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Background Data

Company History

Seven decades in the making, Mahindra’s history is definitive of the growth of modern India. It is a story with an upward curve, of how an Indian company — and all the associations that arise with that phrase — rose to become a global powerhouse. Mahindra has come a long way since the Willys, and as we accelerate into the 21st century, Mahindra’s journey as a global brand is well under way.

Mahindra & Mahindra was set up as a steel trading company in 1945 as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed. When Ghulam Mohammed, one of the founders of the company emigrated to Pakistan in 1947, Mahindra & Mohammed became Mahindra & Mahindra. It saw a business opportunity in manufacturing and selling automobiles starting with the assembly under the name of Willy Jeep in India. Later company expanded its business into tractors and Light Commercial Vehicles. Today Mahindra & Mahindra is a key player in utility and vehicle manufacturing sector and the largest manufacturer of tractors in the world.

Over the past few years’ company is expanding to new industries and foreign markets. It has entered into two wheeler business by taking over kinetic motors. It has acquired SsangYong motor company and has a controlling stake in the REVA Electric car company.

Present situation

Mahindra & Mahindra is currently facing flatter growth in revenues mainly due to global economic concerns and weak monsoon over the past two years.

Let’s have a look at the highlights of the financial year 2015-16.

Mahindra & Mahindra mainly looking to expand globally and its main driver is technology driven innovation. They are improving their global innovation footprint.

Industry of operation

The Indian automotive industry witnesses a number of Indian-origin and multinational players with varying degrees of presence in different segments.  India is a very important strategic market for the world when it comes to automotive industry. Today, nine of the top ten global automotive manufacturers have a presence in India which only strengthens the claim. Many MNCs have established India development centres and launching India specific products. They are also using India as an export base.

Similarly, the domestic tractor market also has a mix of Indian origin and international manufacturers and is segmented by horsepower.

Growth in Global automotive industry is primarily driven by China, USA, Germany, India and UK. These five countries collectively account for 58.1% of global automotive market.

The European auto sales continue to be positive whereas in Brazil and Russia it continued to decline for the third consecutive year.

In domestic market, the demand for automobiles is driven by growth in Indian economy coupled with moderate inflation and low commodity prices.

Indian tractor market is the world’s largest by volume is on a decline path owing to two     successive years of deficient monsoon. Volumes declined by 10.4% in the year 2015-16.

Indian tractor market is segmented by horse power. The following table gives the data for volume of sales and growth figures for the sector.

The following table gives the overview of various segments in the Indian automotive industry and their growth figures.

Industry Forecast

Automotive sector is expected to have a favorable demand in coming years largely due to rise in disposable income and various government initiatives like make in India, financial penetration, investments in roads and infrastructure and healthy macro economic outlook. GST is a boon to industry where indirect taxes are very high and GST is expected to decrease the tax by 25-30%.

The mid-term

outlook for the

Indian auto

industry is very

positive. Society of Indian Automobile Manufacturers (SIAM) forecasts the potential size of the Indian vehicle market    (PV + CV) by the Financial Year 2019-20 to be as large as around 5.7 million vehicles (current size 3.2 million). This is a growth rate of 12% CAGR.

Growing concern over air pollution, sustainability road safety and urban congestion, among consumers and society at large will shape regulation policies in future.

Indian farm sector is having a positive outlook on the back of strong monsoon forecast and strong government support to improve rural income. This will help to raise disposable income levels among rural consumers.

Competitive analysis

Competitors

Maruti: Maruti is known for the service it provides to its customers. It holds 47% of the market share.

Hyundai: Known for its fuel efficiency and attractive, well equipped models. It holds 17.3% of market share.

Honda: Known for reliable and fuel efficient passenger cars that offer refinement, comfort and build quality. It holds 5.4% of the market share.

Toyota: Known for it’s management philosophy and business methods known as Toyota way. There cars are known for their design. It holds 4.6% of market share.

Mahindra & Mahindra Value Chain

Firms Infrastructure

Owns Manufacturing plants in India & is the country’s only manufacturer which has vehicles on land, air & water. Has assembly plants in foreign countries.

Human Resource Management

Recruit the best people through rigorous selection process. Train them for the required skill development & provide appropriate compensation for their work

Technology Development

New Innovative product design, State of the art research facility, Increased  investment in technology,5S Innovation network

Procurement

Procurement of raw materials from verified supplies to ensure quality through contract system. Imports advanced machinery from foreign countries

Inbound Logistics

• Identified Suppliers

• Economy of scale purchase

• Suppliers Agreement

• Just in time order & delivery

• Maintaining inventory

• GSM based tracking system for tracking trucks

Operations

• Production Plant: Area wise, model wise, week-wise sales forecasts

• Total Quality Management system monitored by skilled engineers

• Usage of ERP for order & inventory management

• MIS used for collecting data & forecasting demand

Outbound Logistics

• Delivers automobiles from manufacturing plants to company SKU & dealer SKU on the basis on demand.

