1

Financial Statement Analysis

Session 5 & 6
Amerbran Company (B)
Case: 13-2
Page: 392
2
2000 2001
Sales revenue, net $6,577,480 $7,622,677
Cost of sales $2,573,350 $2,803,623
Excise taxes on goods sold $2,354,350 $2,887,616
Gross margin $1,649,780 $1,931,438
Selling, general, and administrative expenses $974,121 $1,328,107
Income before income taxes $675,659 $603,331
Provision for income taxes $296,877 $274,558
Net income $378,782 $328,773
Amerbran Company
Income Statement for the Year Ended
Dec 31, 2000 (In Thousands)
2000 2001
Assets
Cash $23,952 $28,912
Accounts receivable $687,325 $756,152
Inventories $1,225,402 $1,244,912
Prepaid expenses $77,167 $76,140
Total current assets $2,013,846 $2,106,116
Investments $1,058,637 $1,116,534
Property, plant, and equipment, at cost $1,366,719 $1,566,268
Less: Accumulated depreciation -$645,734 -$723,442
Net property, plant, and equipment, at cost $720,985 $842,826
Goodwill $577,606 $645,210
Other assets $62,374 $115,826
Total assets $4,433,448 $4,826,512
Liabilities and Shareholders' Equity
Accounts payable $238,377 $271,452
Short-term debt $351,112 $430,776
Accrued expenses payable $728,262 $922,990
Total current liabilities $1,317,751 $1,625,218
Long-term liabilities $932,828 $880,674
Total liabilities $2,250,579 $2,505,892
Convertible preferred stock $42,611 $33,828
Common stock, at par $161,417 $322,834
Additional paid-in capital $57,072 $53,641
Treasury stock, at cost -$102,705 -$110,948
Reatined earnings $2,024,474 $2,021,265
Total shareholders' equity $2,182,869 $2,320,620
Total liabilities and shareholders' equity $4,433,448 $4,826,512
Amerbran Company Balance Sheet as of Dec 31
3
Other Details
Interest expense..,
Year 2000: $105,165
Year 2001: $102,791
Financial Ratios
Return on assets
Return on equity
Gross margin percentage
Return on sales
Asset turnover
Days cash (2001 only)
Days receivables
Days inventories
Inventory turnover
Current ratio
Acid-test ratio
Debt / Capitalization ratio
Times interest earned
4
Discussion Question
Comment on Amerbrans treatment of
excise taxes as part of the calculation of
gross margin
Discussion Question
As an outside analyst, what questions
would you want to ask Amerbans
management based on the ratios you
have calculated?
5
Definition
[Net Income +
Interest
[$378,782 +
$105,165
[$328,773 +
$102,791
*(1-Tax Rate)] *(1-.4394)] *(1-.455l)]
Total Assets $4,433,448 $4,826,512
Net Income $378,782 $328,773
Shareholders Equity $2,182,869 $2,320,620
Gross Margin $1,649,780 $1,931,438
Net Sales Revenue $6,577,480 $7,622,677
Net Income $378,782 $328,773
Net Sales Revenue $6,577,480 $7,622,677
Sales Revenue $6,577,480 $7,622,677
Total Assets $4,433,448 $4,826,512
Cash $23,952 $28,912
Cash Expenses / 365 ($6,198,698 -
$101,198)/365
($7,293,904 -
$115,974/365
Accounts Receivable $687,325 $756,152
Sales / 365 $6,577,480/365 $7,622,677/365
Inventory $1,225,402 $1,244,912
Cost of sales / 365 $2,573,350/365 $2,803,623/365
Cost of Sales $2,573,350 $2,803,623
Inventory $1,225,402 $1,244,912
Current Assets $2,013,846 $2,106,116
Current Liabilities $1,317,751 $1,625,218
Monetary Current
Assets
$711,277 $785,064
Current Liabilities $1,317,751 $1,625,218
Noncurrent Liabilities $932,828 $880,674
(Noncurrent Liabilities
+ Shareholders
Equity)
Pretax Operating
Profit
+ Interest
Interest $105,165 $102,791
6.87 times
2000 2001
Times Interest Earned $675,659 +
$105,165
7.42 times $603,331 +
$102,791
1.3
Debt/Capitalization 0.2994 0.2751
162.1 days
Inventory turnover 2.1 times 2.25 times
0.48 Acid-Test Ratio 0.54
Days inventories 173.8 days
Return on Assets 0.0987 0.0797
0.1735 Return on Equity 0.142
0.2508 0.2534
Return on Sales
$932,828 +
$2,182,869
$880,674 +
$2,320,620
0.0576 0.0431
1.48 times 1.58 times
1.43 days
Gross Margin Percentage
Asset Turnover
Days cash
Days receivables
Current ratio 1.53
1.47 days
38.1 days 36.2 days
Ratio Analysis
Liquidity Ratios
Measures of short-term
ability of the enterprise to pay
its maturing obligations and
to meet unexpected needs for
cash
Profitability Ratios
Measures of the income or
operating success of an
enterprise for a given period
of time
Solvency Ratios
Measures of the ability of the
enterprise to survive over a
long period of time
Revenues Expenses
-
=
Net
Income
XYZ
Co.
