CIA 1.

FINANCIAL MANAGEMENT

SOURCES OF FINANCE &

MODE OF RAISING FUNDS

DR. SATHISH P

2023663 Kotapati Varshitha

2023664 Meghna Sayko
2023666 Muskan
2023667 Nara Srujana Rani
 MAHINDRA AND MAHINDRA FINANCIAL SERVICES LIMITED

Introduction to the business:

Mahindra and Mahindra Financial services limited (MMFSL) is a non-banking finance company
offering a wide range of financial products to meet the varied needs and demands of their
customers. Mahindra Finance is officially registered with the RBI as asset finance, deposit taking
NBFC.

Mahindra Finance is mainly engaged in the financing of new as well as used utility vehicles,
tractors, automobiles, and other commercial vehicles. It also provides services like housing
finance, personal loans, financing to SMEs, insurance brokerage, and mutual fund distribution
services.

The company owns four subsidiaries in the same sector, offering more value to their customers
through superior services and expertise. Mahindra Asset Management Company private limited
offering a variety of mutual funds schemes pan India, Mahindra Insurance Brokers limited
serving policies and providing an option to buy insurance policies online, Mahindra rural
housing finance limited, Mahindra Business & Consulting Services Private Limited providing
staffing services to other subsidiaries and the parent company.

SOURCES OF FUNDS:

1. Equity Shares- Mahindra and Mahindra Financial Services issued 1,03,09,280 equity
shares; fully subscribed and paid.
2. Other Equity (Retained Earnings)- Mahindra and Mahindra Financial Services limited
earned 28,193.37 (INR in lakhs) as of April 1 2018 and it has increased to 33,999.36 as
of 2019 and to 38,403.42 as of 2020.
3. QIP and Preferential issue to Mahindra & Mahindra Limited- The Board of Directors and
shareholders of Mahindra and Mahindra Financial Services limited approved the issue of
equity shares through the Qualified Institutional Placement route up to 2.4 crores equity
shares/ securities convertible into equity shares and a preferential issue to Mahindra &
Mahindra Limited for up to 2.5 crores equity shares.

4. Non-Convertible Debentures- Mahindra and Mahindra Financial Services limited issued

NCDs with the face value of Rs.1000 each for an amount of Rs. 500 crores.

5. Unsecured Subordinated Redeemable Non-Convertible Debentures- In 2017, the

company issued debentures amounting to Rs 25,000 lakhs with a face value of Rs 1000
with an option to retain oversubscription between 175000 lakhs to 200000 lakhs.

6. Loans from financial institutions - International Finance Corporation, a member of the

World Bank Group, invested $ 100 million in Mahindra and Mahindra Financial
Services. The investment was made by means of secured non-convertible debentures.

7. Loans from Commercial banks - MMFSL have taken secured loans against their financial
assets as collateral of around Rs. 5600.90 crores from commercial banks. They got loans
from HDFC Bank of around 2480.90 crores for a tenure of 5 years on August 5, 2018.
They also got a secured bank loan from South Indian Bank of 1280.90 crores for a tenure
of 3 years on May 7, 2019, as well as another loan for a tenure of 3 years from Axis Bank
of Rs 1839.1 crores on October 25, 2020.
ELIGIBILITY AND DOCUMENTS REQUIRED FOR GETTING FUNDS FOR THE
BUSINESS

The company acquires its funds by the right issue of equity shares. Eligibility criteria for the
right issue are

● The person should be an existing shareholder of the company

● Employees who are part of a stock option plan, which is subject to a special resolution
passed by the firm.
● Any individual, if it is authorized by a special resolution, whether or not those persons
include the persons referred to in clause (a) or clause (b).
● Within 15 days of the date of allotment, approve File PAS-3 in a Board Meeting.

DOCUMENTS REQUIRED:

● Notice of board meeting

● Board resolution
● Offer letter
● Notice of board meeting
● Form PAS-3
● Form SH-1

Another source of funds for the company is the issue of Non-convertible Debentures (NCDs) on
a private placement basis. Eligibility criteria for the issue of NCDs through private placement.
● To a selected group of persons which has been identified by the Board.
● The General Meeting has been authorized on the Board's proposal.
● Within 30 days after the special resolution's passage, file MGT-14 with the Registrar.
● The application letter shall be in the form of an application in Form PAS-4.
● Allocate securities within 60 days of receiving the application funds.
● In Form PAS-5, the company must keep a detailed record of all private placement offers.
● Within 15 days of allotment, the Registrar must receive a return of allotment of securities
in Form PAS-3.
DOCUMENTS REQUIRED:
● Notice of board meeting
● Board resolution
● Notice of general meeting
● Special resolution
● Form MGT-14
● Offer letter in form PAS-4
● Form PAS-3
● SH-1
● PAS-5

MODE OF RAISING THE FUNDS:

1. Rights issue - The shares were listed on the BSE and the National Stock Exchange of
India Limited on August 27, 2020. Kotak Mahindra Capital Company Limited, Axis
Capital Limited, HDFC Bank Limited, ICICI Securities Limited, Nomura Financial
Advisory, and Securities Private Limited, and SBI Capital Markets Limited acted as the
lead managers to the Rights issue.

