and heavy
commercial vehicle financing. However, light commercial vehicle financing
remained stable, leveraging enhanced segmental sales.
The above average monsoon in most parts of the subcontinent in 2011, along
with significant rural development initiatives, enhanced agricultural
equipment use, and in turn, agricultural equipment financing (Source: Fitch
In housing finance, tight liquidity conditions, rising borrowing cost and
high margin pressures affected sectoral disbursements. In 2011, housing
finance companies disbursed 22% of the total Indian home loan disbursements
GROWTH DRIVERS OF NDIA`S NBFC INDUSTRY:
Better macro-economic fundamentals: With more financial reforms, less
volatility in the rate of inflation and lowering of wholesale borrowing
rates, India`s NBFC landscape is likely to improve.
Greater awareness: India`s rural populace is far more well-informed today,
than they were even a decade ago, thanks to education, media penetration
and government`s focus on inclusive growth. The result is strong credit
growth in the rural sector.
Innovative and diversified product portfolio: Product innovation, along
with customised and flexible repayment options and cross-channel sales,
create more growth opportunities.
The National Rural Financial Inclusion Plan (NRFIP) attempts to cover at
least 50% of financially excluded households by the end of the current
fiscal. Besides, initiatives to set up a Financial Inclusion Fund and an
Inclusion Technology Fund will catalyse growth.
A rapid improvement in technologies, systems and processes has helped
accelerate operational efficiency by around 30-40%.
The regulatory landscape of Indian NBFCs is always under stringent
scrutiny, and is continuously evolving. Recent developments in NBFC
regulations are likely to impact the medium-term operating environment of
the sector, even though the effect was partial in 2011-12.
GUIDELINES ON PRIORITY-SECTOR LENDING:
Under the revised regulatory guidelines on priority-sector lending, issued
by the Reserve Bank of India in May 2011, bank loans to NBFCs (except
eligible NBFC-micro finance institution loans) are not eligible for the
banks` priority-sector loan targets from 1st April, 2011. The move will
adversely impact NBFC performance as bank loans comprise a major source of
Nair Committee Recommendation: The `Report of the Nair Committee on
Priority Sector Lending` (made public on 21st February, 2012) recommends
that loans to non-banking financial intermediaries for lending to specified
segments be classified as a priority sector, up to a maximum of 5% of
adjusted net bank credit or credit equivalent of off balance sheet
exposures (whichever is higher), subject to certain restrictions/
conditions. If implemented, it would partially reduce the impact of April
However, NBFCs can still borrow from banks (especially from private and
foreign players) on usual commercial terms. The increased priority sector
lending norm for foreign banks from 32% to 40% is further expected to
increase the securitisation transaction. Nevertheless, the increase in
funding costs from securitisation, including the impact on capitalisation
from the deduction of credit enhancements provided, could discourage NBFCs
from using this channel extensively.
USHA THORAT COMMITTEE RECOMMENDATIONS:
In addition, the `Report of the Working Group on the Issues and Concerns in
the NBFC Sector` (also called the Usha Thorat Committee), includes:
* The Tier-I, or core capital of NBFCs, has been pegged at 12% from 7.5%
now, to be achieved in a three-year timeframe.
* Asset classification and provisioning norms, similar to those of banks,
will be introduced in a phased manner. This includes the 90-days overdue
norm for classifying Non-Performing Assets (NPAs), from the current 180
* Liquidity ratios may be introduced for all registered NBFCs, so that
cash-and-bank balances and government securities fully cover the gaps, if
any, between cumulative outflows and inflows for the first 30 days.
Currently, only NBFCs who receive deposits are required to hold 15% of
their public deposits in RBI-defined liquid assets.
* The Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI) may be extended to NBFCs. NBFCs
now cannot enforce their claims on defaulters under SARFAESI.
* Higher disclosures have been suggested by the RBI, which includes
provision coverage ratios, liquidity ratios, asset liability profiles, the
extent of financing of a parent company`s products and the movement of
* The risk weights for NBFCs not sponsored by banks are likely to be raised
to 150% for capital market exposures and 125% for commercial real estate
Mahindra & Mahindra Financial Services Limited (`MMFSL`, `Mahindra Finance`
or `the Company`) has emerged as India`s frontrunner Non-Banking Finance
Company, catering to the financial needs of rural and semi-urban populace.
