FINANCIAL ANALYSIS OF MAHINDRA AND MAHINDRA

Group 12

Introduction

The company was set up in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra along with Malik Ghulam Mohammed. With the Mahindra brothers as the whole sole of the company, the name was changed to Mahindra & Mahindra in 1948 At present, M&M is the leader in the utility vehicle segment in India with its flagship UV Scorpio. They entered into the two wheeler segment by taking over the Kinetic Motors in India. M&M also has controlling stake in REVA electric car company.

M&M has a global presence and its products are exported to several countries. Its global subsidiaries include Mahindra Europe Srl. based in Italy, Mahindra USA Inc., Mahindra South Africa and Mahindra (China) Tractor Co. Ltd. M&M has partnerships with international companies like Renault SA, France and International Truck and Engine Corporation, USA. M&M is one of the leading tractor brands in the world. M&M has a 100% subsidiary, Mahindra USA, which assembles products for the American market.

Beta

Sensitivity of the security to the market movements.

bj = Cov (Rj , RM)/2M

Beta has a positive value which implies that the security return varies positively with the market return.

.09789

Cov (Rj , RM) Beta

.00008899 .22908

Return

From our analysis:

Average Return on security = 0.0245 % per day ie. 6.17% annually Average Return on Market = 0.067 % per day ie. 15.50% annually Risk on Security = 31.58 % annually Risk of Market = 9.78 % annually

Risk Component

Systematic risk is risk that influences a large number of assets. Also called market risk Unsystematic risk is risk that influences a single company or a small group of companies. Also called unique risk or firmspecific risk. Total Risk = systematic risk + unsystematic risk Security Variance = .31587 Systematic Risk = 0.005137 Unsystematic Risk = 0.3107 Total risk =.31587 or 31.58%

COST OF CAPITAL

Total Equity (in Crores) Total Debt (in Crores) Debt/(Debt+Equity) Equity/(Debt+Equity)

Rs. 10313.39 Rs. 2405.29 0.189114751 0.810885429

COST OF DEBT :It

is the before tax rate of return required by the lenders.

Measures

the current cost of the firm of borrowing funds for specified period of time at certain interest rate

Kd (before tax) = (Interest/debt) Interest M&M = Rs. 70.86 crores DebtM&M = Rs. 2405.29 crores Kd M&M= 70.86/2405.29 = 2.95%

COST OF EQUITY (using CAPM model):From the firms point of view, the expected rate of return from a security of equivalent risk is the cost of equity. Using CAPM model: Ke = Rf + j (RM - Rf ) where, Rf = Risk Free Rate j = Beta RM - Rf = Market Premium Rate Now, Rf =8.3, RM = 15.50, j = 0.22908 Ke = Rf + j (RM - Rf ) Ke = 17.15%

COST OF CAPITAL
It is the required rate of return as a compensation for the time and risk in the use of capital by the firm. used by investors in evaluating investment decisions The firms aim at minimising the overall cost of capital by calculating a wise proportion of debt and equity. Cost of capital (Ko) = Ke (E/(D+E)) + Kd (before tax) (D/(D+E))(1-T) Where T= corporate tax rate= 0.339

D/(D+E) E/(D+E) Cost of Debt Cost of Equity Cost of Capital

0.189114751 0.810885429 2.95% 17.15% 14.28%

Capital Structure

Authorized Capital : 600 crores Issued Capital : 293.62 crores Paid up Capital : 293.62 crores No of shares : 587247117 Total Debt : 2405.29 crores

Capital Structure
As at As at March March 31, 2007 31, 2008 Equity Shared Capital
238.03 239.07

As at As at March March 31, 2009 31, 2010

272.62 282.95

As at March 31, 2011

293.62

Preference share capital

Reserve Net worth Unsecured loans Secured Loans Total Debt

0
3302.01 3552.90 1529.35 106.65 165.17

0
4098.53 4350.07 1969.80 617.26 6937.13

0
4959.26 5243.97 3071.76 981 4052.76

0
7527.60 7830.23 2277.70 602.45 2880.15

0
9974.62 10313.39 1998.06 407.23 2405.29

Capital Structure
Equity share capital 19% 2% Reserves Debt

79%

Leverage Analysis
Company EBIT for 2011(In Crores (Rs.)) EBIT for 2010(In Crores (Rs.)) EPS 2011 (Rs.) EPS 2010 (Rs.) Sales 2011(In Crores (Rs.)) Sales 2010(In Crores (Rs.)) Mahindra & Mahindra 3,426.70 2,964.01 43.36 36.1 23,477.53 18,516.33 Tata Motors 3,659.47 3,257.20 28.55 39.26 47,957.24 35,775.56

Leverage Calculation

DOL= %change in EBIT/ %change in Sales DFL= % Change in EPS/ % Change in EBIT DTL= DOL*DFL

Cont.

Company

Mahindra & Mahindra

Tata Motors

DOL

0.093261711
0.015690851

0.033022539
-0.026623909

DFL

DTL

0.001463356

-0.000879189

Working capital
2009-10
Company Mahindra & Mahindra Tata Motors Current Assets 6,224.56 12,329.48 Current Liabilities 5,619.04 19,672.73 Net working capital 605.52 -7,343.25

Working capital
2010-11
Company Mahindra & Mahindra Tata Motors Current Assets 6,317.09 14,775.61 Current Liabilities 7,295.55 18,963.40 Net working capital -978.46 -4,187.79

DIVIDEND POLICY
Mahindra & Mahindra

Dividend Yield & Dividend Payout Ratio

Mahindra & Mahindra 2011 Annual share Dividend per 11.50 5.00 0.015 2010 9.50 5.00 0.012 2011 20.00 10.00 0.015

Tata Motors 2010 15.00 10.00 0.017

Book Value per share Dividend yield

Dividend in Crores
Earnings in Crores Dividend Payout Ratio (%)

706.08
2662.10 26.52

549.52
2087.75 26.32

1274.23
1811.82 70.3

859.05
2240.08 38.34

Auto Industry Dividend Yield for year FY11 : 0.005

Mahindra & Mahindra- Key Ratios

Year Current Ratio Quick Ratio FY11 0.86 0.61 FY10 1.11 0.86 FY09 0.90 0.83 FY 08 0.86 0.74

Debt Equity Ratio

0.23

0.37

0.77

0.60

Long Term Debt Equity Ratio

0.32

0.46

0.83

0.63

Auto Industry Long Term Debt Equity for year FY11: 0.59

Comparison of Ratios
Year Current Ratio Quick Ratio Debt Equity Ratio Mahindra & Mahindra 0.86 0.61 0.23 Tata Motors 0.53 0.54 0.80

Long Term Debt Equity Ratio

0.32

0.52

Valuation of Shares
Mahindra EPS Market price of Share Apr 31, 2010 P/E 45.33 510.30 16.27 Tata Motors 28.55 170.30 5.96

No. of Shares

573,973,345

538,272,284
37.34

151.35 Estimated Share Value (Dividend Discount Model)

Calculated
P/E P/B P/S 4.626 2.834 1.3

Current Market
16.276 4.219 1.65