Mahindra Finance Rs 3,088 crore rights issue opens today; check issue price, ratio, other details

Mahindra Finance will issue 61.78 crore equity shares of face value of Rs 2 each at a price of Rs. 50 per Equity Share, a 61% discount from the current market price.

Mahindra & Mahindra Financial Services Limited’s Rs 3,088 crore rights issue will open today, as the company tries to raise funds to repay outstanding borrowings and improve its capital. The non-banking finance company (NBFC) with 25 years of experience in the semi-urban and rural markets in India is one of the many financial institutions trying to raise capital as they gear up to tide through the slowdown in the economy aided by the coronavirus pandemic. Mahindra Finance will issue 61.78 crore equity shares of face value of Rs 2 each at a price of Rs. 50 per Equity Share, a 61% discount from the current market price.

The equity shares will be offered in the ratio of one equity share for every one fully paid-up equity share held on the record date of July 23, 2020. “The funds raised through the Issue will be used to repay/prepay certain outstanding borrowings of the Company, augment long term capital and resources for meeting funding requirements for the Company’s business activities and for general corporate purposes,” Mahindra Finance said ahead of the rights issue. The NBFC is primarily engaged in providing financing for new and pre-owned auto and utility vehicles, along with tractors, cars and commercial vehicles. 

Mahindra Finance announced a 128% jump in net profit in the April-June quarter to Rs 160 crore. Operating expenses declined 38% on-year to Rs 350 crore largely driven by 47% decline in other expenses from the previous year. Brokerage firm Motilal Oswal has BUY rating on the stock with a target price of Rs 370. Motilal Oswal further added, “This works out to Rs 160/share post rights issue (upside of 15%), translating to 1.2x financial year 2022E post rights BVPS,” The discounted pricing of the rights issue, as per the management of Mahindra Finance is to reward shareholders on the 25th year of the company.

However, not all are impressed with the highly discounted pricing of the issue. “The issue price is at a discount of 76% (as on July 21) to the market price. The dilution would result in a drop in our BV estimate to Rs 110/Rs 118 for financial year 2022E/2023E from Rs 185/Rs 197,” said emkay Global in a recent note. Analysts at Emkay said that they remain concerned about the steep discount and utilization of capital towards elevated provisions rather than growth.