Mahindra Finance sees 45% profit growth in FY11

Mahindra Finance sees 45% profit growth in FY11

Mumbai: Mahindra & Mahindra Financial Services sees FY11 net profit jump nearly by a half, led by growth in demand for commercial and pre-owned vehicles and construction equipment, its top official said.

“We will grow at 40-45%. The higher growth rate would come from commercial equipment, construction equipment and second hand vehicles," Ramesh Iyer told Reuters in an interview late on Tuesday.

The three segments should contribute about 15-20% of balance sheet of the retail lender who primarily focuses on rural and semi-urban areas, he added.

More than half its business comes from financing buyers of its parent, India’s largest tractor and utility vehicle maker Mahindra & Mahindra’s products.

“We have become a significant player for Maruti," Iyer added.

The non-banking financial company (NBFC), which borrows mainly from banks and financial institutions, does not see any impact on borrowing cost in case of a 25-50 basis points rate hike widely expected in FY11.

Expectations for a rate increase in Reserve Bank of India’s mid-quarter policy review on Thursday gathered steam after factory output grew at a more robust pace than expected in July.

“If it goes up, we will pass it on to customers, but we have a strategy that any rate hike of 25-50 basis points, we will try to absorb it."

Mahindra Finance is a dominant player in the rural and semi urban market and sees buoyant demand on the back of a good monsoon and the National Rural Employment Guarantee scheme, which increases disposable income of the rural population.

Iyer said there could be a marginal 10-20% impact on demand from north-east region which saw a rainfall deficit but he did not see a rise in non-performing assets.

Sees Rural Demand Soar

A unit of the company, Mahindra Rural Housing Finance, in which National Housing Bank holds 12.5% stake, is expecting loan growth tipping 250 crore in FY11, compared with a 100 crore in FY10.

“What we have typically seen is requirement of loan for 3-5 years, maximum six years and a loan size of 2.5-4 lakhs. Technically, the loan seems to be for upgrading the house or adding a room in the house," Iyer said.

Mahindra Finance, which has applied for licence for setting up an asset management company, expects an in-principle approval by the end of financial year.

“We have one million customers and we are growing every month with 25,000-30,000 customers being added. We don’t want to miss the opportunity to take financial product to this market."

It also plans to venture into funding small and medium enterprises (SME) segment with loans for workshop upgradation, showroom upgradation and small business loans.

Iyer said he was “excited" by the prospect of applying for a banking licence, but would wait for RBI guidelines.

“As a financial services player, I would think it’s is a major attraction because it will open up ability to bring down cost of money... it will open up probably our ability to participate in various segment of customers which as a NBFC, we have limitations."