6
Liquidity Ratios
Measures Enterprises
Short-term ability to pay its maturing
obligations
Ability to meet unexpected needs for cash
Users
Bankers
Suppliers
Other short-term creditors
Liquidity Ratios
Means of
Expressio
n
Standard Usage Formula Ratios
Proportion
Industry
specific
Wide
LA CL
1
Acid-test ratio
Proportion
Industry
specific
Realistic
NCPOA Avg. CL
2
Current cash debt
coverage ratio
Rate
(times)
Coll. Period
< Cr. period
Wide
NCS ANR
3
Receivables turnover
Rate
(times)
Industry
specific
Wide
CGS Avg. Inv.
4
Inventory turnover
Proportion
Industry
specific
Wide
CA CL Current ratio
1
LA = CA Inventory Prepaid expenses
2
NCPOA = Net Cash Provided by Operating Activities
3
NCSANR = Net Credit Sales Average Net Receivables
4
CGS Avg. Inv. = Cost of Goods Sold Average Inventory
7
Profitability Ratios
Affects the companys
ability to obtain debt and equity financing
liquidity position
ability to grow
Ultimate test of managements
operating effectiveness
Profitability Ratios
Means of
Expression
Standard Usage Formula Ratios
Percentage
Compare with
profit margin
Realistic
NCPOA NS
1
Cash Return on Sales
Rate (times)
Industry
specific
Wide
NS Avg. Assets Asset Turnover
Percentage
Industry
specific
Wide
NI Avg. Assets Return on Assets
Percentage
DOF Wide
(NI PD) ACSE
2
Return on Common
Stockholders Equity
Percentage
Industry
specific
Wide
NI NS Profit Margin
1
NCPOA = Net Cash Provided by Operating Activities
2
(NI-PD) ACSE = (Net Income-Preferred Dividend) Average common
stockholders equity
8
Profitability Ratios
Means of
Expressio
n
Standard Usage Formula Ratios
Proportion
Compare
Peer &
Industry
wide
Price EPS Price-Earnings Ratio
Percentage
Wide
DPS/EPS Payout Ratio
Amount
Intra
comparison
Wide
NI WACSO
1
Earnings Per Share
1
NI WACSO = Net Income Weighted Average Common Shares Outstanding
Solvency Ratios
Affects the companys
Ability of the company to survive over a long
period of time
Ability to repay the face value of debt at
maturity
9
Solvency Ratios
Means of
Expression
Standard Usage Formula Ratios
Rate (times)
Industry
specific
Wide
IBIT Interest
Expenses
Times Interest
Earned
Rate (times)
Industry
specific
Wide
NCPOA ATL
1
Cash Debt
Coverage Ratio
Percentage
Industry
specific
Wide
TD TA Debt to Total
Assets Ratio
1
NCPOA ATL = Net Cash Provided by Operating Activities Average
Total Liabilities
Financial Statement
Analysis of MMFSL
10
Financial Statement Analysis
Long-term
creditor
Stockholders
Long-term
creditor
Stockholders
Short-term
creditor
Evaluating
Solvency
Evaluating
Profitability
Evaluating
Liquidity
Tools of Financial Statement
Analysis
Horizontal analysis /
Trend analysis
Vertical analysis /
Common size
analysis
Vertical analysis /
Common size analysis
Ratio analysis Ratio
analysis
Ratio analysis
Inter company
basis
Industry
Average
basis
Intra company basis
11
