Rating Rationale
June 28, 2023 | Mumbai
 
Mahindra and Mahindra Financial Services Limited
'CRISIL AAA/Stable' assigned to Non Convertible Debentures; Rated amount enhanced for Commercial Paper
 
Rating Action
Total Bank Loan Facilities Rated Rs.13317 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.10000 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
Rs.5000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.1000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.8000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.10000 Crore Fixed Deposits CRISIL AAA/Stable (Reaffirmed)
Subordinated Debt Aggregating Rs.1000 Crore CRISIL AAA/Stable (Reaffirmed)
Subordinated Debt Aggregating Rs.113.5 Crore CRISIL AAA/Stable (Reaffirmed)
Subordinated Debt Aggregating Rs.127.8 Crore CRISIL AAA/Stable (Withdrawn)
Rs.10000 Crore Commercial Paper (Enhanced from Rs.8500 Crore) CRISIL A1+ (Reaffirmed)
The common independent director on CRISIL Ratings Limited and Mahindra and Mahindra Financial Services Limited boards did not participate in the rating process or in the meeting of the rating committee, when the rating for securities of Mahindra and Mahindra Financial Services Limited was discussed. This rating was also not discussed in the meeting of CRISIL Ratings’ Board of Directors.
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs 10,000 crore Non-Convertible Debentures of Mahindra And Mahindra Financial Services Limited (Mahindra Finance) and reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of the company.

 

CRISIL Ratings has also withdrawn its rating on the Rs.127.8 crore subordinated debt programme, (see the 'Annexure - Details of Rating Withdrawn' for details) on receipt of independent confirmation that these instruments are fully redeemed and at the request of the company, in line with its withdrawal policy.

 

The ratings continue to reflect the company’s majority ownership by, and strategic importance to, the parent, Mahindra & Mahindra Ltd (M&M; rated ‘CRISIL AAA/Stable/CRISIL A1+’). CRISIL Ratings expects the financial services business housed in Mahindra Finance to remain strategically important to M&M. Mahindra Finance is the largest financier of M&M’s automotive and tractor business and has strong relationships with its dealer network. With extensive experience, expertise and penetration in rural and semi urban markets, Mahindra Finance is a key part of M&M’s growth strategy in these markets.

 

CRISIL Ratings expects M&M to maintain majority shareholding in Mahindra Finance and exercise management oversight for the company to conduct its business in line with governance and compliance standards that all Mahindra group entities follow, including Mahindra Finance, honoring its debt obligation in a timely manner.

 

The rating also reflects the gradual improvement in Mahindra Finance’s asset quality and profitability, though the former continues to be modest. The rating also factors in Mahindra Finance’s strong position in the utility vehicle (UV) and tractor financing business in rural and semi-urban areas, adequate capitalisation, and stable resource profile.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Mahindra Finance and its key subsidiaries, Mahindra Rural Housing Finance Ltd (MRHFL) and Mahindra Insurance Brokers Ltd (MIBL). While MRHFL is in the rural housing finance segment, a fund-based business, MIBL is in insurance broking, a fee-based business. CRISIL Ratings has factored in the strong support the company is likely to receive from its parent, M&M, on an ongoing basis and in times of distress.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Majority ownership by, and strategic importance to, M&M

The ratings factor in the strategic, financial and operational linkages between Mahindra Finance and M&M. The parent participated in the rights issue in August 2020 following which its stake went up to 52.2% from 51.2%.  CRISIL Ratings expects M&M to maintain majority shareholding in Mahindra Finance and exercise management oversight for the company to conduct its business in line with governance and compliance standards that all Mahindra group entities follow, including Mahindra Finance, honouring its debt obligation in a timely manner.

 

Mahindra Finance continues to finance around 30% each of M&M’s UV and light commercial vehicle (LCV) sales. Market share in tractors was impacted during the Covid-19 pandemic and has now increased. However, financing of M&M vehicles as a proportion of Mahindra Finance’s yearly total loan disbursements has reduced over the past few years. As part of its growth strategy, Mahindra Finance has been increasingly financing vehicles of other manufacturers. The captive finance business accounted for 44% of the overall loan book in fiscal 2023.  Mahindra Finance has done two equity capital issuances in the past five years; M&M participated in both and had infused Rs 2,696 crore into Mahindra Finance – demonstrating the strong financial and strategic linkages. M&M is expected to support Mahindra Finance on an ongoing basis and in case of distress, given the majority ownership, shared brand name and the strategic importance of the financial services business.