• Use of IT for tracking order information

• Inventory record of finished goods

• Manufacturing is done on basis of demand data analysis

Marketing & Sales

• Product: Wide range of products ranging from SUVs, electric vehicles, pickups, small aircraft & boats.

• Price: Product catering to every segment of the market with competitive pricing with Quality assurance

• Place: Network of showrooms spreading its reach to 70% of the country & in over 100 countries

• Promotion: Advertisement through Print & visual media.

After Sales Services

• Over 2900 service centers located across the country.

• Provides Road side assistance service in case of breakdowns.

• Location tracking system in case of trucks

• 24X7 customer grievance redressal mechanism which includes giving the customers the option to contact senior management directly.

SWOT Analysis

Promoters Managers and key stakeholders

Anand Mahindra

Anand Mahindra, group’s Managing director since 1997, became its chairman in 2012. Anand is co-founder of the Harvard Business School Association of India and served on the boards of National stock exchange of India and the National Council of Applied Economic Research. Worked as the Chairman of the Governing Council of the National Institute of Design, and as a member of the Council of Scientific & Industrial Research.

Anand Graduated with honours (magna cum laude) from Harvard College, Massachusetts, in 1977, and secured an MBA from Harvard Business School in 1981.

Pawan Goenka

Pawan Goenka is the executive Director & President (Automotive & Farm Equipment Sectors), M&M. As Mahindra’s resident automobile technological wizard, Pawan is better known in India as the father of the Scorpio. After serving as the COO of the Automotive Sector, Pawan was appointed as the President of the Automotive sector in 2005. The Farm Equipment sector was added to his portfolio in 2010.

Pawan holds a Bachelors of Science in Mechanical Engineering from the Indian Institute of Technology, Kanpur; a PhD from Cornell University, USA; and is a graduate of the Harvard Business School Advanced Management Program.

Composition of the board

Directors

Category

NON-EXECUTIVE

Mr. Deepak S. Parekh

Independent

Mr. Nadir B. Godrej

Independent

Mr. M. M. Murugappan

Independent

Mr. Bharat [email protected]

Non-Independent

Mr. R. K. Kulkarni

Independent

Mr. Anupam Puri

Independent

Dr. Vishakha N. Desai

Independent

Mr. Vikram Singh Mehta

Independent

Mr. S. B. Mainak (Nominee of LIC)

Non-Independent

EXECUTIVE

Mr. Anand G. Mahindra

– Chairman & Managing Director

Promoter

Dr. Pawan Goenka –

Executive Director & Group President (Auto and Farm Sector)

Executive Director

Promoters share holding

Leadership style and key decisions

Mahindra and Mahindra has the mix work culture styles of both that of an Indian and a Multinational company. It treats it employees with the utmost respect that it continues to avail the services as the external advisors of the company. The company started as a steel trading firm and since then has been in sync with the changing market scenario. During the early times it focused on it manufactured the Wiley jeeps which were the market icons for decades. Started as the largest industrial manufacturers targeting utility vehicles since was targeting armed forces and small farm tractors.

Mahindra and Mahindra has been under the visionary leader Anand Mahindra for the past few years. He has a democratic and visionary kind of leadership with high risk taking capabilities which helps him to mobilize the people towards the vision and encourages the employees to actively participate along with him. Mahindra has a more of an aggressive approach towards markets, it launches with a huge line of product at one go to bring in a thrill to the market. In the recent one year itself, Mahindra launched 16 vehicles in the automobile sector ranging from SUVs, MUVs, two-wheelers to farm equipment’s.

Anand Mahindra being a Graduate from Harvard, was capable of foreseeing the changing market took advantage of all the opportunities presented by fast growing Indian economy and transformed the company from mere a jeep building brand to one of the most diversified automobile manufacturers in the world with the product line ranging from heavy trucks to SUVs and motor scooters.

The management has all throughout been enthusiastic and ready to enter new markets, facing the new challenges. Anand started with steel manufacturing and there on led Mahindra’s new venture into property development and hospitality management with a vision to join the leaders in those section, soon.