It commenced operations in 1993, as a subsidiary of Rs. 787 Billion Indian
tractor and utility vehicle manufacturer, Mahindra & Mahindra Limited.
Beginning its journey by financing Mahindra & Mahindra vehicles, Mahindra
Finance has considerably diversified its product portfolio, providing the
* Vehicle Loans (Utility Vehicles, Commercial Vehicles, Tractors, Cars,
Two-wheelers and used vehicles)
* Housing Finance (through Mahindra Rural Housing Finance Limited)
* SME Financing
* Personal Loans
* Fixed Deposits
* Mutual Fund distribution
* Insurance Broking (through Mahindra Insurance Brokers Limited)
* Loan against Gold
* Construction Equipment Loan
A combination of reputed brand, strong relationship with bankers, investors
and dealers, in-depth market insight, better asset quality and prudent risk
management have helped accelerate the organization`s steady growth.
Mahindra Finance enjoys high credit ratings, including CRISIL (AA+/
Stable), FITCH (AA+ (ind)/ Stable) and Brickworks Credit Ratings (AA+/
Positive) for its long-term and subordinate debt and CRISIL A1+ for its
short-term debt programme. The Company`s fixed deposit programme has been
rated `FAAA/Stable` the highest rating by CRISIL.
* MMFSL enhanced its customer base considerably; it crossed the two-million
benchmark in the current fiscal.
* Increased the number of offices from 547 in 2010-11 to 607 in 2011-12,
across 24 States and four Union Territories.
* Registered 35% growth in the value of assets financed; grew from
Rs.1,44,199 Million in 2010-11 to Rs. 1,95,043 Million in 2011-12.
* 37% growth in Assets under Management, from Rs. 1,50,899 Million in 2010-
11 to Rs. 2,06,429 Million in 2011-12.
* Recorded 36% and 41% growth in Total Assets and Income from Operations,
* Total employee base stood at 9,715 in 2011-12.
* Maintained 3% Gross NPA to Total Assets and 0.7% Net NPA to Total Assets
in the current year.
The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956, and Generally Accepted Accounting
Principles (GAAP) in India. The abridged financials of Mahindra Finance for
2011-12 including revenue, expenditure and profits are presented in the
Table 1 Abridged Statement of Profit and Loss (Rs. in Lacs unless indicated
2011-12 2010-11 Growth
Revenue from operations 2,76,770.07 1,96,435.45 40.9%
Other income 2,689.31 1,315.38 104.5%
Total Revenue 2,79,459.38 1,97,750.83 41.3%
Financial Expenses 1,12,032.35 66,020.97 69.7%
Employee Cost 19,977.07 15,150.49 31.9%
Other Expenses 37,266.04 31,104.01 19.8%
Provisions & Write Offs 15,702.00 13,651.74 15.0%
Depreciation & Amortisation 1,956.32 1,578.80 23.9%
Total Expenses 1,86,933.78 1,27,506.01 46.6%
PBT 92,525.60 70,244.82 31.7%
Direct tax 30,513.93 23,933.90 27.5%
PAT 62,011.67 46,310.92 33.9%
Basic EPS (Rs.) 60.46 47.85 26.4%
In fiscal 2012, the growth in new contracts stood at 26.82%, which in turn
enhanced the Company`s total assets and total revenues by 35.6% and 41.3%
respectively, compared to the previous fiscal. The Company`s Profit Before
Tax (PBT) witnessed 31.7% growth, increasing from Rs. 70,244.82 Lacs in
2010-11 to Rs. 92,525.60 Lacs in 2011-12. The Profit After Tax (PAT) also
increased by 33.9%, from Rs. 46,310.92 Lacs in 2010-11 to Rs. 62,011.67
Lacs in the current fiscal.
Subsequently, basic Earnings Per Share grew 26.3%, from Rs. 47.9 in 2010-11
to Rs. 60.46 in 2011-12.
