MAHINDRA(FINANCE( - mbacasecomp.comIntroduc4on$ Analysis$ Alternaves$ Implementaon$ Financials$ Conclusion Solu/on(P2P(Lending(Model(...

MAHINDRA  FINANCE  “With  Peer-­‐to-­‐Peer,  The  Future  Is  Clear”

HEC  Fintech  Strategies  Consul4ng  Group  Christopher  Sharp  |  Kim  Bergeron  |  Gert  Kongehl  |  Deniz  Eras  

Agenda Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

1. Execu4ve  Summary  2. Context  &  Problem  Statement  3. Business  Environment  Scan  (PESTEL2)  

4. Key  Success  Factors  5. Alterna4ves  6. “The  Solu4on”  7. Marke4ng  

1. Press  Release  2. Government  Lobby  3. Educa4on  Plan          

8. Implementa4on  Plan  9. Risks  &  Mi4ga4ons  10. Financials:  

1. Assump4ons  2. Revenue  &  Costs    3. Financial  Projec4ons    

11. Looking  Forward  12. Key  Takeaways  

Context  &  Problem  Statement Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Context:  Mahindra  Finance  has  pioneered  the  field  of  rural/semi-­‐urban  financing  through  disrup/ve  technologies  in  an  effort  to  “digit[ize]  India”.  Through  their  entrepreneurial  organiza4on,  they  have  tailored  finance  and  insurance  products  to  the  micro-­‐economic  needs  of  their  clients  demands  and  local  culture  allowing  them  to  prosper  beyond  previous  capabili4es.          Problem  Statement:  How  can  Mahindra  Finance  u4lize  new  technologies  and  capabili/es  to  revolu/onize  the  market,  and  solidify  their  posi4on,  for  their  Strategy  2020  growth  plan?  

ExecuGve  Summary Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Develop  and  implement  Peer-­‐to-­‐Peer  lending  plaCorm:  1.  Enhance  access  to  financing  for  rural  &  semi-­‐urban  popula4ons  2.  Provide  access  to  higher  return  investment  vehicles  for  urban  investors  3.  Provide  security  and  ease  of  transac4on  to  exis4ng  and  poten4al  clients  4.  Leverage  exis4ng  technologies    5.  Develop  model  capable  of  further  expansion  

Business  Environmental  Scan  (PESTEL2) Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Poli4cal  Landscape  

Government  Lobbying  (O)  

Media  Contacts  (O)  

Economic  Landscape  

NBFC  (S)  

Payment  Banks    (S)  

Small  Finance  Banks    (T)  

Social  

Income  Gap  /  Inequality  

(O)  

Large  rural  /  semi-­‐urban  pop  (S)  

(S):  Strength  (W):  Weakness  (O):  Opportunity  (T):  Threat  

Business  Environmental  Scan  (PESTEL2) Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Technological  

Fast  Evolving  Landscape  “Digital  

India”  (S/O)  

Tap  n  Pay  (S)  

Environmental  

Solu4on  should  not  exacerbate  

current  issues  

Legal  

Authori4es  /  Government  • Understand  how  regula4ons  apply  

(S):  Strength  (W):  Weakness  (O):  Opportunity  (T):  Threat  

Key  Success  Factors Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Low   Medium   High  

Alignment  with  key  success  factors  

Increase  Client  base  

New  business  

development  

Poten4al  globaliza4on  

Profitability  

AlternaGve  analysis Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Alterna/ve  1  Focus  on  interna/onal  development  

Increase  Client  Base   Poten/al  Globaliza/on  

New  business  development  

Profitability  

Alignment  with  KSF        

Evalua4on   •  Focus  on  countries  where  Mahindra  has  a  presence  (SK,  South  Africa).  

•  Plays  on  the  sole  aspect  of  globaliza4on.  

•  Maintain  actual  model.  

•  Does  not  go  beyond  classical  thinking  and  innova4on.  

•  Many  compe4tors  in  interna4onal  markets  difficult  to  penetrate  market.  

