SAPM Assignment No 2.

Fundamental Analysis of Mahindra & Mahindra

Done By

Ahmed

A31001918014

MBA 2nd Year

 Mahindra & Mahindra Fundamental Analysis

About:

Mahindra & Mahindra Limited (“Mahindra & Mahindra” or the “Company”) is a major
automobile manufacturer of utility vehicles, passenger cars, pickup trucks, commercial vehicles,
and two wheelers.

India's domestic automotive industry, enjoyed high growth in financial year-05, continuing the
healthy trend set in financial year-04. Increased industrial growth contributed to the upward
trend. All the automotive industry segments in which M&M has a presence witnessed a growth
in demand in financial year-05. The Indian tractor industry too saw an upward trend after a
severe downturn period, due to favorable monsoon and better credit terms helped to build
positive sentiments. The major players in the Commercial Vehicle Segment are Ashok Leyland
Ltd, Hindustan Motors Ltd, Telco, Volvo India Pvt.Ltd, Bajaj Tempo Ltd, Eicher Motors Ltd,
Mahindra & Mahindra Ltd, and Swaraj Mazda Ltd. Mahindra & Mahindra Limited (M&M) is the
flagship company of around Rs. 8000 crore Mahindra Group, which has a significant presence in
key sectors of the Indian economy. A consistently high performer, M&M is one of the most
respected companies in the country. Set up in 1945 to make general-purpose utility vehicles for
the Indian market, M&M soon branched out into manufacturing agricultural tractors and light
commercial vehicles (LCVs). The company later expanded its operations from automobiles and
tractors to secure a significant presence in many more important sectors. The company has,
over the years, transformed itself into a Group that caters to the Indian and overseas markets
with a presence in vehicles, farm equipment, information technology, trade and finance related
services, and infrastructure development. Mahindra & Mahindra Ltd (M&M) is a leading player
in the Indian utility vehicles and tractors segment with market shares of 49.5% in Jeeps / MUVs,
30.9% in 3-wheelers, and market share of 25.9% in Tractors in the FY2005.

Promoters:
 Shares pledged or otherwise
Total Shares held
encumbered

No. Name of the Shareholder As a % of

As a % of
grand total % of Total
Number Number grand total
(A) + (B) + shares held
(A) + (B) + (C)
(C)

1 KESHUB MAHINDRA# 884,592 0.07 - - -

PRUDENTIAL MANAGEMENT & SERVICES

2 141,521,940 11.98 7,079,630 5 -
PRIVATE LIMITED

3 Yuthica Keshub Mahindra 895,344 0.08 - - -

4 Kema Services International Pvt Ltd 734,832 0.06 - - -

5 Anand Gopal Mahindra 1,430,008 0.12 - - -

6 Anjali Kumari Mehra 222,208 0.02 - - -

M&M BENEFIT TRUST - BHARAT N DOSHI,

7 103,670,428 8.77 - - -
A.K.NANDA - TRUSTEES

8 ANAND MAHINDRA FAMILY TRUST @ 0 0 - - -

9 Anuradha Mahindra 457,090 0.04 - - -

10 Deveshwar Jagat Sharma 30,000 0 - - -

11 MAHINDRA FAMILY TRUST - I @ 0 0 - - -

12 YUTHICA MAHINDRA FAMILY TRUST € 0 0 - - -

13 Dhruv S Sharma 30,000 0 - - -

14 Gautam P Khandelwal 4,600 0 - - -

15 Leena S Labroo 1,252,384 0.11 - - -

16 Nisheeta Labroo 160,000 0.01 - - -

17 Aneesha Labroo 160,000 0.01 - - -

18 Radhika Nath 93,616 0.01 - - -

19 Sanjay Labroo 145,440 0.01 140,000 96.26 -

20 SUDHA KESHUB MAHINDRA* 1,452,032 0.12 - - -

21 Uma R Malhotra 1,009,604 0.09 - - -

22 Anuja P Sharma 0 0 - - -
Shareholder’s Pattern:

CATEGORY OF NO. OF TOTAL NO. TOTAL NO. OF TOTAL SHARES PLEDGED OR

SHAREHOLDER SHARE- OF SHARES SHARES HELD IN SHAREHOLDING AS A OTHERWISE
HOLDERS DEMATERIALIZED % OF TOTAL NO. OF ENCUMBERED
FORM SHARES NUMBER OF
AS A % OF SHARES
(A+B) AS A % OF TOTAL
AS A % OF NO. OF SHARES
(A+B+C)