Rs. Crore (Non-Annualised) Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Total income 199.88 257.83 310.61 418.76 596.43 844.62 1226.8
Income from financial services 190.84 246.46 300.5 415.5 593.1 840.18 1214.72
Interest 3.67 90.59 211.4 347.69 519.61 770.88 1109.18
Dividends 0.51 0 0.29 1.44 7.61 5.38 2.18
Treasury operations 0.54 1.38 0.85 0.04 0.05 0.01 0.02
Other income 0.24 2.78 0.47 0.37 0.77 1.67 5.17
Prior period income &
extra-ordinary income 8.8 8.59 9.64 2.89 2.56 2.77 6.91
Total expenses 170.75 213.48 242.99 336.47 488.16 711.74 1049.78
Power, fuel & water charges 0.17 0.26 0.49 0.94 1.59 2.4 3.12
Compensation to employees 9.07 12.62 18.27 27.46 40.96 65.13 96.3
Indirect taxes 1.31 3.25 2.9 2.31 2.3 5.52 3.33
Lease rent & other rents 1.33 1.64 2.69 3.1 4.72 6.46 8.93
Repairs & maintenance 0.08 0.09 1.05 0.4 1.91 0.57 2.37
Insurance premium paid 0.23 0.66 0.85 0.83 1.13 1.68 3.1
Outsourced professional jobs 0.94 1.33 1.89 2.21 14.55 34.36 29.63
Director's fees 0.01 0.01 0.01 0.02 0.02 0.03 0.35
Selling & distribution expenses 0 10.33 13.95 18.28 23.26 29.19 30.23
Miscellaneous expenses 6.29 9.66 14.2 23.24 37.52 42.53 66.44
Lease equalisation adjustment 6.2 4.08 1.26 0.25 0.01 0 0
Fee-based financial service expenses 13.84 2.6 3.94 4.65 5.8 6.97 9.18
Total provisions 21.85 23.71 10.11 27.6 25.19 57.1 120.25
Write-offs 8.06 19.88 31.38 41.96 56.42 65.17 126.04
Prior period & extra-ordinary expenses 0.13 0.07 0.15 0.45 0.09 0.19 0
Interest paid 72.56 83.25 92.93 128.38 213.64 317.16 446.81
Depreciation 5.67 4.38 5 3.85 5.17 7.43 8.73
Amortisation 0.32 0.33 0 0 0 0 0
Provision for direct taxes 22.69 35.33 41.92 50.54 53.88 69.85 94.97
PAT 29.13 44.35 67.62 82.29 108.27 132.88 177.02
PBDITA 130.37 167.64 207.47 265.06 380.96 527.32 727.53
PBDTA 57.81 84.39 114.54 136.68 167.32 210.16 280.72
PBT 51.82 79.68 109.54 132.83 162.15 202.73 271.99
Income and Expenditures
Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Total income 100 129 155 210 298 423 614
Income from financial services 100 129 157 218 311 440 637
Interest 100 2468 5760 9474 14158 21005 30223
Dividends 100 0 57 282 1492 1055 427
Treasury operations 100 256 157 7 9 2 4
Other income 100 1158 196 154 321 696 2154
Prior period income &
extra-ordinary income 100 98 110 33 29 31 79
Total expenses 100 125 142 197 286 417 615
Power, fuel & water charges 100 153 288 553 935 1412 1835
Compensation to employees 100 139 201 303 452 718 1062
Indirect taxes 100 248 221 176 176 421 254
Lease rent & other rents 100 123 202 233 355 486 671
Repairs & maintenance 100 113 1313 500 2388 713 2963
Insurance premium paid 100 287 370 361 491 730 1348
Outsourced professional jobs 100 141 201 235 1548 3655 3152
Director's fees 100 100 100 200 200 300 3500
Selling & distribution expenses
Miscellaneous expenses 100 154 226 369 597 676 1056
Lease equalisation adjustment 100 66 20 4 0 0 0
