M&MFS: Good parentage

Anup Menon

THE FIXED deposit programme of Mahindra and Mahindra Financial Services (M&MFS) remains a good option for a fixed income portfolio with a moderate risk profile.

Though the rates on offer are attractive, a factor to watch out for would be the company's operational risk profile. The future of the automotive industry, an economically sensitive stock, would be the key indicator of the company's performance.

On the positive side, given the strong parentage and a reasonably good financial performance in fiscal 2000, the company's credit-worthiness should not be in doubt. The gearing levels and the ability to cover interest payments are comfortable. In this backdrop, the company is not likely to face any problem in servicing its fixed deposit base. However, on account of the additional risk due to the slowdown in the economy and in the automobile sector, fresh investments can be considered in near-end tenures.

M&MFS fixed deposit programme is open for investment. The scheme is open for cumulative deposits only. The tenures of the deposit scheme are 12, 18, 24 and 36 months respectively, offering effective compounded yields of 11, 11.50, 12 and 12.50 per cent respectively. The deposit minimum amount under the scheme is Rs 10,000. Additional investments can be made in multiples of Rs 1,000. Deposits are also accepted at the Chennai office of the company. It is located at M&MFSL, 305, third floor, Challamall, 11 Theagaraya Road, Chennai -- 600 017.

M&MFSL is a major player in the hire purchase industry. It is a closely-held subsidiary of Mahindra and Mahindra (M&M), which holds 96 per cent in the company. The strong parentage allows the company to take advantage of the parent's wide distribution network.

The company's performance depends to a large extent on the performance of the automobile industry. However, the automobile industry has been showing signs of sluggishness because of the general economic slowdown. Thus, the company's performance may be affected in the near-term.

The capital adequacy rate of company at 20 per cent is quite good. The key factor would be the competitive pressures arising from the banks and other institutions entering the hire-purchase business. The problem will be more acute in the event of a slowdown in offtake. On the positive side, the company's efficient operations are likely to be a major strength.

Click here for Table

M&MFS' financial performance for fiscal 1999-2000 has been fairly impressive. Sales revenues rose by around 24 per cent to Rs 118.57 crore during the year and operating margins declined from 33 per cent to 28 per cent. Post-tax earnings rose 19 per cent to Rs 5.41 crore.

Overall the company rests on good fundamentals. The only factor of concern is from the macro perspective, where there could be a possible slowdown in the automobile industry. Keeping this in mind, only the near-end tenures need be considered for fresh investments.