Mahindra as a leader has been focusing over strategic alliances to take a hold on the markets which were difficult for it to enter or sustain in. Like Mahindra realized that technological and financial resources, so it formed a joint venture with Ford Motors and launched ‘Escort’ back in 1996.

The company has immense risk taking capabilities which was portrayed when Mahindra decided to make a major bet while launching Mahindra Scorpio, since the market for modern SUVs was practically non-existent when Mahindra had proposed Scorpio which subsequently turned out to be Mahindra’s greatest success.

Mahindra & Mahindra waged almost everything to enter an entirely new segment and launched Scorpio which scripted a new chapter in Indian automobile history.

Now, it is looking to expand itself into hybrid technologies, global markets and electric car segments.

Share Holding Pattern

MAR\' 16

DEC\' 15

SEP\' 15

JUN\' 15

Promoter

25.44

25.53

25.56

25.59

Public (FII + DII)

69.00

68.64

68.68

68.81

Others

5.56

5.83

5.76

5.60

Total

100.00

100.00

100.00

100.00

Share price movement

profitability trend

There is a decrease in Net Income in last 2 years due to muted demand caused by global downturn in economy and two years of deficient monsoon. Industry saw a flat growth in this period.

Though there is a downtrend in economy, Mahindra & Mahindra faired well in the market by introducing new models, expanding its global reach and putting more emphasis on technology driven innovation which helped to cut costs significantly.

In the farm sector, it still remains the world’s largest tractor manufacturer as per volumes.

There is a decrease in volume of Tractors sold by 10% mainly due to weak monsoon in last two years.

All the above factors led to drop in profitability of the company.

Current financial position

New Product launches

M&M launched 14 new products in this financial year which are classified in following table.

Factors affecting market share/profitability

1.Competitive Intensity

India is a very important strategic market for the world due to its positive economic outlook. Many global players entered into the Indian market and the competition is quite intense. This is leading to competitive pricing of products.

2.Tax and Excise duty regulations

GST will be a major boost for the industry as indirect taxes are high currently. Over the past four years’ tax rate gap between small and large vehicles widened.  There are certain government policies to lower taxes to boost demand for hybrid and electric cars.

3.Increased preference for petrol as a fuel

Deregulation of diesel prices and supreme court decision to ban diesel vehicles above 2000cc in NCR resulted into low buyer confidence in the country.

4.New regulation for safety and emission

Concerns over environment is driving legislation and new regulatory reforms.

5.Monsoon

 it is important for rural as well as agriculture economy. The tractor business in particular will be the victim of a weaker monsoon.

The risk faced by the company

The major risk the company faced was when government announced to deregulate diesel prices.

This reduced the gap between petrol and diesel. Adding to this honorable supreme court ruling in December 2015 to ban diesel engines above 2000cc weakened consumer confidence in diesel vehicles. This resulted in 14% drop of diesel engine sales in total passenger vehicles. The company launched mFalcon petrol engine in January, 2016.

There will be new legislations and regulations made to safeguard environment. This will make life harder for diesel vehicle manufacturers. As Mahindra & Mahindra main line of business is diesel vehicles, this change will impact hugely.

The company is actively pursuing hybrid technology and electric cars. They are investing more money into R&D.

Financial Analysis

Detailed Ratio analysis

Ratios

Mar-16

Mar-15

Mar-14

Mar-13

Current ratio

1.09

1.13

1.29

1.10

Quick ratio

0.84

0.86

0.97

0.80

Debt to Equity

0.08

0.14

0.22

0.22

Interest coverage

28.24

20.45

17.86

24.26

Inventory turnover

11.54

10.67

11.27

12.73

Holding period

31.64

34.22

32.39

28.67

Receivable turnover

16.47

15.70

17.48

19.53

Collection period

22.17

23.24

20.89

18.68

Payable turnover

4.92

4.83

5.12

5.87

Paying period

74.24

75.64

71.30

62.13

Asset turnover

1.15

1.21

1.32

1.49

Working capital turnover

44.43

34.49

16.35

51.69

Gross Profit margin(%)

29.16

29.75

28.61

25.80

Operating profit margin(%)

10.51

11.01

11.23

11.32

net profit margin(%)

7.59

8.35

9.12

8.18

Return on capital employed

30.29

35.86

39.04

50.69

Return on assets

9.13

10.34

12.80

13.05

Return on equity

15.47

18.43

23.90

24.99

Financial leverage

1.68

1.71

1.86

1.87

Earnings per share

53.45

56.16

63.67

56.80

Dividends per share

12.58

12.60

14.61

13.52

D/P ratio

23.53

22.44

22.94

23.81

Price Earnings P/E ratio

27.02

Current ratio: Current ratio mainly helps in understanding the liquidity of a company. It shows the company’s ability to clear off its current liabilities with it’s current assets. Healthy ratio to have is 2 but it varies from industry to industry. Mahindra & Mahindra has consistent current ratio over the years. The firm current ratio is 1.09. It signals that the company has a bit overly leveraged balance sheet.