Fee-based financial service expens 100 19 28 34 42 50 66
Total provisions 100 109 46 126 115 261 550
Write-offs 100 247 389 521 700 809 1564
Prior period & extra-ordinary exp 100 54 115 346 69 146 0
Interest paid 100 115 128 177 294 437 616
Depreciation 100 77 88 68 91 131 154
Amortisation 100 103 0 0 0 0 0
Provision for direct taxes 100 156 185 223 237 308 419
PAT 100 152 232 282 372 456 608
PBDITA 100 129 159 203 292 404 558
PBDTA 100 146 198 236 289 364 486
PBT 100 154 211 256 313 391 525
Income and Expenditures (Horizontal Common Size)
12
Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Total income 100 100 100 100 100 100 100
Income from financial services 95 96 97 99 99 99 99
Interest 2 35 68 83 87 91 90
Dividends 0 0 0 0 1 1 0
Treasury operations 0 1 0 0 0 0 0
Other income 0 1 0 0 0 0 0
Prior period income &
extra-ordinary income 4 3 3 1 0 0 1
Total expenses 85 83 78 80 82 84 86
Power, fuel & water charges 0 0 0 0 0 0 0
Compensation to employees 5 5 6 7 7 8 8
Indirect taxes 1 1 1 1 0 1 0
Lease rent & other rents 1 1 1 1 1 1 1
Repairs & maintenance 0 0 0 0 0 0 0
Insurance premium paid 0 0 0 0 0 0 0
Outsourced professional jobs 0 1 1 1 2 4 2
Director's fees 0 0 0 0 0 0 0
Selling & distribution expenses 0 4 4 4 4 3 2
Miscellaneous expenses 3 4 5 6 6 5 5
Lease equalisation adjustment 3 2 0 0 0 0 0
Fee-based financial service expenses 7 1 1 1 1 1 1
Total provisions 11 9 3 7 4 7 10
Write-offs 4 8 10 10 9 8 10
Prior period & extra-ordinary expenses 0 0 0 0 0 0 0
Interest paid 36 32 30 31 36 38 36
Depreciation 3 2 2 1 1 1 1
Amortisation 0 0 0 0 0 0 0
Provision for direct taxes 11 14 13 12 9 8 8
PAT 15 17 22 20 18 16 14
PBDITA 65 65 67 63 64 62 59
PBDTA 29 33 37 33 28 25 23
PBT 26 31 35 32 27 24 22
Income and Expenditures (Vertical Common Size)
Over 10 yr Over 7 yr Over 5 yr Over 3 yr Over 1 yr
Total income 33 36 37 43 45
Income from financial services 32 36 38 43 46
Interest 123 168 65 47 43
Dividends -1 11 15 -59
Treasury operations -4 -57 -21 100
Other income 67 13 141 210
Prior period income & extra-ordinary income 50 -4 34 -30
Total expenses 31 35 38 46 47
Power, fuel & water charges 64 49 30
Compensation to employees 53 47 50 52 48
Indirect taxes 129 0 13 -40
Lease rent & other rents 8 38 40 42 38
Repairs & maintenance 44 62 92 81 316
Insurance premium paid 66 41 36 55 85
Outsourced professional jobs 56 86 138 -14
Director's fees 104 160 30
Selling & distribution expenses 25 34 24 18 4
Miscellaneous expenses 38 42 47 42 56
Fee-based financial service expenses 40 27 29 25 32
Total provisions 58 60 38 63 111
Write-offs 61 45 44 93
Interest paid 28 32 40 52 41
Depreciation -4 -10 15 31 18
PBT 39 45 28 27 34
Provision for direct taxes 34 36 22 23 36
PAT 44 52 32 29 33
Compounded Average Growth Rate (Percenatge)
13
Business Growth
Gaining market share
Rising rural auto finance demand
Aggressive branch expansion policy
Unique business proposition
