Mahindra and Mahindra bought 3.53% stake in RBL Bank for Rs 417 cr. The auto company also looked at the possibility of additional investments up to a 9.9% stake. The RBL management however said that it was not aware of any new stock purchase by Mahindra.
The new move has been negative for Mahindra’s stock, which saw heavy selling pressure and fell as much as 6% in trading on Thursday. Whereas the news has been positive for RBL Bank which rose as much as 7.1% in Wednesday trading.
The entire acquisition of M&M in RBL Bank will make it the biggest shareholder after investment fund Maple. But to acquire more stake, the auto company will have to take an approval from the Reserve Bank of India to acquire a 5% stake in any Indian lender.
– POSSIBLE TRIGGERS ON THE ACQUISITION
– One of the major reasons could be the larger underwriting options for auto loans. During FY23, Mahindra and Mahindra Financial Services, the financial company of Mahindra Group, reported 33% of disbursements in Auto/ Utility vehicles, its biggest asset class on standalone basis.
– The financial company also reported a decline of disbursements of 12% in Tractors in FY23 vs 16% in FY22. Company also shows decline in business assets in tractor category to 14% vs 16% YoY.
– Wholesale auto loan advances declined to 1.7% of total vs 1.8% QoQ. Whilst the auto demand has been good in the last 6 months, auto loan decline points lesser participants signing for RBL Bank, giving its wholesales loan book a pressure on management to improve to regain back.
– Mahindra Finance also bolstered its digital services and deployed digital assets on cloud to auto scale. To scale finance business via other venues, company can increase the auto sales via newer financing features.
|
Asset Class |
FY23 | FY22 | FY21 |
|
Auto/ Utility vehicles |
33% | 34% | 34% |
|
Tractors |
12% | 16% | 18% |
|
Cars |
18% | 19% | 21% |
| Commercial vehicles and Construction equipments | 12% | 8% |
5% |
| Pre-owned vehicles | 17% | 18% |
12% |
| SME | 7% | 3% |
7% |
| Personal and Consumer Loans | 1% | 2% |
3% |
–INTEREST RATE HIKE PAUSES, HIGHER CREDIT DEMAND A POSITIVE, BUT SCALE STILL A CHALLENGE
It may be noted that M&M’s disclosure comes amid cautious regulatory considerations surrounding Banking ownership by business houses. RBI had previously abandoned a proposal that allowed business houses to eventually own banks, following public opposition.
Meanwhile, as interest rates are expected to take a pause on more hikes, banks will be eager to attract larger deposits to increase loan books. This will also act as a good lever of growth for RBL Bank which is targeting loan growth of 20%-22%, helped by retail loan growth of 30%-33% for this fiscal. “Given relatively smaller size, it has to offer higher deposit rates to get the required liabilities to fund asset growth of over 20 percent”: Subramaniakumar R, MD and CEO.
– LOOKING AHEAD
Mahindra and Mahindra expects auto demand to continue growing or at similar pace in Festive season (Automotive segment recorded highest ever volumes at 698k in FY23, up 50 per cent. Open bookings of SUVs was at 292K+ as on 1st May 2023). Company will be keen to introduce more variants of its top selling vehicles (XUV, THAR). We expect if the RBL acquisition can be a good lever for growth for both RBL and M&M if approved for higher stake which can be expected in or after Q3-Q4 this year.
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