Quick ratio: Companies mainly generate its revenue from fixed assets and when a company is selling a fixed asset to clear off liabilities, there is a direct effect on revenue. The main difference from current ratio to quick ratio is, quick ratio mainly measures the company’s ability to pay off current liabilities with quick assets i.e., the assets which can be liquefied with in 90 days. The more the quick ratio the more the company’s ability to reduce the effect of liabilities on it’s revenue. M&M quick ratio is 0.84 which is healthy in current economic scenario.

Debt to equity ratio: It mainly shows the component of company’s source of financing i.e., whether it is debt financing or investor financing. Ideal debt to equity ratio differs from industry to industry. Some industries use more debt financing than others. M&M debt to equity ratio is 0.08 and there is a gradual decrease over the years which shows the company is turning into more and more Investor financing than debt financing. More investor financing might imply that there is a trust among investors in company’s operational ability to generate returns.

Interest coverage ratio: Interest coverage ratio helps investors in analyzing profitability and risk of the company. This ratio shows the ability of the company to pay its interest on debts in a timely fashion. From this ratio one gets to know the company’s ability to pay off interest from Earnings before Interest and tax. It shows the company’s ability to pay its interests on time without sacrificing its operations and profits. M&M interest coverage ratio is 28.24. It shows the company has 28.24 more earnings than its current interest payments. This shows M&M risk is low and its operations is producing enough cash to pay its bills.

Inventory turnover ratio:  This a important ratio which determines inventory management efficiency. This ratio basically implies how many times the inventory is rotated i.e., how many times

a firm sold its inventory in a given year. The more the rotation more the sales. More sales imply more profit. This shows how easily a company turn it’s inventory into cash. M&M has inventory turnover ratio of 11.54 which is mostly inline with its previous year ratios. Given there is muted demand in automobile industry maintaining consistency in inventory turnover is a good sign.

Holding period: holding period gives the amount time inventory stays with the firm before it’s sold out. Lower the holding time the better it is for the company as it implies higher inventory turnover ratio. M&M holding period is 31.64 days which is healthy period in automobile industry.

Receivable turnover ratio: This ratio mainly implies number of times a company collects its receivables from the debtors or borrowers. a firm makes a sale again to the debtor or borrower only when previous account is settled. M&M has 16.47 as receivable turnover ratio. It means the sale is repeating16.47 times with the average debtor. The ratio stayed more or less constant over a period of time for M&M.

Collection period: It can be stated as the time taken by debtors or borrowers to pay back the money. The lower the time, the better it is for the company. For M&M collection period is 22.17 days. It means debtors are paying back in 22.17 days which is on the lower side.

Payable turnover ratio: This ratio mainly implies the rate at which a company pays off its suppliers. The standard is that pay as late as possible with out hurting the repeat business with the suppliers. M&M has payable turnover ratio as 4.92. It pays off its suppliers 5 times round the year.

Paying Period: It can be stated as the time taken by the company to pay off its suppliers. For M&M it takes 74.24 days on an average to make the payment. when compared with collection period and holding period this is very healthy period.

Asset turnover ratio: This ratio mainly shows how efficiently a company uses all of its assets to generate sales. The higher the ratio, greater is the efficiency of the firm in utilizing its assets. For M&M asset turnover ratio is 1.15. It implies that the company is generating 1.15 rupees of sales for every 1 rupee of investment they put in assets. There is a decrease in the ratio over the years

which shows the asset utilization capacity to generate revenue is getting down. Nevertheless, its still a very healthy ratio to maintain.

Working Capital turnover ratio: This ratio mainly shows how efficiently a company uses its working capital to generate sales. The higher the ratio, greater is the efficiency of the firm in utilizing its working capital. For M&M asset turnover ratio is 44.33. It implies that the company is generating 44.33 rupees of sales for every 1 rupee of investment they put in assets. There is an inconsistency in this ratio over the years but given the industry scenario, this is a decent ratio to maintain.