Table 2 Key ratios:
Particulars 2011-12 2010-11
PBT/Total income 33.1% 35.5%
PBT/Total Assets 5.1% 5.3%
RONW (Avg. Net Worth) 22.8% 22.0%
Debt/Equity 4.7 3.8
Capital Adequacy 18.0% 20.3%
Tier I capital 15.1% 17.0%
Tier II capital 2.9% 3.3%
Book Value (Rs.) (excluding ESOPs) 286.7 242.8
The Company`s debt to equity ratio stood at 4.7 on 31st March, 2012. In
real terms, and compared to other finance companies, there is a significant
scope to enhance borrowings to grow future business.
The Company enjoys an 18% capital adequacy ratio, as compared to 15%
mandated by the Reserve Bank of India. The book value stood at Rs. 286.7 in
The Company prudently makes accelerated provisioning for Non-Performing
Assets (NPAs) than that prescribed by the RBI for NBFCs. The gross NPA to
total asset ratio declined from 4% in 2010-11 to 3% in 2011-12 and the net
NPA to total asset ratio stood at 0.7% in 2011-12.
Although India has one of the world`s most extensive banking networks, only
40% of the 1.21 Billion people have access to it.
According to Census 2011, 833 Million people reside in rural India, of
which only 38% (32,000 branches) of the branches are located in rural
India. More importantly, rural India accounts for 9% of total deposits, 7%
of total credit, 10% of life insurance and 0.6% of non-life insurance
business. Besides, only 39% of the rural population has access to banks.
Non-banking channels have emerged as one of the most important sources of
rural credit in the absence of formal banking facilities. The Indian
Government is sharpening its focus on financial inclusion to widen the
ambit of formal credit and other government-sponsored benefits. MMFSL`s
rural financing has helped accelerate rural development and drive inclusive
growth in many parts of India.
Assertive rural India:
The government has consistently raised the minimum support price (MSP) of
food grains to enable farmers to enhance their income and financial
The Commission on Agricultural Costs and Prices (CCAP), under the Ministry
of Agriculture, has recommended a 16% rise in the floor price of paddy, 30%
in soybean and sunflower seed, 25% in urad and moong and more than 40% in
bajra and jowar.
Besides, the Central Government`s flagship Mahatma Gandhi National Rural
Employment Guarantee Scheme has enhanced rural income and generated
livelihood for Millions of rural people. These factors augur well for the
expansion of the NBFC sector.
Among the developing economies, only nine out of 1,000 people own a car in
India, compared to 15 in China and 140 in Brazil. A combination of
increasing affordability, access to dealership and financing, growth in
existing markets, new product launches, enhanced infrastructure and
government initiatives drive the overall growth of the automobile market.
(Volume in `000)
A B C D E F
Small cars 662 9.7% 1546 18.5% 3167 15-17%
Sedan cars 220 17.7% 437 14.7% 840 13-15%
Total cars 882 17.6% 1983 17.6% 4007 14-16%
A = 2005-06 - Volumes
B = 2005-06 - CAGR
C = 2010-11 - Volumes
D = 2010-11 - CAGR
E = 2015-16 (P) - Volumes
F = 2015-16 (P) - CAGR
(Source: CRISIL, Car and UV Annual Review, 2012)
Growing sales are expected to create new growth paradigms for vehicle
financing. In the commercial vehicle segment, almost 98% vehicles are
financed, creating opportunities of growth in new vehicle financing.
Moreover, only 75-80% of total tractor sales were financed in 2011,
reflecting ample growth opportunities.
The domestic car and utility vehicles industry is expected to grow at a 14-
16% CAGR (during 2011-2016), penetrating 122 Million households in 2015-16,
compared to 64 Million households in 2010-11. The small-car segment expects
a faster 15-17% growth. Besides, the light commercial vehicle sales are
expected to grow by 20-22% in 2013, while the medium and heavy commercial
vehicles are likely to grow by 10-12% for the same period.