Consistent growth in recent years
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
PBT 79.68 109.54 132.83 162.15 202.73 271.99
Provision for direct tax 35.33 41.92 50.54 53.88 69.85 94.97
Corporate tax 35.32 41.9 55.83 62.97 94.2 143.24
Deferred tax 0 0 0 0 0 0
Less: Deferred tax assets / credit 0 0 5.3 10.39 25.83 50.97
Other direct taxes 0.01 0.02 0.01 1.3 1.48 2.7
Fringe benefits tax 0 0 0 1.29 1.46 2.68
PAT 44.35 67.62 82.29 108.27 132.88 177.02
Prior period and extra-ordinary income 8.59 9.64 2.89 2.56 9.87 6.91
Prior period and extra-ordinary expenses 0.07 0.15 0.45 0.09 0.19 0
Net prior period and extra-ordinary items -8.52 -9.49 -2.44 -2.47 -9.68 -6.91
PBPDTA net of P&E 99.58 115.16 161.84 190.04 257.58 394.06
PBPT net of P&E 94.87 110.16 157.99 184.87 250.15 385.33
PBT net of P&E 71.16 100.05 130.39 159.68 193.05 265.08
PAT net of P&E 35.83 58.13 79.85 105.8 123.2 170.11
Distribution of profits
PBPDTA 100 100 100 100 100 100
Provision 21.93 8.11 16.8 13.09 21.36 29.99
Depreciation & Amortisation 4.36 4.01 2.34 2.69 2.78 2.18
Tax 32.68 33.63 30.76 27.99 26.14 23.69
PAT 41.03 54.25 50.09 56.24 49.72 44.15
Distribution of Profits
14
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Profit/loss after tax 100 100 100 100 100 100
Dividend paid 29 28 32 32 31 29
Equity dividend 27 25 26 25 26 25
Preference dividend 0 0 2 3 1 0
Dividend tax 2 3 4 4 4 4
Retained profits 71 72 68 68 69 71
Transfer from reserves 0 0 0 0 0 0
Balance brought forward 52 62 85 94 107 110
Transfer to reserves 28 30 30 30 30 30
Profit ratios
Equity dividend / Profit after tax 27% 25% 26% 25% 26% 25%
Pref. dividend / Profit after tax 0% 0% 2% 3% 1% 0%
Dividend tax / Profit after tax 2% 3% 4% 4% 4% 4%
Retained profit / Profit after tax 71% 72% 68% 68% 69% 71%
Profit Appropriation (Vertical Common Size)
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
PBDITA/Total Income 65 67 63 64 62 59
PBDTA/Total Income 33 37 33 28 25 23
PBIT/Total Income 63 65 62 63 62 59
PBT/Total Income 31 35 32 27 24 22
PAT/Total Income 17 22 20 18 16 14
Cash profit/Total Income 24 31 29 27 20 21
PBDITA Net of P&E/Total Income Net of P&E 64 66 63 64 62 59
PBDTA Net of P&E/Total Income Net of P&E 30 35 32 28 24 22
PBIT Net of P&E/Total Income Net of P&E 62 64 62 63 61 58
PBT Net of P&E/Total Income Net of P&E 29 33 31 27 23 22
PAT Net of P&E/Total Income Net of P&E 14 19 19 18 15 14
Cash profit Net of P&E/Total Income Net of P&E 24 31 29 26 20 21
Profitability Ratios (Percenatge)
15
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
On Networth
PBIT Net of P&E/Avg Networth 82.34 84.83 78.74 65.59 67.53 68.04
PAT Net of P&E/Avg Networth 19.11 25.55 24.3 18.59 16.31 16.26
PAT/Avg Networth 23.65 29.72 25.04 19.02 17.59 16.92
Cash profit/Avg Networth 32.53 42.34 37.36 28.02 22.84 24.28
On Capital Employed
PBIT Net of P&E/Avg Capital Employed 17.11 13.82 11.66 10.56 10.63 12.56
