Shares of Mahindra & Mahindra Financial Services (MMFSL) were up 12 per cent to Rs 234 on Monday after the company said its board approved a 1:1 rights issue at Rs 50 per share, amounting to Rs 3,089 crore. The record date for the same is July 23, 2020. The rights issue will open on July 28 and close on August 11, 2020. The full amount of the issue price will be payable on application.
Kindly refer to the glossary section at the end in order to understand the concept of rights issue in a better way
MMFSL has reported more than two-fold jump in standalone net profit to Rs 156 crore in the quarter ending June helped by cost rationalisation measures and lower funding cost. It had reported a profit after tax of Rs 68 crore in the same quarter of last year.
“The increase in profit was due to cost rationalisation, reduction in the overall cost of borrowing and also rise in NPAs was not high,” Mahindra Finance vice-chairman and Managing Director Ramesh Iyer said.
“We have seen a revival in tractor demand and sales of three-wheeler goods carriers. We feel that rural sentiments are turning positive as monsoon is on time and widespread, excellent harvest and good support price and due to various government initiatives,” Iyer said.
In conclusion, the company expects an increase in demand and financing for pre-owned vehicles, Agri machinery (tractors) and small vehicles going ahead.
Glossary
- Rights Issue: The idea behind a rights issue is to raise fresh capital. However, instead of going public, the company approaches its existing shareholders Think about the rights issue as a second IPO but for a select group of people (existing shareholders). The rights issue could be an indication of promising new development in the company. The shareholders can subscribe to the rights issue in the proportion of their shareholding. For example, 1:2 rights issue means for every 2 shares a shareholder owns, he can subscribe to 1 additional share. Needless to say, the new shares under the rights issue will be issued at a lower price than what prevails in the markets.