Table 4 Growth in new vehicle finance disbursements:
(Rs. in Billion) 2009E 2010E 2011E 2012P 2016P CAGR 2011-
Cars 260 349 502 523 1154 18%
Utility Vehicles 80 108 158 183 335 16%
Commercial Vehicles 194 272 402 496 996 20%
Two-wheelers 72 84 99 117 180 13%
Total 606 813 1161 1319 2665 18%
(Source: CRISIL Research, Update Retail Finance - Auto, November 2011)
Direct marketing initiatives to leverage the growing vehicle financing
market, along with distribution tie-ups with automobile giants like Maruti
and Hyundai Motors will further extend Mahindra Finance`s presence in the
The Small and Medium Enterprises (SME) emerged as a critical component of
economic development, particularly in emerging markets. Interestingly, 95%
of all registered firms across the world are SMEs, and the number is as
high as 99% for the European countries. In India, SMEs account for a
significant proportion of manufacturing and exports, creating around 1.3
Million jobs annually, and employing about 60 Million people.
The SME sector`s contribution equals 40% of India`s total exports and 8% of
India`s GDP. However, only 5.18% of the Micro, Small and Medium Enterprises
(MSMEs) in India avail finance from institutional sources, 2.05% from non-
institutional sources and the majority of units (92.77%) has no access to
finance, implying dependence on self-finance (Source: YES Bank Report).
Therefore, India`s SME financing demonstrates a significant growth
potential, creating opportunities for frontrunner sectoral players.
India`s housing finance sector is poised for robust growth, thanks to the
* Housing shortage under the 12th Five Year Plan (2013-17) is estimated to
be around 40 Million, with over 200 Million people living in chronically
poor housing conditions (Source: Planning Commission`s Report on Rural
Housing, September 2011). The shortage is also prevalent in rural India.
The National Housing Bank and the Government of India have introduced
several schemes to bridge the gap, influencing MMFSL`s growth.
* Large population with a favourable demographic profile (65% of the
population is below 35 years).
* Nuclearisation of families, leading to higher demand for houses.
* Enhanced affordability.
* At 9%, mortgage as a percentage of India`s GDP, remains one of the
world`s lowest. In developed countries like the US and UK, the
corresponding figure stands at 81% and 88%, respectively, while for China
it is 20%.
As a result, the home loan portfolio of finance companies is estimated to
reach Rs. 3,116 Billion by 2015, from Rs. 1,649 Billion in 2011. The
housing finance subsidiary of MMFSL, Mahindra Rural Housing Finance
Limited, enjoys ample growth opportunity. The association with the National
Housing Bank will further drive growth and increase the Company`s
Insurance services and mutual fund distribution:
India`s insurance sector has considerable growth prospects, as the level of
protection in India is only 55% of GDP (measured by sum assured to GDP) and
the current penetration of India`s general insurance industry is abysmally
low, at 0.7% of GDP, compared to 1.3-2.3% in emerging markets and 3-5% in
Against the backdrop of socio-economic turmoil and natural catastrophes,
public awareness is gradually increasing. India`s non-life insurance is
growing at a pace of more than 20% annually (Source: Assocham). The life
insurance sector is also poised to witness 7.5% premium growth in 2012
(Source: Swiss Re). These factors generate significant opportunities for
Mahindra Insurance Brokers Limited, MMFSL`s wholly-owned subsidiary.
On the other hand, India`s gross national savings is increasing rapidly. It
is expected to reach USD 1,455 Billion by 2016. With only 10% of India`s
savings channelized to financial services, the country`s mutual fund
distribution has considerable growth prospects. This scenario is expected
to drive Mahindra Finance`s growth.
* A sluggish economy can curtail prospects for business growth.
* Standardisation of products is gradually gaining prominence owing to
variable interest rates, payment terms and low processing fees in the wake
of enhanced competition.
* The economic slowdown can raise the delinquency rate and enhance credit
* Unlike banks, NBFCs depend on non-retail borrowing. The regulatory
requirements may restrict the banks to fund the NBFC sector. A tight
liquidity condition will further increase the cost of funds. With multiple
players invading the market, the ability to compete effectively will
depend, to some extent, on the Company`s ability to raise low-cost funds in
Risk management is critical for long-term sustainability of any business.