 

Strong and established market position in rural and semi-urban areas, particularly in the UV and tractor financing businesses

Mahindra Finance’s market position in the UV and tractor financing segments remains strong, owing to the operational linkages with M&M, which enables the company to access the parent’s widespread dealer network. The company finances consumer purchases of auto/UVs (33% of gross business assets as on March 31, 2023), commercial vehicles (CV)/commercial equipments (CEs) (11%), tractors (14%), cars (20%) and other assets. The company has plans to diversify and increase its non-vehicle portfolio over the medium term. It has recently started offering products such as small and medium enterprise (SME) loans, loan against property (LAP), leasing and digital lending. The scalability of this portfolio remains a monitorable.

 

Disbursements remained subdued in fiscal 2021 and the first half of fiscal 2022 as the company adopted a cautious approach owing to challenging business environment. Consequently, overall gross business assets of Mahindra Finance remained flat at Rs 64,961 crore as on March 31, 2022. However, disbursements picked up in fiscal 2023 and stood at Rs 49,541 crore (80% year-on-year growth); gross loan assets witnessed 27% growth in  fiscal 2023 and stood at Rs 82,770 crore as on March 31, 2023.

 

The company has considerably strengthened its distribution network: it had 1,386 branches across 27 states and 7 Union Territories as on March 31, 2023, with a large number of branches in semi-urban and rural areas, where it enjoys strong market share. To leverage its existing presence in these geographies, Mahindra Finance entered rural housing finance through MRHFL.

 

Adequate capitalisation and stable resource profile

Capitalisation continues to be adequate, as reflected in tier I and overall capital adequacy ratios of 19.9% and 22.5% respectively, as on March 31, 2023 (24.3% and 27.8%, respectively, as on March 31, 2022). Networth was sizeable at Rs 17,089 crore and gearing at 4.4 times as on March 31, 2023 (Rs 15,628 crore and 3.6 times, respectively, as on March 31, 2022). The company’s capital profile is also supported by its demonstrated ability to raise equity capital. In August 2020, the company raised Rs 3,089 crore of equity capital through rights issue, which resulted in improvement in gearing. Networth coverage for net non-performing assets (NPAs) stood at 11.3 times as on March 31, 2023.

 

Stable and diversified resource profile and substantial unutilised bank limits provide significant financial flexibility to raise resources at competitive costs to meet increasing funding requirement. As on March 31, 2023, the company had a fairly diverse borrowing mix consisting of 31.8% of NCDs, 8.9% of securitisation, 7.4% of fixed deposits and 40.3% of bank borrowings. Cost of borrowing was healthy at 6.6% in fiscal 2023 (6.5% in fiscal 2022) and is expected to remain better than industry average over the medium term.

 

Weakness:

Modest asset quality

Mahindra Finance’s asset quality is modest despite showing improvement in recent times. Gross stage 3 assets stood at 4.49% as on March 31, 2023, as against 7.66% as on March 31, 2022, and 8.96% as on March 31, 2021. The improvement in asset quality was driven by reduction in gross stage 3 assets across all asset classes. Furthermore, the outstanding restructured portfolio stood at Rs 1,635 crore (2% of the overall portfolio) as on March 31, 2023.

 

The company is increasingly focusing on collection and recovery efforts and CRISIL Ratings notes that Mahindra Finance has shown ability to ultimately recover from delinquent accounts even post loan maturity date. Overall ultimate credit loss has been in the range of 1% to 3% over the past 10 years. The company's track record in the vehicle financing business, understanding of the target customer segment and robust underwriting practices may support the asset quality metrics. The company's ability to manage collections and asset quality going forward will be a key monitorable. The impact of the revised norms of the Reserve Bank of India (RBI) on asset classification as part of the circular released on November 12, 2021 stood at Rs. 1,184 crores (1.4% of the gross business assets) as on March 31, 2023.