•  No  access  to  local  rural  access  ra4ng,  riskier  

AlternaGve  analysis Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Alterna/ve  2  Focus  on  expansion  of  product  offering  

Increase  Client  Base   Poten/al  Globaliza/on  

New  business  development  

Profitability  

Alignment  with  KSF        

Evalua4on   •  Offering  more  adapted  loans  and  new  financial  products  to  the  rural  and  semi-­‐rural  popula4on    

•  Does  not  leverage  poten4al  because  focus  in  

•  (-­‐)  Sole  focus  on  rural  area  

•  (+)  would  leverage  the  Payment  Banking  new  license  

•  (+)  poten4al  to  create  new  regional  offices  –  facilitate  transi4ons  

AlternaGve  analysis Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Alterna/ve  3  Peer  to  Peer  Lending    

Increase  Client  Base   Poten/al  Globaliza/on  

New  business  development  

Profitability  

Alignment  with  KSF        

Evalua4on   •  New  lending  model  to  con4nue  reaching  rural  and  semi-­‐rural  areas  

•  Eventually  –  with  poten4al  to  test  model  first  in  India’s  where  Mahindra  Financial  has  great  database  and  reproduce  model  later  on  

•  Stay  core  –  rural  and  semi-­‐rural  exper4se  

•  Payment  Banking  license  allows  this  model  

•  Tap  and  pay  system  development  

•  Leverage  technologic  segment  Mahindra  

•  Involvement  with  government  -­‐    

SoluGon Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Solu/on  P2P  Lending  Model  Offer  opportunity  for  urban  investors  to  invest  in  porColio  of  various  rural  clients  that  are  in  need  of  financing   for   their   assets  and  businesses.  Offer  possibility   to  diversify   investment   (bundle  of  diversified  pool  of  credit)  Suitability  (per4nence  of  solu4on)   Feasibility  (resources)   Acceptability  (alignment  with  

values)  

•  Create  a  culture  of  electronic  banking  transac4on.  

•  Poten4al  increased  to  offer  other  financial  products  (eg:  Credit  default  Swaps  –  to  secure  loans).  

•  Leverage  Asset  finance  Company  and  Payment  Bank  license.  

•  Tech  Mahindra  :  involve  for  online  framework  –  portal  development.  

•  Educa4on-­‐promo4on  plan  using  word-­‐of-­‐mouth  to  promote  ease  and  assure  security  with  use  of  the  model.  

•  Large  database  and  informa4on  possessed  by  Mahindra  financial.  

•  Mahindra  has  the  required  financial  resources.  

•  Good  corporate  ci4zenship  –  involve  all  strata  of  Indian  society  

•  Differen4ate  from  compe4tors’  offerings.  

•  Innova4ve  solu4on  including  technologies.  

•  Maintain  focus  on  people  and  adapt  to  demand.  

•  Evalua4on  of  risks  managed  with  database  and  informa4on  

PromoGon  Plan Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Go  to  market  strategy   Press  release  content  •  Educa4onal  campaign  to  explain  

to  investors  the  financial  benefit  •  Educa4onal  campaign  (one-­‐on-­‐

one,  face  to  face)  for  rural  popula4on  to  promote  use  of  bank  account  and  use  of  electronic  payment  and  transfer  of  funds  

•  Increase  reach  and  exposure  in  rural  semi-­‐urban  markets  by  opening  1500  new  offices  

•  Lobby  with  Indian  government  and  promote  benefits  

•  Leveraging  new  governmental  programs    

“Mahindra  financial  services  is  helping  to  change  the  face  of  rural  India  by  helping  Indians  finance  their  dreams.    We  are  providing  growth  capital  by  matching  investors  and  borrowers  through  the  use  of  sustainable  informa=on  and  technological  services”  .  

Required  capabiliGes Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

1. Collec4on  and  development  of  financial  profile  of  customers  2. Ability  to  assess  financial  risk  of  rural  customers  3. Transac4onal  website  that  can  support  payment  and  funds  transfer  (peer-­‐to-­‐peer)  

4. Ability  to  create  a  seamless  portal  integra4ng  all  the  products  in  one  loca4on  

5. Capability  to  process  high  volume  –  low  value  transac4ons  

ImplementaGon  plan Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Year  1 Year  2 Year  3500  new  offices  per  yearNew  Platform  development  and  maintenanceMarketing  campaignBranding-­‐Education-­‐New  service  launch