To align risk management with the Company`s organisational structure,
Mahindra Finance has in place a comprehensive Risk Management Committee of
the Board to effectively manage and review the risk management systems,
policies and strategies.
The Company also has an operating risk management team, headed by the Chief
Financial Officer and comprising functional heads to manage risks. The team
identifies, assesses and monitors all principal risks in accordance with
defined policies and procedures.
Risks and mitigation:
Mahindra Finance is highly dependent on Mahindra & Mahindra Limited (M&M),
the parent company. Sluggish growth by M&M can impact the Company`s future
The Company is gradually expanding its vehicle financing business. In the
current fiscal, it has considerably lowered its dependence on M&M vehicles,
and increased its presence in commercial vehicle, construction equipment
and pre-owned vehicle financing.
Table 5 Segment-wise break up of AUM:
A B C
Auto/ Utility Vehicles (M&M) 33 31 30
Tractors (M&M) 23 23 20
Cars and Non-M&M UVs and SCVs 30 31 31
Commercial Vehicles and Construction Equipment 8 9 12
Pre-owned Vehicles and Others 6 6 7
A = As on March 2010 (%)
B = As on March, 2011 (%)
C = As on March, 2012 (%)
Continuously evolving government regulations may impact operations.
The Company continuously monitors the regulatory compliances. The Tier I
and Tier II capital adequacy ratio are in consonance with regulatory norms.
The expertise of the senior management facilitates these compliances.
The inherent nature of lending exposes the Company to considerable credit
risk, which may lead to higher NPAs.
Deep insight about the nature of borrowers and a strong business model
reduces the risk of default significantly.
Government policies may impact interest rates and liquidity.
The Company has prudently evolved a strategic fund mix to reduce dependence
on banks. Moreover, superior credit rating helps Mahindra Finance to raise
wholesale funds at a competitive rate.
Simplified sanction procedures and low-entry barriers have encouraged
influx of new players in the NBFC market, enhancing competition.
Mahindra Finance`s extensive rural presence - Most of its branches are
located in rural India - across India is a decisive edge over competition.
The Company is optimistic about the growing business potential across
India`s vast rural and semi-urban markets. Mahindra Finance is focusing on
expanding its network of branches to cater to the widening customer
The Company is also enhancing focus on operational excellence by
introducing innovative products with local relevance, prioritising customer
focus and convenience, and simultaneously maintaining strong processes and
prudent risk management. It is confident to overcome transitory challenges
by virtue of its internal strengths and the overriding vision to help
accelerate inclusive growth for a billion-plus people.
INFORMATION TECHNOLOGY (IT):
MMFSL`s systematic and sound IT support system facilitates the loan
transaction processes. For example, the pre-disbursement stage entails the
archival of relevant customer details into the system for future reference.
After disbursement, the system generates the EMI due on each loan at any
given point and systematically tracks each phase of the payment schedule,
until maturity. The system, controlled from the Company`s head office in
Mumbai, enables the senior management to access operational data as and
Mahindra Finance tracks its liquidity position, which allows planning for
shortfalls in advance. As of March 31, 2012, 90% of the offices were
connected to the centralized data centre in Mumbai. Besides, the Company`s
field executives use approximately 8,000 hand-held GPRS devices to collect
loan payments at the customer`s home or business locations.
The Company`s production servers maintain a daily automated back-up. It
leverages advanced technologies and facilities for in-system data back-up
and disaster recovery.
HUMAN RESOURCE MANAGEMENT:
The Company attributes its success to the richness of knowledge, ideas and
experience of its varied workforce. It focuses on attracting and retaining
employees from diverse backgrounds: credit evaluation, risk management,
treasury, technology and marketing. This will maintain balance between the
number of employees and upcoming business expansions.
To develop the key competencies, Mahindra Finance has set up the Mahindra
Finance Academy to nurture employee skills. The structured and transparent
performance appraisal system provides continuous feedback to employees on
their performance and rewards deserving employees.
The work culture is geared to encourage people to innovate and achieve
larger organisational objectives. On the other hand, rewarding key
performers with Employees` Stock Options creates a sense of ownership among
INTERNAL CONTROL SYSTEM:
MMFSL`s comprehensive and effective internal control system ensures smooth
business operations, meticulously recording all transaction details and
ensuring regulatory compliance and protecting the Company`s assets from
loss or misuse.
