We are raising capital with growth orientation; Attractive Prices have been kept to thank our shareholders: Ramesh Iyer, Mahindra Finance

Ramesh Iyer, Vice Chairman and Managing Director of Mahindra & Mahindra Financial Services Limited (MMFSL), talks about the rights issue and its price, how the proceeds of the raised funds will be used and asset quality during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

Take us through your plans for the rights issue. What is the rationale behind fixing the issue price at such a steep discount and what kind of interest you are getting from investors?
You should not see such prices as discounted price as no company works by offering a discount of 75% to 80%. There must be some reason behind this, due to which we have issued the rights at this price. First of all, let’s talk about why we are raising the capital. We are seeing that the work can be good for the next three years if the farm cash flow remains good. At the same time, the government’s initiatives under which a lot of work has to be done on rural infrastructure, whether it is mining, coal auction or road projects. If you have a look at the time between 2010 and 2014, the whenever farm and infra cash flow has been good in rural region, then there has been rural prosperity. And a company like ours that has been working in rural areas will be benefitted with it. We are raising capital with a growth orientation. If we are raising capital, then we thought about what should be the format, and then we decided on the rights issue. In a rights issue, the economic value doesn’t deteriorate. This is our 25th year, Silver Jubilee, and we thought it is a good chance and there is a way to benefit the shareholders. We thought this is a sincere method to thank them from our side and this is why we have kept an attractive price in which all the shareholders can participate. There is no other reason behind it. Capital is being raised with a growth orientation perspective and the price has been kept at such level because we thought this is a good opportunity to compensate our shareholders. So, it will be my request to you do not see it as a discount and understand the logic behind keeping an attractive price.

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How are you going to utilize the proceeds that you will raise through this rights issue?
This Rs 3,000-3,500 crore that will be raised through this rights issue is not a big amount for a large finance company like ours. But the arrival of this Rs 3,500 crore in the form of capital is a big thing for us because it will strengthen our capital adequacy and will be very useful in further growth. As far as the absolute amount of Rs 3,500 crore is concerned then it the business restart properly - I believe that October onwards there will be a big jump in it – then the amount will be consumed completely in it. As far as our liabilities are concerned then it will be used in liabilities payments that mature every month. Some part will be used as expenses in the investments that are made on our regular business. Apart from this, it will not be used anywhere else. Thus, it will be raised with an aim of business orientation, repayment of liabilities and routine works like the opening of new branches, asset acquisitions and will be used in it. So, the total amount will be consumed in business, liability discharging and internal use.

There are concerns related to asset quality and what is your view on asset quality and what impact it will have on the movement to NPA? How much provisioning has been completed for the purpose and what is your future outlook on business?
Everyone is aware of the kind of atmosphere that was prevalent in the first quarter. However, we have seen that sentiments were positive in the rural markets and our collections have been good from the region. But few customers will not pay their instalments in these three months due to moratorium or will not pay as we have granted moratorium to them. But one thing is good in it that when we reached out to our customers when the moratorium was announced then 70%-75% of the customers chose for a moratorium but about 40% of them have paid the instalments in these three months. This means the cash flow has been good in the rural region. Good harvest has supported the cash flow in that market. Our work generally remains low in the first and second quarters in rural areas, and there is an increase in NPAs. But there was a moratorium in this quarter but despite that, the NPA has not grown much between March and June due to availability of the cash flow. But, we have done some extra provisioning due to which our net NPA was less when compared to the March quarter.