Gross Profit Margin: This ratio mainly shows the percentage of sales that exceed the cost of goods sold. It shows investors how efficiently the company can produce and sell its products. It can also be used to estimate the profitability of a particular product. M&M has Gross profit margin of 29.16 which is consistent over the years. It shows that for every Rs.100/- of sales, M&M earns 29.16 rupees as gross profit.

operating profit margin: This ratio mainly shows the percentage of total revenue is comprised of operating income. It shows investors how strong and profitable a company’s operations are. It can also be used to estimate the stability of the company. M&M has Gross profit margin of 10.51 which is consistent over the years. It shows that for every Rs.100/- of sales, M&M has 10.51 rupees as operating income. Rest of the money is used to cover all non operating expenses or fixed costs. This is a very healthy ratio to maintain in automotive industry.

Net profit margin: It is the percentage of total revenue that is remaining after all the expenses, taxes, financial costs are taken care of. Net profit margin is 7.59% which is slightly less compared to previous years. It is mainly due to muted earnings coupled with less demand all over the world in automobiles which led to less revenue and less net profit. Still, it can be considered as a healthy ratio to be maintained compared to the industry.

Return on capital employed: ROCE is a long term profitability ratio because it takes long term financing into consideration while computing. This ratio mainly measures how efficiently a company can generate profits from its capital employed. There is a decrease in ROCE over the years for M&M. ROCE stands at 30.29% for M&M compared to previous years 35.86%. Returns on capital decreased due to poor demand and less demand in rural market.

Return on Assets: Return on Assets mainly shows the percentage of profit a firm earns in line with a firm’s overall resources. This ratio helps to gauge over the total assets profitability. Due to a drop in net income Mahindra & Mahindra’s return on assets is decreased by 1.2%

Return On Equity: Return on equity is an aspect of profitability measurement. It shows how many rupees of profit a firm generates on each rupee of shareholder’s equity. The market conditions for automobile Industry is weaker and 2 years of weak monsoon propelled fall in rural consumer spending. So, there is a dip in net profit earned by Mahindra & Mahindra. This resulted in a drop of almost 3% in return on equity. That mean share holders earn 3% less on each rupee they put compared to previous fiscal.

Financial Leverage: Financial Leverage shows the degree to which a firm is utilizing its borrowed capital. It can work as an advantage and disadvantage. If the industry is prosperous then the return on capital is usually high and the leverage a firm has is an advantage. On the other hand, when there is a downturn and returns are less than the cost at which the capital is borrowed, then its a disadvantage. In case of Mahindra & Mahindra there is a decrease in financial leverage over the years mainly due to not so favorable wind in the automobile industry as a whole.

Earnings Per Share: EPS is a market prospect ratio that measures the amount of net income earned per share of stock outstanding. It mainly emphasizes on profitability of a firm on shareholders’ basis. EPS is on a decreasing trend for M&M. Its EPS stands at 53.45. That implies if net profit is distributed then each shareholder gets 53.45 rupees per share.

Dividends per share: DPS measures how much dividend is distributed per share of stock outstanding. M&M has DPS of 12.58. This implies every shareholder got a dividend of 12.58 rupees per share they hold. M&M maintained consistent trend in dividend payout to the shareholders even in not so favorable conditions.

P/E ratio: This is a market prospect ratio mainly used to calculate market value of a stock relative to its earnings. A company’s P/E mainly compared with industry P/E to understand how a company fares in the industry. P/E of M&M is 27.02 as on 5th august, 2016 where as Industry P/E is 30.  The company’s market prospects are good in the Industry.

Vertical Analysis

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

EQUITIES AND LIABILITIES

SHAREHOLDER\'S FUNDS

Equity Share Capital

0.81

0.90

0.94

1.08

1.23

Total Share Capital

0.81

0.90

0.94

1.08

1.23

Revaluation Reserves

0.03

0.03

0.03

0.04

0.90

Reserves and Surplus

58.77

57.52

52.69

52.28

48.76

Total Reserves and Surplus

58.80

57.55

52.72

52.32

49.67

Total Shareholders Funds

59.61

58.45

53.67

53.40

50.90

NON-CURRENT LIABILITIES

Long Term Borrowings

4.11

7.63

11.97

11.56

13.27

Deferred Tax Liabilities [Net]