A team of internal auditors systematically conducts internal audit. Reputed
audit firms have been appointed by the Company to review and audit
operations. The reports are reviewed by the Audit Committee of the Board.
The Company`s policies are updated by the Audit Committee in line with the
dynamic business environment.
Certain statements in the Management Discussion and Analysis describing the
Company`s objectives, predictions may be "forward-looking statements"
within the meaning of applicable laws and regulations. Actual results may
vary significantly from the forward looking statements contained in this
document due to various risks and uncertainties. These risks and
uncertainties include the effect of economic and political conditions in
India, volatility in interest rates, new regulations and Government
policies that may impact the Company`s business as well as its ability to
implement the strategy. The Company does not undertake to update these
CORPORATE SOCIAL RESPONSIBILITY:
Inspired by Rise (core philosophy of Mahindra Group), Mahindra Finance is
focusing on some key areas to help accelerate social uplift: education,
environment management, pollution reduction, healthcare, and tree
plantation. We also partner with the government, NGOs and other business
organisations to strengthen our CSR initiatives.
Following are the details of some of our initiatives:
Mahindra Hariyali is Mahindra Group`s mass tree plantation initiative. In
collaboration with schools, colleges, trusts, government forest departments
and old-age homes, we spread our green agenda. We have already planted
28,912 saplings across India.
Initiated in 1996 by K C Mahindra Education Trust (KCMET), Project Nanhi
Kali provides primary education to India`s underprivileged girl children.
In 2005, in partnership with Naandi Foundation, a reputed NGO, KCMET is
extending a helping hand with 10 years of quality education and material
support to the underprivileged girl children.
Blood Donation Camp:
MMFSL is actively involved in blood donation and collected over 1,000
bottles of blood.
Ambulance Donation Camp:
MMFSL has also donated fund for the purchase of ambulance to Ekta Institue
of Child Health, Bharat Vikas Parishad, Delhi Bharat Vikas Parishad
Foundation, Dean Foundation, Mamta Foundation, Liver Foundation and
Shroff`s Foundation Trust.
Life Line Express:
The Life Line Express consists of five railway coaches, equipped with the
updated medical and surgical facilities. It provides on-the-spot
diagnostic, medical and surgical treatments to rural people without cost,
focusing on areas where access to medical services is scarce. Patients
suffering from disabilities like Cleft Lip, Deafness, Polio (for children
under 14 years) and Cataract are treated on board the Life Line Express.
The Life Line Express project was held at Rajgir (Bihar) from the 9th to
29th February 2012.
The number of people who have benefited from these activities is shown
Cleft Lips 43
Village Electrification ProjectL
Mahindra Finance has taken a firm step to help brighten India`s remote
areas. Across 42 locations in Maharashtra, we have installed 168 Solar
Street Lights (each location has four streetlights).
AWARDS AND ACHIEVEMENTS:
* Won the Nasscom Enterprise Mobility Award 2012 for integration of unique
EMLAP with business hand held device and mobile phones
* Won three awards from the Public Relations Council of India:
Annual Convention in Corporate Event Category
Two awards for our in house magazine `EMI` -one under the category of best
online newsletter, and another as Best In-house Magazine under Corporate
* Won three awards at the National Awards for IT Excellence: CIO of the
year Leveraging IT for Business Performance Young Achiever Awards
* Recognised as the `Dream Companies to Work For` by the World HRD Congress
in association with Bloomberg UTV. We were honoured with the following four
14th rank in the `Dream Employer of the Year` category
HR Achiever Award
Women in Leadership Award
Young HR Professional Award
* Felicitated with the following awards at Asia`s Best Employer Brand
Award for Best CSR Practices
* Won ICAI Award 2011 for `Best CFO - Financial Sector`
* Selected among top 80 Indian Power Brands in the `Reigning Tigers`
* Received Indian Development Foundation CSR Award for excellent
contribution in supporting blanket mobilisation drive for leprosy patients