2. Bonus Shares- At the year ended 31 March 2019, the bonus issue in the proportion of 3:1
i. e. three bonus shares of Rs. 10 each for every one fully paid-up equity share held had
been approved by the shareholders of the company on July 18, 2018. For this purpose,
July 18, 2018, was considered as the record date. Consequently, on the 13th of August
2018, the company allotted 77,31,960 shares and Rs. 773.20 lakhs have been transferred
from retained earnings to share capital in the year 2018-19.

3. Private Placement- The Company has allotted 6.19% 5,000 nos. rated, listed, unsecured,
and redeemable non-convertible debentures of Rs. 10,00,000/- each for cash at par,
adding Rs.500 crores on a Private Placement basis.
USAGE OF FUNDS:
1. Rights issue - The funds raised in this issuance will be used to repay part of the
company's outstanding loans, increase capital and long-term resources to meet the
company's business activities and general corporate financing needs.

2. QIP and Preferential issue to Mahindra & Mahindra Limited - The issuance of shares
under QIP will diversify the company's investor base. Through the main M&M
investment, Mahindra Finance will remain a subsidiary of M&M and will effectively
utilize strategic and financial synergies. The funds raised will be used for business growth
and financing needs, investment in its subsidiaries and joint ventures, strengthening its
capital adequacy ratio, and general corporate purposes.

3. Loans from Financial institutions- IFC’s investment will enable Mahindra Finance to
further increase its growth. In addition to financing small and medium-sized enterprises,
it also provides loans to individuals including farmers to purchase tractors, vehicles, and
other equipment. Mahindra & Mahindra has been a partner of the International Finance
Corporation for decades. The new loan will help the company expand further and meet
the needs of small business owners.

4. Launch of Kiosk project - Mahindra and Mahindra Financial Services Limited (MMFSL)
are actively strengthening their internal IT infrastructure in order to better serve
customers and compete effectively in the market. They have invested about 7.2 billion
rupees to strengthen the network connections of their customers in 360 locations in India,
thereby expanding the company's market value.
INTEREST AND REPAYMENT OPTIONS FOR THE AVAILABLE SOURCES:

The Annual Repayment of NCDs is offered as 39 months, 60 months, and 96 months for Secured
NCDs and 120 months for Unsecured NCDs.
The coupon rate on 39 months, 60 months, 96 months, and 120 months NCDs for Category I
(QIB) and Category II (Corporate) holders is 9.00%, 9.10%, 9.20%, and 9.35% p.a., respectively,
payable annually. The coupon rate for 39 months, 60 months, 96 months, and 120 months NCDs
for Category III (HNI) and Category IV (Retail Individual) holders is 9.05%, 9.15%, 9.30%, and
9.50% p.a., respectively, payable annually.

The company has a secured loan of around Rs. 5600.90 crores from commercial banks. A loan
from HDFC Bank is @ 15.90% p.a. interest rate taken at a tenure of 5 years while the loan from
South Indian Bank is @ 13.75% p.a. interest rate for a tenure of 3 years. Another loan is from
Axis Bank for a tenure of 3 years having interest @ 17.05% p.a.

DRAWING INFERENCES ON THE USE OF DIFFERENT SOURCES OF FUNDS:

The company’s total equity is 42,268.23 and the debt is 29,762.33 (in crores). It is evident that
the company conducts its business through equity financing more than debt financing. Unlike
debt financing, with equity, the company doesn’t have to make repayments on investments. Most
importantly, not having the burden of huge debts can be a significant advantage for companies
like MMFSL. Also, the investors in equity would often be willing to provide additional funding
as the business grows and develops.
When a company borrows money in large sums, lenders usually expect their payment in equal
monthly installments. In case, if the company is facing loss, late payments could harm its credit
over the long term. Equity provides the hedge against risk to conservative investors who are
willing to invest in Debt leading to a positive credit rating making the company in a favorable
position to raise funds in the future.