PBIT/Avg Capital Employed 18.06 14.5 11.77 10.63 10.83 12.69
PAT Net of P&E/Avg Capital Employed 3.97 4.16 3.6 2.99 2.57 3
PAT/Avg Capital Employed 4.92 4.84 3.71 3.06 2.77 3.12
On Total Assets
PBIT Net of P&E/Avg Total Assets 10.98 10.76 10 9.16 9.01 10.69
PBIT/Avg Total Assets 11.59 11.29 10.1 9.22 9.18 10.79
PAT Net of P&E/Avg Total Assets 2.55 3.24 3.09 2.6 2.18 2.55
PAT/Avg Total Assets 3.15 3.77 3.18 2.66 2.35 2.66
On GFA
PBIT Net of P&E/Avg GFA (excl. reval. & WIP) 447.31 757.68 1022.81 1154.18 1189.58 1325.56
PBIT/Avg GFA (excl. reval. & WIP) 471.99 794.94 1032.45 1161.82 1212.15 1338.42
PAT Net of P&E/Avg GFA (excl. reval. & WIP) 103.79 228.23 315.61 327.1 287.25 316.75
PAT/Avg GFA (excl. reval. & WIP) 128.48 265.49 325.26 334.73 309.82 329.62
Return Ratios (Percentage)
ROE Driven Business
MMFSL
ROE
FY03: 23.2%
FY07: 18.2%
FY08: 16.9%
ROA
FY03: 3.5%
FY07: 2.4%
FY08: 2.7%
16
Over 10 yr Over 7 yr Over 5 yr Over 3 yr Over 1 yr
Assets
Gross fixed assets -5 0 17 31 23
Less: Cumulative depreciation 4 19 28 42 33
Net fixed assets -9 -4 17 23 15
Investments -19 -15 -36 -56 -89
Market value of quoted investments -38 -74 -61
Deferred tax assets 38 51 68
Current assets 3 -13 -8 13 -11
Loans & advances 216 51 34 15
Total assets 32 30 36 31 12
Liabilities
Net Worth 38 38 45 48 69
Authorised capital 16 6 8 14 22
Issued equity capital 17 7 10 11 13
Paid up equity capital (net of forfeited capital) 17 7 9 11 13
Reserves & surplus 48 48 54 62 76
Total borrowings 35 33 35 27 3
Secured borrowings 45 38 46 28 1
Unsecured borrowings 12 11 2 22 26
Current liabilities & provisions 19 12 24 37 13
Sundry creditors 61 23 24 47 -18
Interest accrued 31 36 45 41 44
Other current liabilities 7 -5 3 15 2
Provisions 29 21 72 47 73
Total liabilities 32 30 36 31 12
Compounded Average Growth Rate of Assets and Liabilities (Percentage)
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Net Worth 13 12 13 15 12 19
Authorised capital 5 4 2 2 1 2
Issued equity capital 4 3 2 2 1 1
Paid up equity capital (net of forfeited capital) 4 3 2 2 1 1
Reserves & surplus 9 9 9 12 11 17
Free Reserves 8 8 8 10 9 15
Security premium reserves (Net of deductions) 4 3 3 7 6 11
Other free reserves 4 4 4 4 3 4
Specific reserves 1 2 2 1 2 3
Total borrowings 72 77 79 77 79 72
Bank borrowings 21 16 14 16 24 17
Short term bank borrowings 10 5 3 4 7 4
Long term bank borrowings 12 11 11 12 16 13
Financial institutional borrowings 3 2 1 0 0 0
Debentures / bonds 20 46 54 52 49 48
Non-convertible 20 46 54 52 49 48
Fixed deposits 3 2 1 0 0 0
Foreign borrowings 0 0 2 2 1 0
Borrowings from corporate bodies 2 0 0 0 0 0
Group / associate cos. 0 0 0 0 0 0
Commercial paper 5 0 2 2 0 0
Other borrowings 18 10 5 6 6 6
Secured borrowings 45 64 71 70 73 66
Unsecured borrowings 27 12 8 8 6 6
Current portion of long term debt 30 18 3 7 32 37
Current liabilities & provisions 14 11 8 8 9 9