 

Weakening of asset quality and increase in provision coverage ratio impacted profitability in fiscal 2021 (0.4% return on managed assets [RoMA]) and in the first quarter of fiscal 2022 (-8.2% RoMA annualised). Thereafter, the company has witnessed quarter-on-quarter improvement in profitability as reflected in RoMA of 1.3% in fiscal 2022 (reported profit of Rs 989 crore). The company further reported PAT of Rs 1,984 crore (RoMA of 2.3%) in fiscal 2023. The increase in profitability is partly supported by lower provisioning cost. Ability to contain asset quality and credit cost will remain a key rating sensitivity factor.

Liquidity: Superior

Liquidity was comfortable with positive cumulative mismatch in each bucket up to one year as on March 31, 2023. Cash and equivalent and other liquid assets stood at around Rs 10,400 crore as on March 31, 2023. The company has sufficient liquid surplus to repay debt for the next three months assuming no collection. Moreover, being a part of the M&M group, additional liquidity support will be available to the entity as and when required

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes the ESG profile of Mahindra Finance supports its already strong credit risk profile.

 

The ESG profile of financial institutions typically factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base. While the sector does not have a direct adverse environmental impact, lending decisions may have a bearing on environment and other sustainability factors.

 

Mahindra Finance has demonstrated focus on strengthening various aspects of its ESG profile.

 

Key ESG highlights:

 

  • In order to manage and reduce its environmental footprint, the company aims to increase its electric vehicle financing portfolio on continuous basis.
  • Mahindra Finance has adopted watershed management system and rainwater harvesting project with communities on pilot basis. It is committed to sustainable e-waste management system as well, and 100% of the e-waste is sent for recycling through registered recyclers.
  • The company has impacted 51,763 lives through corporate social responsibility (CSR) initiatives. Also, it has purchased maximum supplies from local vendors for all its subsidiaries.
  • Majority of the Board members are independent directors and there is a segregation in chairperson and executive positions. The company has a dedicated investor grievance redressal mechanism and the disclosures put out by it are extensive.

 

There is growing importance of ESG among investors and lenders. The company’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high share of foreign investors as well as access to both domestic and foreign capital markets.

 

Outlook: Stable

CRISIL Ratings believes Mahindra Finance will benefit from the support it is likely to receive from M&M, given the majority shareholding of, and Mahindra Finance’s strategic importance to, its parent. CRISIL Ratings also believes the company will maintain its strong market position and adequate capitalisation over the medium term.

Rating Sensitivity factors

Downward Factors:
* Significant reduction in support to Mahindra Finance or downward rating action on M&M may result in a corresponding rating action on Mahindra Finance

* Deterioration in the asset quality and profitability with RoA < 0% on a sustained basis

* Material reduction in shareholding by M&M

About the Company

Mahindra Finance, a non-banking financial company (NBFC), was incorporated in 1991. M&M, the majority shareholder, held 52.2% in Mahindra Finance as on March 31, 2023. Mahindra Finance ranks among the larger NBFCs in India with gross loan assets of Rs 82,770 crore as on March 31, 2023 (Rs 64,961 crore as on March 31, 2022). The company finances consumer purchases of UVs, LCVs, tractors, cars and other assets. It has recently started offering products such as SME loans, LAP, leasing and digital lending. To leverage its extensive branch network and rural clientele, the company has entered the rural housing finance business through its subsidiary, MRHFL. MIBL is the insurance broking arm of Mahindra Finance, providing insurance broking services both in the life and non-life segments.

 

On consolidated basis, total income and net profit were Rs 12,832 crore and Rs 2,071 crore, respectively, in fiscal 2023, against Rs 11,401 crore and Rs 1,150 crore, respectively, in fiscal 2022.

