Mahindra & Mahindra Financial Services (MMFS), an asset financing company promoted by Mahindra & Mahindra (M&M) gave spectacular returns to its investors over the past year.

A sharp jump in disbursements volumes coupled with the fact that the spread remained intact even as borrowing costs trended up, benefitted the company immensely. The asset quality also improved significantly during this period. In addition to fundamental parameters improving, the stock was in vogue thanks to its rural and semi-urban play where the demand for credit revived. This, in turn, is expected to drive the company’s earnings going forward. Also set to drive growth is its entry into the under-penetrated housing market in rural areas, capitalising on its presence in these regions.

As of December 2010, the advances book of MMFS grew 45 per cent a year-on-year basis. The company is at present in the high-yielding businesses of tractor financing, used vehicle financing, construction equipment and commercial vehicle financing. The company has also steadily decreased dependence on M&M vehicles for opening new growth opportunities. From 62 per cent in March 2009, the proportion of M&M vehicles the company financed has come down to 52 per cent in December ‘10.

The price-to-book valuation multiple of the stock a year ago stood at 2 times which got re-rated to the current 3.58 times. The stock recently raised Rs 426 crore, to fund its future growth.

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