(A) Shareholding of Promoter and Promoter Group

(1) Indian

Individuals / 14 7,331,574 7,331,574 0.65 0.62 140,000 1.91

Hindu
Undivided
Family

Central - - - - - -
Government /
State
Government(s)

Bodies - - - - - -
Corporate

Financial - - - - - -
Institutions /
Banks

Any Others 3 245,927,200 245,927,200 21.84 20.82 7,079,630 2.88

(Specify)

Sub Total 17 253,258,774 253,258,774 22.50 21.44 7,219,630 2.85

(2) Foreign

Individuals 1 895,344 895,344 0.08 0.08 - -

(Non-Residents
Individuals /
Foreign
Individuals)

Bodies - - - - - -
Corporate

Institutions - - - - - -

Qualified - - - - - -
Foreign Investor
 Any Others - - - - - -
(Specify)

Sub Total 1 895,344 895,344 0.08 0.08 - -

Total 18 254,154,118 254,154,118 22.58 21.51 7,219,630 2.84

shareholding of
Promoter and
Promoter
Group (A)

(B) Public Shareholding

(1) Institutions

Mutual Funds / 37 123,941,673 123,941,673 11.01 10.49 - -

UTI

Financial 39 3,064,349 2,998,541 0.27 0.26 - -

Institutions /
Banks

Central 3 2,212,677 1,328,413 0.20 0.19 - -

Government /
State
Government(s)

Venture Capital - - - - - -
Funds

Insurance 6 149,453,165 149,453,165 13.28 12.65 - -

Companies

Foreign - - - - - -
Institutional
Investors

Foreign Venture - - - - - -
Capital
Investors

Qualified 723 369,843,241 369,843,177 32.85 31.30 - -

Foreign Investor

Nominated - - - - - -
investors (as
def. in Ch. XA of
SEBI (ICDR)
Regulations)

Market Makers - - - - - -
 Any Others 8 389,484 389,484 0.03 0.03 - -
(Specify)

Sub Total 816 648,904,589 647,954,453 57.64 54.92 - -

(2) Non-
Institutions

Bodies - - - - - -
Corporate

Individuals - - - - - -

Individual - - - - - -
shareholders
holding nominal 0
share capital up
to Rs. 1 lakh

Individual 113,950,462 108,955,130 10.12 9.64 - -

shareholders
holding nominal
341,390
share capital in
excess of Rs. 1
lakh

Qualified - - - - - -
Foreign Investor

Any Others 12,583 108,775,291 108,458,561 9.66 9.21 - -

(Specify)

Sub Total 353,973 222,725,753 217,413,691 19.78 18.85 - -

Total Public 354,789 871,630,342 865,368,144 77.42 73.78 - -

shareholding
(B)

Total (A)+(B) 354,807 1,125,784,460 1,119,522,262 100.00 95.29 7,219,630 2.84

(C) Shares held - - - - - - -

by Custodians
and against
which
Depository
Receipts have
been issued-m

(1) - - - - - -

(2) - - - - - -
 Sub Total 5 55,667,152 117,408,084 4.94 4.71 - -

354,812 1,181,451,612 1,236,930,346 100.00 100.00 7,219,630 0.58

Total (A)+(B)+(C)

Economic analysis:

During the fiscal year 2003-04, India’s GDP which grew by 8.10% was principally on account of a
strong recovery in the agriculture sector and accelerated growth in the industry and services
sectors. A growth rate higher than 8% has been achieved in the past in only three years - 1967-
68, 1975-76 and 1988-89. Exports have grown by 17.1% in 2003-04 in USD terms. While the
rupee appreciated against USD in 2003-04, it depreciated against the currencies of major non –
dollar-trading partners. Foreign exchange reserves crossed the levels of USD 100 billion mark on
December 2003 and stood at USD 199.3 billion as on 31st March 2004. Foreign Institutional
Investors (FIIs) investments saw a sharp rise during the year, which amounted to USD 10 billion.
Overall economic conditions look positive and expected to post a GDP growth of 6-6.5% during
FY05.
GRAPH 2: SHOWING INDIA’S REAL GDP GROWTH
As chart also shows, growth in nonagricultural GDP remained solid during 2004. Although a
breakdown of Indian real GDP into its demand components is not readily available, it is likely
that India’s strong nonagricultural growth performance last year was due entirely too robust
domestic demand. The 10% rise in the production of consumer goods last year and the 20%
increase in auto sales suggest that consumer spending has been very strong indeed. Consumer
spending in India has been supported recently by strong income growth as growth in real per
capita GDP has averaged 3.8% per annum since 2000.India has liberalized its economy over the
past decade or so, much more needs to be done, and better allocation of resources,
domestically and internationally, has contributed to this strong growth in per capita income.
The Real Gross Domestic Product (GDP) is estimated to have grown by 8.10% in 2003-04,
buoyed by a strong agricultural recovery. While the agricultural sector grew by 9.1% during the
FY04, the industry and services sectors have also maintained their momentum with the GDP
growth by achieving a growth rate of 6.5% and 8.4% respectively during the year. The growth
GDP has grown by 7.4% during April-June 2004 period, lower than the 8.2% growth registered
in January-March 2004 and 10.5% in October-December 2003 quarter. Inflation is also inching
up higher, driven by increases in fuel and commodity prices. Non food credit has increased by
11.5% during the April-September 2004 period as against previous corresponding year’s 6%
indicating the progressive economic activities. But the global crude oil shock will definitely have
an adverse affect on the growth during fiscal 005