 

On standalone basis, the company reported profit of Rs 1,984 crore on total income (net of interest expense) of Rs 6,479 crore in fiscal 2023 (Rs 989 crore and 5,799 crore, respectively, in fiscal 2021)

Key Financial Indicators (on a standalone basis)

As on / year ended   31-Mar-23 31-Mar-22
Total assets Rs crore 96217 75289
Total income Rs crore 11056 9719
Profit after tax (PAT) Rs crore 1984 989
Gross Stage 3* % 4.49 7.66
Return on assets (annualised) ^ % 2.3 1.3

*on business assets

^on average total assets

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs crore)
Complexity 
levels
Rating assigned
with outlook
INE774D07US3 Non-convertible debentures 23-Mar-23 8.3 23-Mar-26 285 Simple CRISIL AAA/Stable
INE774D07UW5 Non-convertible debentures 29-Mar-23  8.25 28-Mar-25 1125 Simple CRISIL AAA/Stable
INE774D07UV7* Non-convertible debentures 29-Mar-23  8.25 29-Mar-28 1125 Simple CRISIL AAA/Stable
INE774D07UT1 Non-convertible debentures 29-Mar-23  8.25 26-Mar-26 1125 Simple CRISIL AAA/Stable
INE774D07UU9* Non-convertible debentures 29-Mar-23  8.25 28-Mar-28 1125 Simple CRISIL AAA/Stable
INE774D07UX3 Non-convertible debentures 21-Apr-23 8.1 21-May-26 682 Simple CRISIL AAA/Stable
INE774D07UY1* Non-convertible debentures 27-Apr-23 8 25-Jun-27 1050 Simple CRISIL AAA/Stable
INE774D07UZ8* Non-convertible debentures 27-Apr-23 8 27-Apr-27 1050 Simple CRISIL AAA/Stable
INE774D07VA9 Non-convertible debentures 27-Apr-23 8 26-Jun-25 1050 Simple CRISIL AAA/Stable
INE774D07VB7 Non-convertible debentures 27-Apr-23 8 25-Apr-25 1050 Simple CRISIL AAA/Stable
NA Non-convertible debentures^ NA NA NA 14333 Simple CRISIL AAA/Stable
NA Subordinated Debt^ NA NA NA 1113.5 Complex CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 10000 Simple CRISIL A1+
NA Cash Credit NA NA NA 1727 NA CRISIL AAA/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 10000 NA CRISIL AAA/Stable
NA Fixed Deposit Programme NA NA NA 10000 Simple CRISIL AAA/Stable
NA Short Term Bank Facility NA NA NA 1590 NA CRISIL A1+

^not yet issued/availed

*Partly paid up NCDs

 

Annexure - Details of Rating Withdrawn

ISIN Name of instrument Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs.Crore)
Complexity 
levels
Rating assigned
with outlook
INE774D08LD2 Subordinated Debt 23-Apr-13 9.7 24-Apr-23 80 Complex Withdrawn
INE774D08LF7 Subordinated Debt 24-May-13 9.5 24-May-23 47.8 Complex Withdrawn