3.43

2.97

2.84

2.24

2.20

Other Long Term Liabilities

1.64

1.86

1.87

1.51

0.82

Long Term Provisions

1.85

1.84

1.63

1.61

2.02

Total Non-Current Liabilities

11.02

14.31

18.32

16.92

18.32

CURRENT LIABILITIES

Short Term Borrowings

0.96

0.32

0.00

0.20

0.00

Trade Payables

18.58

16.29

19.40

20.32

20.06

Other Current Liabilities

6.16

6.20

3.62

3.83

5.02

Short Term Provisions

3.68

4.44

5.00

5.33

5.70

Total Current Liabilities

29.37

27.24

28.02

29.69

30.78

Total Capital And Liabilities

100.00

100.00

100.00

100.00

100.00

ASSETS

NON-CURRENT ASSETS

Tangible Assets

18.96

17.59

18.24

17.31

16.92

Intangible Assets

2.88

0.41

0.55

0.75

1.01

Capital Work-In-Progress

0.65

2.29

1.26

1.81

2.38

Intangible Assets Under Development

3.65

4.32

2.66

1.34

0.94

Fixed Assets

26.14

24.61

22.71

21.20

21.25

Non-Current Investments

30.61

34.52

31.28

38.51

38.78

Long Term Loans And Advances

11.14

9.81

9.65

7.60

6.18

Other Non-Current Assets

0.16

0.31

0.28

0.11

0.15

Total Non-Current Assets

68.05

69.26

63.92

67.42

66.36

CURRENT ASSETS

Current Investments

6.52

5.36

5.09

4.60

4.34

Inventories

7.38

7.40

8.96

8.81

9.86

Trade Receivables

6.90

7.76

8.02

8.04

8.32

Cash And Cash Equivalents

6.31

6.27

9.43

6.49

4.97

Short Term Loans And Advances

3.24

2.35

3.02

2.78

3.89

Other Current Assets

1.60

1.61

1.56

1.85

1.99

Total Current Assets

31.95

30.74

36.08

32.58

33.36

Total Assets

100.00

100.00

100.00

100.00

100.00

Income Statement

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

INCOME

Revenue From Operations [Gross]

103.30

101.97

103.27

104.60

104.87

Less: Excise/Service Tax/Other Levies

6.52

5.50

6.33

7.25

7.74

Revenue From Operations [Net]

96.78

96.48

96.94

97.35

97.13

Other Operating Revenues

1.17

1.39

1.32

1.31

1.43

Total Operating Revenues

97.95

97.87

98.26

98.66

98.56

Other Income

2.05

2.13

1.74

1.34

1.44

Total Revenue

100.00

100.00

100.00

100.00

100.00

EXPENSES

Cost Of Materials Consumed

46.41

50.94

52.47

50.62

58.18

Purchase Of Stock-In Trade

24.94

18.49

19.59

23.79

16.38

Changes In Inventories Of FG,WIP And Stock-In Trade

-0.52

0.81

-0.67

-0.21

-1.85

Employee Benefit Expenses

5.61

5.82

5.25

4.55

5.27

Finance Costs

0.37

0.54

0.63

0.47

0.50

Depreciation And Amortization Expenses

2.66

2.45

2.09

1.73

1.78

Other Expenses

10.75

11.56

10.42

8.62

9.14

Less: Amounts Transfer To Capital Accounts

0.19

0.25

0.25

0.20

0.23

Total Expenses

90.03

90.37

89.53

89.37

89.18

Profit/Loss Before Exceptional, Extraordinary Items And Tax

9.97

9.63

10.47

10.63

10.82

Exceptional Items

0.16

0.84

0.13

0.22

0.34

Profit/Loss Before Tax

10.13

10.48

10.60

10.85

11.16

Tax Expenses-Continued Operations

Current Tax

2.05

2.10

2.03

2.28

2.18

Less: MAT Credit Entitlement

0.12

0.23

1.18

0.00

0.51

Deferred Tax

0.62

0.26

0.63

0.39

0.58

Total Tax Expenses

2.55

2.13

1.48

2.67

2.25

Profit/Loss After Tax And Before Extraordinary Items

7.59

8.35

9.12

8.18

8.91

Profit/Loss From Continuing Operations

7.59

8.35

9.12

8.18

8.91

Profit/Loss For The Period

7.59

8.35

9.12

8.18

8.91

1.M&M has launched new products in the fiscal. Due to this there was a lot of capital expenditure on product development and capacity enhancement.  This explains the rise in Fixed assets.

2.Borrowings have decreased primarily due to repayment of loans during the current fiscal year.

3.Trade receivables as a % of net sales decreased this can imply improvement in credit management process

4.Net sales increased from last year mainly on account of new product launches by M&M.

5.The revenue compared to other years continue to grow at flatter pace due to volatility in global markets but the slow pick up in demand is driven by Indian economy continuing on the growth path and adding to that is the moderate inflation and low commodity prices.

6.Rural demand has not picked up yet due to deficit monsoon which is affecting the tractor and farm equipment business of M&M.