Risks  and  miGgaGon Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

High  Impact  

High  Probability  Low  

RISKS  

1.  Low  interest  from  investors  due  to  risk  level  of  new  financial  products  

 2.  Low  speed  of  implementa4on  of  digital  transac4on  and  use  of  bank  accounts  in  rural  areas  

3.  Increased  opera4onal  costs  and  risk  of  cash  management  from  increased  number  of  villages  served  

1  

2  

3  

MITIGATION  1.  Leverage  Tech  Mahindra  capabili4es  

to  provide  clear  credit  profiles  to  investors  and  leverage  Mahindra  Insurance  to  offer  credit  default  swaps  

2.  Comprehensive  educa4onal-­‐promo4onal  campaign  to  promote  use  of  bank  account  and  digital  transfer  of  funds  

3.  Electronic  planorm  to  handle  high  volume  of  financial  transac4on  to  reduce  opera4onal  costs  and  risks  

RecommendaGon  for  the  future Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Recommenda/ons  for  con/nued  growth  1.  Find  interna4onal  partner  with  technical  capabili4es  to  integrate  the  P2P  Indian  model  for  poten4al  rural  and  semi  urban  markets.  2.  Local  partner  has  to  have  strong  poli4cal  capital  with  local  and  federal  governments  3.  Local  market  must  have  strong  poten4al  for  technological  adop4on  4.  Growth  market  with  weak  rural  access  to  capital  (eg:  South  Africa,  Korea  and  Brazil)    5.  Leverage  Mahindra’s  presence  in  these  markets  

Financials  -­‐  Key  AssumpGons Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Employee  Expense 9.4% Effectiveness  of  new  offices 0.25Finance  Costs 43.9% New  Office  Setup  Cost 0.1Dep.  and  Amort. 0.8% New  Office  Rent 0.2Provisions  and  Write-­‐Offs 14.1%Other 9.2%Tax 34.9%Minority  Interest 1.4%

Financials  Revenue  Growth Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Revenue  Growth2015 2016 2017 2018

Legacy  ProductsOffices 1,100 1,600 2,100 2,600Revenue  per  Office 54.74 54.74 54.74 54.74Cannibalization 15% 25% 35%Legacy  Revenue 60,211 74,443 86,211 92,506

P2P  Products%  of  Legacy  Revenue 10% 30% 50%Revenue 0 7,444 25,863 46,253

Financials  –  Revenue  Growth  Drivers Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

Financials  –  IniGaGve  Investments Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

2015 2016 2017 2018Offices 1,100 1,600 2,100 2,600Employees 14,200 20,655 27,109 33,564Villages 241,000 350,545 460,091 569,636

New  Offices 500 500 500Existing  Office 1,100 1,100 1,600 2,100Expense  per  Employee 0.40 0.39 0.38 0.37Employee  expense 5,671 8,055 10,301 12,419Depr  and  Amort  per  office 0.41 0.40 0.39 0.38Depr  and  Amort 455 640 819 988

New  Office  Setup 50 50 50New  Office  Rent 100 200 300New  Platform  Development 2,000 1,000 1,000Marketing  Development 2,500 2,500 2,500New  P2P  Platform 4,650 3,750 3,850

CAPEX  Rebranding 4000

Financials  –  P&L Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

2015 2016 2017 2018Legacy  Products 60,211 74,443 86,211 92,506P2P  Products 7,444 25,863 46,253Total  Revenue's 60,211 81,887 112,075 138,759

Employee  Expense 5,671 8,055 10,301 12,419Finance  Costs 26,430 35,945 49,196 60,909Dep.  and  Amort. 455 640 819 988Provisions  and  Write-­‐Offs 8,491 11,548 15,805 19,568Other 5,543 7,538 10,318 12,774P2P  Initiative 4,650 3,750 3,850Total  Expenses 46,590 68,376 86,439 106,658

EBIT 13,621 13,511 25,636 32,101

Net  Profit 8,751 8,799 16,696 20,90715% 11% 15% 15%

Key  Takeaways Introduc4on   Analysis   Alterna4ves   Implementa4on   Financials   Conclusion  

“With  P2P  the  Future  is  Clear”  1.  Enhance  access  to  financing  for  rural  &  semi-­‐urban  popula4ons  2.  Provide  access  to  higher  return  investment  vehicles  for  urban  investors  3.  Provide  security  and  ease  of  transac4on  to  exis4ng  and  poten4al  clients  4.  Leverage  exis4ng  technologies    5.  Develop  model  capable  of  further  expansion  

THANK  YOU