M&M Financial In Talks To Raise Rs 2,500 Crore Via Share Sale

Mahindra & Mahindra Financial Services Ltd., one of India's largest non-bank rural-focused lender, is looking to sell shares to raise funds as it expects the demand for loans to jump, two people aware of the development told BloombergQuint.

The auto and home loan lender, 51.8 percent owned by the Anand Mahindra-led group, is in initial talks with investment banks to raise Rs 2,500 crore in its first equity mop-up in five years, one of the two people quoted above said requesting anonymity as the talks are private. The promoters are likely to infuse Rs 1,000 crore and the rest could be a qualified institutional placement, the person said.

The promoters want to ensure that their holding does not fall below 50 percent, a banker closely involved in the transaction said requesting anonymity. This is one of the reasons why they may infuse Rs 1,000 crore via preferential route. It will also signal confidence in the business, the banker said.

The company is well placed to benefit from a rural recovery driven by improvement in higher farm-related cash flows, increase in government spending and two straight good monsoons, brokerage JM Financial said in a recent report.

Auto and utility vehicle financing contributes 30 percent of M&M Financial's portfolio while tractor loans account for 17 percent as of June 30, according to the company's filings. Both these segments are expected to pick up, especially during the upcoming festive season.

The management will shortly start road shows for the fund-raise and collect investor feedback, the first person quoted above said.

The company's senior management, in its earnings conference call, said if a fund-raise is required, it will be used for growth and not to improve asset quality. An M&M Financial spokesperson, in reply to a BloombergQuint email, said “we do not have any such plans at present”.

M&M Financial's loan disbursement rose 16 per cent in the quarter ended June. The loan book of its home loan subsidiary Mahindra Rural Housing Finance grew 48 per cent year-on-year. The management expects the growth trend to continue.

The lender last raised funds through a share sale in 2012 when it mopped up Rs 867 crore via a QIP, after which the promoter holding was diluted to 51.8 percent.