GRAPH 3: INFLATION
The average inflation during fiscal year 2003-04 was around 5.5% as against the previous
corresponding fiscals average of 3.4%, the prime movers being sugar, edible oils, textiles,
leather and leather products, basic metals, alloys, iron and steel. With the increase of few
commodity prices mainly the crude oil prices have increased the global inflation levels from
June 2004, India being no exception to this. The domestic fuel prices have risen by more than 10%
during the fiscal 2004-05 over last years. The inflation during the fiscal year 2004-05 touched three and a
half years high of 8.33% for the week ended August 28th 2004 from 5.55% for the week ended June 5 th
2004 due to the excess money supply in the economy. The reasons for the high inflation are both
domestic and international. The domestic reasons include excess liquidity in the market and delay in
monsoon that increased the prices of essential commodities. M3, the measure of money supply grew by
15.5 per cent in July 2004, compared to 11.25 per cent in July 2003. The international causes are
inexorable rise in oil prices, global increase in the prices of commodities, supply side shock and growth
in china’s demand for goods. This is cost-push inflation wherein the supply problems in a few important
commodities push up prices of commodities. Since crude oil import constitute almost one third of the
total exports, we can say that the present situation is on account of imported inflation. To check the
rising prices, government took some measures like duty cuts on steel and oil products. Reserve Bank of
India raised the Cash Reserve Ratio to 5% from 4.5% in two tranches of 25 basis points and has also cut
the rate of interest payable on eligible cash balances maintained with it by banks by 250 basis points to
3.5 percent. In fact, the gradual reduction in the CRR over the past few years in successive credit policies
had been one of the major contributors for the sustained reduction in the interest rates on auto loans.
These moves were expected to draw out around Rs.8000 crore from the banking system. Later, the
inflation was reduced to 7.20% in the last week of September. With the increase in the interest rates the
auto loans will become costlier, thus having an adverse effect on the auto industry sales. The average
inflation for the fiscal 2004- 05 is expected to stay around 6-6.5%.
Industry Analysis:

Sales:

The automobile industry growth relies mainly on the country’s economic and general
conditions. Any slowdown in the economic momentum would definitely slowdown the growth
of the industry. It can be seen from the below chart that the industry’s sales is positively
correlated with the economic growth with a co-relation of 0.96.

GRAPH 4: GDP AND AUTO SALES

Rubber Prices:
With the increase in rural activities, the commercial vehicles are expected to grow. Sports
Utility Vehicles (SUV) after being a very big hit in the domestic market, the players now are
planning to introduce them to the domestic market. But the increase in the input prices like
steel and rubber has a negative impact on the industry profitability. The trucker’s strike has
affected the auto player’s production and distribution to certain extent.
GRAPH 5: SHOWING RUBBER PRICES

A combination of internal and external factors has contributed to the price volatility in the
rubber market. Since the domestic prices of rubber are less than the global prices, the tyre
manufacturers in other countries, sourcing natural rubber from India which has led to the
increase in the exports thereby reducing the domestic stock levels to less than sixty days of
consumption of the rubber user’s sector. Also, the subsidy given by the government for exports
of rubber has resulted in an increase in the exports.
The steel prices