7.Increase in stock in trade is mainly on account of new product launches and inventory built up on expectation of better upcoming seasons.

8.There is a decrease in cost of material consumed largely due to low commodity prices and rapid innovation and technology application and continuous cost reduction initiatives.

9.Increase in other expenses is due to rise in expenses relating to advertisement and sales promotions. It is justified as market is getting more and more competitive due to the entry of foreign players.

10.The increase in amortization and depreciation expenses is due to new product launches and capacity enhancements

11.There is a reduction in financial costs largely due to repayment of loans.

12.Exceptional item is due to profit earned on sale of some long term assets. This is low in comparison to last year because last year exceptional item is due to profit earned through merging of MSEL (Mahindra Engineering Services Limited) with TML (Tech Mahindra Limited).

13.There is an increase in provisions for current tax and deferred tax for the year due to expiry of tax holiday for Haridwar plant and increase in statutory tax rates.

Horizontal Analysis

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

EQUITIES AND LIABILITIES

SHAREHOLDER\'S FUNDS

Equity Share Capital

100.61

100.40

100.22

100.22

100.00

Total Share Capital

100.61

100.40

100.22

100.22

100.00

Revaluation Reserves

4.99

4.99

4.99

5.01

100.00

Reserves and Surplus

183.53

162.51

141.38

123.09

100.00

Total Reserves and Surplus

180.28

159.64

138.90

120.94

100.00

Total Shareholders Funds

178.35

158.20

137.96

120.44

100.00

NON-CURRENT LIABILITIES

Long Term Borrowings

47.12

79.21

117.98

99.96

100.00

Deferred Tax Liabilities [Net]

236.66

185.86

168.77

116.64

100.00

Other Long Term Liabilities

302.59

311.69

297.45

210.76

100.00

Long Term Provisions

139.26

125.83

105.73

91.49

100.00

Total Non-Current Liabilities

91.57

107.64

130.82

106.02

100.00

CURRENT LIABILITIES

Short Term Borrowings

89264.10

27243.59

189.74

14007.69

100.00

Trade Payables

141.02

111.87

126.53

116.34

100.00

Other Current Liabilities

186.73

169.95

94.39

87.61

100.00

Short Term Provisions

98.29

107.25

114.76

107.43

100.00

Total Current Liabilities

145.29

121.93

119.11

110.74

100.00

Total Capital And Liabilities

152.28

137.78

130.85

114.81

100.00

ASSETS

NON-CURRENT ASSETS

Tangible Assets

170.63

143.26

141.06

117.45

100.00

Intangible Assets

436.26

55.67

70.89

85.90

100.00

Capital Work-In-Progress

41.22

132.59

69.28

86.95

100.00

Intangible Assets Under Development

591.91

633.05

370.81

163.67

100.00

Fixed Assets

187.34

159.59

139.85

114.58

100.00

Non-Current Investments

120.18

122.64

105.54

114.00

100.00

Long Term Loans And Advances

274.77

218.89

204.39

141.36

100.00

Other Non-Current Assets

160.93

283.79

242.77

81.89

100.00

Total Non-Current Assets

156.16

143.80

126.04

116.65

100.00

CURRENT ASSETS

Current Investments

229.12

170.26

153.55

121.71

100.00

Inventories

113.97

103.36

118.88

102.60

100.00

Trade Receivables

126.34

128.65

126.23

111.06

100.00

Cash And Cash Equivalents

193.28

173.74

248.26

149.90

100.00

Short Term Loans And Advances

126.67

83.04

101.59

82.00

100.00

Other Current Assets

122.35

111.42

102.53

107.05

100.00

Total Current Assets

145.81

126.95

141.50

112.10

100.00

Total Assets

152.28

137.78

130.85

114.81

100.00

Income statement

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

INCOME

Revenue From Operations [Gross]

127.22

119.73

125.62

126.50

100.00

Less: Excise/Service Tax/Other Levies

108.82

87.47

104.43

118.81

100.00

Revenue From Operations [Net]