Annexure - List of Entities Consolidated

Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Mahindra Insurance Brokers Limited Full Subsidiary
Mahindra Rural Housing Finance Limited Full Subsidiary
Mahindra Finance USA LLC Proportionate Joint Venture
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 13317.0 CRISIL A1+ / CRISIL AAA/Stable 13-04-23 CRISIL A1+ / CRISIL AAA/Stable 15-07-22 CRISIL AA+/Stable / CRISIL A1+ 31-08-21 CRISIL AA+/Stable / CRISIL A1+ 31-08-20 CRISIL AA+/Stable / CRISIL A1+ CRISIL AA+/Stable / CRISIL A1+
      -- 06-03-23 CRISIL A1+ / CRISIL AAA/Stable 17-06-22 CRISIL AA+/Stable / CRISIL A1+   --   -- --
      -- 13-01-23 CRISIL A1+ / CRISIL AAA/Stable   --   --   -- --
      -- 06-01-23 CRISIL A1+ / CRISIL AAA/Stable   --   --   -- --
Commercial Paper ST 10000.0 CRISIL A1+ 13-04-23 CRISIL A1+ 15-07-22 CRISIL A1+ 31-08-21 CRISIL A1+ 31-08-20 CRISIL A1+ CRISIL A1+
      -- 06-03-23 CRISIL A1+ 17-06-22 CRISIL A1+   --   -- --
      -- 13-01-23 CRISIL A1+   --   --   -- --
      -- 06-01-23 CRISIL A1+   --   --   -- --
Fixed Deposits LT 10000.0 CRISIL AAA/Stable 13-04-23 CRISIL AAA/Stable 17-06-22 Withdrawn 31-08-21 F AAA/Stable 31-08-20 F AAA/Stable F AAA/Stable
      -- 06-03-23 CRISIL AAA/Stable   --   --   -- --
      -- 13-01-23 CRISIL AAA/Stable   --   --   -- --
Non Convertible Debentures LT 24000.0 CRISIL AAA/Stable 13-04-23 CRISIL AAA/Stable 17-06-22 Withdrawn 31-08-21 CRISIL AA+/Stable 31-08-20 CRISIL AA+/Stable CRISIL AA+/Stable
      -- 06-03-23 CRISIL AAA/Stable   --   --   -- --
      -- 13-01-23 CRISIL AAA/Stable   --   --   -- --
      -- 06-01-23 CRISIL AAA/Stable   --   --   -- --
Subordinated Debt LT 1113.5 CRISIL AAA/Stable 13-04-23 CRISIL AAA/Stable 15-07-22 CRISIL AA+/Stable 31-08-21 CRISIL AA+/Stable 31-08-20 CRISIL AA+/Stable CRISIL AA+/Stable
      -- 06-03-23 CRISIL AAA/Stable 17-06-22 CRISIL AA+/Stable   --   -- --
      -- 13-01-23 CRISIL AAA/Stable   --   --   -- --
      -- 06-01-23 CRISIL AAA/Stable   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 100 Corporation Bank CRISIL AAA/Stable
Cash Credit 100 Indian Bank CRISIL AAA/Stable
Cash Credit 10 IndusInd Bank Limited CRISIL AAA/Stable
Cash Credit 20 Kotak Mahindra Bank Limited CRISIL AAA/Stable
Cash Credit 125 Punjab National Bank CRISIL AAA/Stable
Cash Credit 50 Standard Chartered Bank Limited CRISIL AAA/Stable
Cash Credit 50 Vijaya Bank CRISIL AAA/Stable
Cash Credit 75 The Federal Bank Limited CRISIL AAA/Stable
Cash Credit 100 Axis Bank Limited CRISIL AAA/Stable
Cash Credit 65 Bank of Baroda CRISIL AAA/Stable
Cash Credit 100 Bank of Maharashtra CRISIL AAA/Stable
Cash Credit 100 Canara Bank CRISIL AAA/Stable
Cash Credit 500 State Bank of India CRISIL AAA/Stable
Cash Credit 10 YES Bank Limited CRISIL AAA/Stable
Cash Credit 75 DBS Bank Limited CRISIL AAA/Stable
Cash Credit 52 Dena Bank CRISIL AAA/Stable
Cash Credit 100 ICICI Bank Limited CRISIL AAA/Stable
Cash Credit 75 Central Bank Of India CRISIL AAA/Stable
Cash Credit 20 Citibank N. A. CRISIL AAA/Stable
Proposed Long Term Bank Loan Facility 10000 Not Applicable CRISIL AAA/Stable
Short Term Bank Facility 90 Axis Bank Limited CRISIL A1+
Short Term Bank Facility 250 MUFG Bank Limited CRISIL A1+
Short Term Bank Facility 300 Bank of America N.A. CRISIL A1+
Short Term Bank Facility 100 Societe Generale Bank CRISIL A1+
Short Term Bank Facility 100 IndusInd Bank Limited CRISIL A1+
Short Term Bank Facility 200 Kotak Mahindra Bank Limited CRISIL A1+
Short Term Bank Facility 450 The Hongkong and Shanghai Banking Corporation Limited CRISIL A1+
Short Term Bank Facility 100 YES Bank Limited CRISIL A1+
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
Rating criteria for hybrid debt instruments of NBFCs/HFCs
CRISILs criteria for rating fixed deposit programmes
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html