The steel prices are on rise following a sharp increase in the prices of raw materials like iron
ore, coke, coal, power, gas and scrap. While the cost of iron ore went up by 75% during the
period June2003 to July 2004, the scrap prices jumped up by 91%. Coke’s prices saw an increase
of 50% during the same period. There are no signs of decline in the prices of steel products
following a strong demand from the housing and infrastructure sectors, with additional growth
potential in the auto and consumer durables sectors too. With China taking steps to cool down
its overheated economy, demand from that country is expected to slow down. But any shortfall
in demand from China may be offset by growth in demand in the US, Europe and Japan as
economic recovery gathers momentum leaving no scope for the steel price declines in the near
short term
Company Analysis:

Consolidated Balance Sheet of Mahindra and

------------------- in Rs. Cr. -------------------
Mahindra
Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

12 mths 12 mths 12 mths 12 mths 12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 543.96 543.13 270.89 270.40 295.70
Total Share Capital 543.96 543.13 270.89 270.40 295.70
Revaluation Reserves 0.00 0.00 0.00 0.00 13.67
Reserves and Surplus 39,439.45 36,232.06 29,467.10 26,222.25 25,547.01
Total Reserves and Surplus 39,439.45 36,232.06 29,467.10 26,222.25 25,560.68
Total Shareholders Funds 39,983.41 36,775.19 29,737.99 26,492.65 25,856.38
Minority Interest 8,360.57 8,250.47 6,356.90 5,920.20 5,892.23
NON-CURRENT LIABILITIES
Long Term Borrowings 43,526.17 33,809.18 30,124.51 23,598.78 22,327.03
Deferred Tax Liabilities [Net] 2,171.31 1,587.42 1,787.45 1,433.20 1,286.83
Other Long Term Liabilities 6,506.14 3,853.43 3,395.79 3,254.10 2,508.76
Long Term Provisions 4,100.64 3,785.68 3,507.04 3,289.61 3,239.95
Total Non-Current Liabilities 56,304.26 43,035.71 38,814.79 31,575.69 29,362.57
CURRENT LIABILITIES
Short Term Borrowings 10,541.01 11,325.54 10,121.65 7,077.12 7,177.44
Trade Payables 20,992.17 18,287.34 14,796.87 13,376.49 11,355.20
Other Current Liabilities 25,593.70 18,141.40 13,698.04 14,999.91 12,786.45
Short Term Provisions 1,616.45 1,395.26 1,215.91 1,190.02 2,413.71
Total Current Liabilities 58,743.33 49,149.54 39,832.47 36,643.54 33,732.80
Total Capital And Liabilities 163,391.57 137,210.91 114,742.15 100,632.08 94,843.98
ASSETS
NON-CURRENT ASSETS
Tangible Assets 22,227.17 20,820.49 18,306.97 18,004.76 17,247.09
Intangible Assets 4,681.97 3,201.74 2,123.43 2,037.78 1,035.38
Capital Work-In-Progress 2,454.34 1,814.57 1,887.86 752.96 1,272.54
Intangible Assets Under Development 2,305.50 2,454.90 2,391.08 1,618.39 1,759.60
Fixed Assets 31,668.98 28,291.70 24,709.34 22,413.89 21,314.61
Non-Current Investments 12,160.88 10,667.54 9,961.77 8,286.49 7,898.99
Deferred Tax Assets [Net] 1,502.91 841.60 906.67 780.26 467.77
Long Term Loans And Advances 40,515.00 31,414.43 25,193.54 20,629.94 24,066.47
Other Non-Current Assets 6,064.16 4,759.95 4,624.46 4,068.13 581.76
Total Non-Current Assets 93,985.53 78,134.89 65,954.39 56,720.88 55,093.87
CURRENT ASSETS
Current Investments 6,107.22 5,350.07 4,700.67 3,316.09 2,128.15
Inventories 12,200.16 9,335.57 8,886.01 9,116.12 8,453.39
Trade Receivables 9,290.51 8,489.82 7,199.26 5,817.60 5,476.16
Cash And Cash Equivalents 8,734.91 6,547.60 4,654.03 4,527.55 4,911.83
Short Term Loans And Advances 28,622.06 24,725.46 20,698.48 18,869.91 17,811.80
OtherCurrentAssets 4,451.18 4,627.50 2,649.31 2,263.93 968.78
Total Current Assets 69,406.04 59,076.02 48,787.76 43,911.20 39,750.11
Total Assets 163,391.57 137,210.91 114,742.15 100,632.08 94,843.98
OTHER ADDITIONAL INFORMATION
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 9,426.10 7,284.08 7,018.57 6,470.35 7,303.14
BONUS DETAILS
Bonus Equity Share Capital 481.41 481.41 170.61 170.61 170.61
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market Value 24,246.56 21,635.36 16,612.84 16,291.50 19,997.59
Non-Current Investments Unquoted Book Value 3,126.92 3,005.73 2,657.48 1,825.53 2,127.86
CURRENT INVESTMENTS
Current Investments Quoted Market Value 3,785.42 3,913.92 3,182.11 44.68 58.09
Current Investments Unquoted Book Value 2,321.80 1,436.15 1,518.56 3,271.41 2,070.94
Ratios:

Key Financial Ratios of Mahindra and Mahindra ------------------- in Rs. Cr. -------------------

Mar 19 Mar 18 Mar 17 Mar 16 Mar 15

Per Share Ratios

Basic EPS (Rs.) 40.29 36.64 30.69 53.05 56.23
Diluted EPS (Rs.) 40.13 36.47 30.54 52.80 53.66
Cash EPS (Rs.) 55.86 49.04 87.09 72.10 72.64
Book Value [ExclRevalReserve]/Share (Rs.) 287.09 254.58 451.22 378.36 325.40
Book Value [InclRevalReserve]/Share (Rs.) 287.09 254.58 451.22 378.36 325.58
Dividend / Share(Rs.) 8.50 7.50 13.00 12.00 12.00
Revenue from Operations/Share (Rs.) 449.93 409.14 742.12 689.71 658.53
PBDIT/Share (Rs.) 69.89 61.01 98.72 92.30 84.92
PBIT/Share (Rs.) 54.28 48.58 73.01 74.27 68.44
PBT/Share (Rs.) 53.08 51.28 79.56 72.29 70.49
Net Profit/Share (Rs.) 40.25 36.61 61.38 54.07 56.16
Profitability Ratios
PBDIT Margin (%) 15.53 14.91 13.30 13.38 12.89
PBIT Margin (%) 12.06 11.87 9.83 10.76 10.39
PBT Margin (%) 11.79 12.53 10.72 10.48 10.70
Net Profit Margin (%) 8.94 8.94 8.27 7.83 8.52
Return on Networth / Equity (%) 14.01 14.37 13.60 14.29 17.25
Return on Capital Employed (%) 16.86 16.95 14.28 12.49 13.85
Return on Assets (%) 9.10 9.18 9.11 9.02 10.08
Total Debt/Equity (X) 0.07 0.09 0.10 0.08 0.14
Asset Turnover Ratio (%) 101.74 102.67 110.22 115.14 118.21
Liquidity Ratios
Current Ratio (X) 1.26 1.24 1.31 1.18 1.13
Quick Ratio (X) 0.99 1.03 1.02 0.91 0.86
Inventory Turnover Ratio (X) 13.96 18.02 15.97 15.21 15.98
Dividend Payout Ratio (NP) (%) 19.43 21.24 23.08 26.42 22.44
Dividend Payout Ratio (CP) (%) 14.00 15.85 16.26 19.82 17.34
Earnings Retention Ratio (%) 80.57 78.76 76.92 73.58 77.56
Cash Earnings Retention Ratio (%) 86.00 84.15 83.74 80.18 82.66
Valuation Ratios
Enterprise Value (Cr.) 78,800.35 88,050.00 77,347.75 71,245.22 70,763.66
EV/Net Operating Revenue (X) 1.47 1.81 1.76 1.74 1.82
EV/EBITDA (X) 9.46 12.13 13.20 13.03 14.09
MarketCap/Net Operating Revenue (X) 1.49 1.81 1.73 1.75 1.80
Retention Ratios (%) 80.56 78.75 76.91 73.57 77.55
Price/BV (X) 2.34 2.91 2.85 3.20 3.65
Price/Net Operating Revenue 1.49 1.81 1.73 1.75 1.80
Earnings Yield 0.06 0.05 0.05 0.04 0.05

Price of the company share today

589.50

Recommendation :

As far as Mahindra and Mahindra is concerned, it’s the one of the major companies as far as commercial vehicl
are concerned.

1. Strong market for Commercial vehicles

2. Diversified products (from 2 wheelers to SUV to tractors)
3. Regular dividend paying company.
4. Debts are very low. Hardly 10 percent of net worth. You can ignore this.
5. Sound management. (most important)
6. Sales growing at a good pace

If you wish to hold this stock for next 10 years, your investment is bound to get 10x.

So it is highly recommended to invest in Mahindra and Mahindra