128.68

122.30

127.30

127.11

100.00

Other Operating Revenues

105.81

120.00

118.13

116.59

100.00

Total Operating Revenues

128.35

122.26

127.17

126.96

100.00

Other Income

183.53

182.26

154.14

117.90

100.00

Total Revenue

129.15

123.13

127.56

126.83

100.00

EXPENSES

Cost Of Materials Consumed

103.02

107.81

115.03

110.35

100.00

Purchase Of Stock-In Trade

196.68

139.05

152.61

184.27

100.00

Changes In Inventories Of FG,WIP And Stock-In Trade

-215.80

-54.18

-274.67

14.62

100.00

Employee Benefit Expenses

137.63

136.15

127.14

109.68

100.00

Finance Costs

95.42

131.67

159.27

117.47

100.00

Depreciation And Amortization Expenses

192.42

169.21

149.85

123.37

100.00

Other Expenses

151.80

155.70

145.33

119.58

100.00

Less: Amounts Transfer To Capital Accounts

107.79

137.35

140.13

113.04

100.00

Total Expenses

130.38

124.77

128.06

127.11

100.00

Profit/Loss Before Exceptional, Extraordinary Items And Tax

118.97

109.59

123.42

124.56

100.00

Exceptional Items

63.49

310.08

48.76

83.70

100.00

Profit/Loss Before Tax

117.31

115.61

121.17

123.33

100.00

Tax Expenses-Continued Operations

Current Tax

121.92

118.83

119.12

132.66

100.00

Less: MAT Credit Entitlement

31.48

56.12

295.44

0.00

100.00

Deferred Tax

136.04

55.40

138.42

85.33

100.00

Total Tax Expenses

146.14

116.61

84.06

150.52

100.00

Profit/Loss After Tax And Before Extraordinary Items

110.02

115.36

130.55

116.46

100.00

Profit/Loss From Continuing Operations

110.02

115.36

130.55

116.46

100.00

Profit/Loss for the period

110.02

115.36

130.55

116.46

100.00

1.Long term borrowings were reduced considerably largely due to repayment of loans in current year. There are 2 term loans from banks which are due in august and September. So an amount of 993 crores is shown under current maturities of long term borrowings. It is included in other current liabilities.

2.There is an increase in short term borrowings. The company took a loan of 242 crores from bank which are payable within a year from the date of allotment of loan.

3.Other current liabilities increased mainly due to credit supply from creditors.

4.There is a meteoric rise in Intangible assets largely due to company’s investments in R&D bore fruits and there is a rapid increase in the patents filed by the company.

5.This rise also reaffirms company’s innovation centric approach in product development. The Technological advances will largely help the company in cost cutting measures in production.

6.Long term and short term loans and advances increased mainly due to company’s lending to subsidiaries and other parties. There is a loan of 1200 crores given to subsidiary company.

7.Revenue from operations is flat over the 3 years since auto industry facing slew of problems due to high interest rates, fuel price, inflation, flat demand all over the world in automobiles etc. the company grew with CAGR of 27% in the past decade. But the past four years witnessed CAGR of 1.3%.

8.Even though the revenues are muted company maintained similar employee benefit expenses.

The company is performing better than the industry peers in this tough economic conditions faced by the industry. The company never cut dividends and employee benefits in its cost cutting measures which is commendable and reaffirms its employee and customer centric approach.

DuPont analysis

year

PAT

sales

Assets

Equity

operating Efficiency

Asset Effectiveness

Capital structure

ROE

2013

3352.82

40990.33

27453.59

14658.92

0.08

1.49

1.87

0.23

2014

3758.35

41226.49

31288.65

16791.19

0.09

1.32

1.86

0.22

2015

3321.11

39794.36

32944.87

19255.09

0.08

1.21

1.71

0.17

2016

3167.48

41739.83

36412.34

21707.19

0.08

1.15

1.68

0.15

DuPont analysis mainly provide insight into a firms return on equity. It deconstructs ROE into 3 parts namely

1.Operating efficiency: operating efficiency is obtained by dividing net income with sales.

The higher the ratio, the more efficient a company is in turning sales into profit.

2.Asset effectiveness: Asset effectiveness is computed by dividing sales with assets. The higher the ratio, the more effective a company is in generating sales given its assets.

3.Capital structure: Capital structure can be computed as assets over equity. The higher the ratio, the more a company is financing its asset with debt rather than equity.

With this model in place, one can gauge the share of each component in ROE’s increment or decrement.

In the case of M&M, the ROE is decreasing over the years. Let’s look into the effect of three components on this phenomenon.

1.Operating efficiency remains almost similar over the years. So the impact of operating efficiency on decrement of ROE is negligible.

2.Asset effectiveness is consistently decreasing in line with ROE. It means that the company’s ability to generate sales given the assets is decreased. There is an increase in assets over the years but sales have not picked up in similar proportion. There were lot of factors which influenced this like global economic downturn, muted demand, deficit monsoon etc.

3.Capital structure is decreasing consistently over the years. This mean the company is trying to reduce its debt financing and relying more on investor financing which is a good sign. Since there is muted demand, there is no point in increasing once debt.

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