Sundry creditors 4 4 2 3 4 3
Acceptances 0 0 0 0 0 0
Deposits & advances from customers and employees 1 0 0 0 0 0
Interest accrued 2 2 2 2 2 2
Other current liabilities 7 3 2 2 2 2
Provisions 1 2 2 1 1 2
Deferred tax liability 0 0 0 0 0 0
Total liabilities 100 100 100 100 100 100
Distribution of Liabilities (Vertical Common Size)
17
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008
Total Income / Avg. total assets 18% 17% 16% 15% 15% 18%
Total Income / Compensation to employees 20.43 17 15.25 14.56 13.02 12.74
Asset Utilization Ratios
Securitization
Effectively used to manage..,
Funds requirements
Funding costs
ALM structure
Impact..,
18% of total fund
Follows securitization by assignments (bilateral sale, not
tradable)
Contributor to interest income
Contributed interest income: 6.5%
Margin term: 1%
Key instruments in maintaining high margins
18
FY08 Cost/ Income: 32.7%
Asset Quality
2.7 6.1 1,548 3,582 FY07
2.9 7.6 2,053 5,572 FY08
2.7 5.7 1,133 2,472 FY06
3.4 7.0 947 1,992 FY05
4.3 8.7 743 1,556 FY04
3.5 8.8 412 1,090 FY03
Net
NPAs
Ratio (%)
Gross
NPAs
Ratio (%)
Net
NPAs
(Rs. Mn)
Gross
NPAs
(Rs. Mn)
19
Provisioning Norms
50 > 48
100 > 24 30 > 30 & <= 48
50 > 12 & <= 24 20 > 18 & <= 30
10 > 5 & <= 12 10 > 5 & <= 18
MMFSL
(%)
Duration
(Months)
RBI
Norms (%)
Duration
(Months)
20
Shareholding Pattern (%)
Promoters: 62%
FIIs: 24%
Public and others: 13%
Risk Factors
Economic slowdowns
Policy risk
Over-dependence on M&M vehicles
Competition from banks and NBFCs
Interest rates risk
Asset quality risk
Rural lending
Rising interest rate increase by 150bps
21
Major Sources of Funds
No financial aid or subvention from parents
Most funds sourced from..,
Mutual funds: 41%
Banks: 52%
Instruments raised..,
Bonds: 60%
Bank borrowings: 21%
Securitization: 18%
Commercial paper: 1%
Healthy credit rating as linked to parent
company
Performance Ratios
3.5%
37.6%
89.8%
12.4%
18.2%
2.4%
9.2%
8.4%
6.6%
15.1%
FY07
32.7%
16.9%
2.7%
10.4%
7.2%
8.6%
18.6%
FY08
2.7% ROA
9.2% Net income margins
8.5% Interest spread
6.3% Cost of funds
14.8% Yield on assets
3.3% Cost / Assets
35.3% Cost / Income
83.8% Loans / Assets
13.6% Equity / TA
20.9% ROE
FY06
Net Interest Margin: 11.3%
22
Margins Supported by
Higher Yields
10.4% is higher compared to banks
Price-maker in rural market
Portfolio yield in FY07: 18.6%
Increasing funding costs: 6.6% to 8.6%
Benefits..,
Priority sector lending
Selling portfolio by assignment to other banks
Deposit-taking NBFC
High credit rating
Peer Comparison
13.4 15.7 37.6 10.4 EPS (Rs.)
1.6 2.4 1.6 2.3 ROA (%)
6.4 18.2 12.4 20.4 ROE (%)
472 1,329 1,045 1,916 PAT (Rs. Mn)
7,393 7,305 8,444 9,409 Avg. Networth (Rs. Mn)
29,007 56,505 65,593 84,523 Avg. Assets (Rs. Mn)
13,080 19,320 13,196 33,889 Mkt. Cap (Mn)
35.4 84 27.8 184.2 Shares (Mn)
1.3 2.5 1.5 3.2 PBV (x)
27.7 14.6 12.6 17.7 PER (x)
281.7 91.1 316 57.9 BVPS (Rs.)
