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
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