BAF MMFSL Sf STFC
Sept 2007
BAF and Sf have undergone significant equity dilution in past two years
23
Peer Comparison
2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008
Growth (%)
Total Income 17 9 50 163 57 75 42 66 25 42 42 45
Total expenses -1 28 40 159 61 71 94 60 36 45 46 47
PBDTA 45 -28 98 173 34 113 -41 86 -53 22 26 34
PBT 71 -31 111 178 34 109 -42 87 -58 22 25 34
PAT 124 -41 112 187 34 105 -62 126 -57 32 23 33
Net Worth 19 8 19 269 32 66 75 106 7 81 6 69
Total assets 17 23 11 202 79 69 56 59 9 61 25 12
Profitability ratios (%)
PAT/Avg Networth 23 12 22 27 20 27 6 6 2 19 18 17
PAT/Avg Total Assets 3 2 3 4 2 3 1 2 1 3 2 3
Efficiency ratios
Total Income / Avg. total assets 0.12 0.11 0.14 0.23 0.17 0.17 0.13 0.14 0.14 0.15 0.15 0.18
Total Income / Compensation to employees 12 11 12 19 20 20 12 12 10 15 13 13
Sundaram
Finance
Ltd
Shriram
Transport
Finance Co. Ltd
Bajaj Auto
Finance Ltd MMFSL
FY06 FY07 Weight Growth (%)
Net external revenues (Rs. Mn) 131,578 182,949 100% 39.04%
Automotive 53,441 64,904 35% 21.45%
Farm equipment 34,711 43,602 24% 25.61%
IT services 14,067 31,426 17% 123.40%
Financial services (MMFL) 5,890 8,467 5% 43.75%
Steel processing & trading 7,265 7,877 4% 8.42%
Infrastructure 1,798 1,338 1% -25.58%
Hospitality 1,527 2,347 1% 53.70%
Systech 6,126 16,991 9% 177.36%
Others 6,753 5,997 3% -11.20%
MMFSL in the Group
24
FY06 FY07 Weight Growth (%)
PBIT (Rs. Mn) 15,945 23,730 100% 48.82%
Automotive 5,410 6,560 28% 21.26%
Farm equipment 3,140 5,031 21% 60.22%
IT services 2,617 6,862 29% 162.21%
Financial services (MMFL) 1,642 2,076 9% 26.43%
Steel processing & trading 480 493 2% 2.71%
Infrastructure 187 96 0% -48.66%
Hospitality 320 639 3% 99.69%
Systech 988 1,667 7% 68.72%
Others 1,161 306 1% -73.64%
MMFSL in the Group
FY06 FY07 Growth (%)
PBIT margin 12% 13% 7.04%
Automotive 10% 10% -0.16%
Farm equipment 9% 12% 27.55%
IT services 19% 22% 17.37%
Financial services (MMFL) 28% 25% -12.05%
Steel processing & trading 7% 6% -5.27%
Infrastructure 10% 7% -31.01%
Hospitality 21% 27% 29.92%
Systech 16% 10% -39.17%
Others 17% 5% -70.32%
MMFSL in the Group
25
Looking Beyond the Numbers
Are the companys revenues tied to one key
customer?
To what extent are the companys revenues tied to
one key product?
To what extent does the company rely on a single
supplier?
What percentage of the companys business is
generated overseas?
What is the competition?
Does the company invest heavily in R&D?
What is the legal and regulatory environment in
which it operates?
ROI
Net Income as
% of Sales
Investment
Turnover
Net Income Sales Sales Investment

Shareowners
Equity
Borrowings
Total liabilities
Non borrowed
liabilities

X
+
-
26
Dupont Analysis
Investment Total Assets Sales Net Income
ROE =
Shareholders's Equity Investments Total Assets Sales

Leverage
Turnover
Net
Income
Return on
Total Assets
Net Profit as
% of Sales
Turnover
Net Profit Sales
Sales
COGS,
Other taxes,
and Expenses
Sales Total Assets
Long-term
Assets
Current Assets
Inventory
Accounts
Receivable
Cash and
Market
Securities
+
+

+
-
x
27
Oracle
Dupont Analysis
Total Assets Sales Net Income
ROE =
Shareholders's Equity Total Assets Sales

ROE = 1.934 0.4954 0.2351