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ANALYSIS OF COMPANY SCENARIO

Submitted by:Abhishek Kumar Jaiswal Reg No. HRD1108302 SBS - FINANCE


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INDEX
CONTENTS Introduction PAGE NO. 3

Major Acquisitions Done By the Company In 2010-11 5

Financial Performance of the Company 7 Dividend Summary of the Company 9

Split Summary 10 Financial Statements of the Company for the Financial year 2010-11. 11 Balance Sheet Profit And Loss a/c Cash Flow Key Ratios 12 14 16 17

Graphical Representation of Company Scenario 19


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Horizontal Analysis 22

Vertical Analysis 22 Determination of Value of a Share 23

LIST OF FIGURES Contents no. Figure

Major divisions of the company..1.1 Networth..1.3 Total Share Capital..1.4


Sales turnover chart.1.5 Earning per share chart1.6 Chart of debt and equity ratio..1.7

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Introduction:The Company was Incorporated and converted into Public Limited in 1955 at Mumbai. The name of the company was changed from Mahindra Van Wijk &Visser Ltd. to Mahindra& Mahindra Ltd in 1970. . It soon expanded into manufacturing general-purpose utility vehicles, starting with assembly under licence of the iconic Willys jeep in India. Soon established as the Jeep manufacturers of India, M&M later branched out into the manufacture of light commercial vehicles (LCVs) and agricultural tractors. Today, M&M is the leader in the utility vehicle segment in India with its flagship UV Scorpio and enjoys a growing global market presence in both the automotive and tractor businesses. Credit Rating and Information Services of India Ltd. has revised the rating assigned to the company's long-term debentures to `AA+' to `AAA'. Company has been rated by CRISIL, ICRA Limited (ICRA) and Credit Analysis & Research Limited (CARE) for its banking facilities under Basel II norms. During the year, CRISIL upgraded the rating for Long Term Banking facilities to AA+/Stable from the earlier AA/ Stable. During the year, ICRA and CARE have maintained a Long Term Rating of LAA+/Stable and CARE AA+ respectively. Through its Mahindra Defence Systems Division (MDS),Company has over the past eight years acquired a leadership position in India in the field of research, design, development and manufacture of armoured and light military vehicles. Company has been ranked in the list of top 10 companies in India by the Carbon Disclosure Leadership Index 2010and the
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Standard & Poor ESG India Index 2010. Company also secured a second place in the Green Business Leadership Awards 2010-11, instituted by Financial Express and Emergent Ventures. In the Naval Systems business, Company currently manufactures Sea Mines, Torpedo Launchers, Decoy Launchers and Composites for various Naval and other applications. In the Special Services Group business, Company provides corporate risk management consultancy services, assisting organizations in maintaining their competitive edge by protecting Information, Physical and Personnel Assets through implementing the security strategy encompassing people, process and technology.

Major divisions of the company:-

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Fig 1.1

MAJOR ACQUISITIONS DONE BY THE COMPANY IN 2010-2011


1) Acquisition of Ssangyong Motor Company Limited (SYMC)

Fig 1.2

A premier manufacturer of sports utility vehicles (SUV) and recreational vehicles (RV) in Korea. SYMC was
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founded in 1954 and has been manufacturing automobiles for more than five decades. SYMC has a strong domestic network of over 130 dealers and exports to over 90 countries through over 1,200 dealers. The total acquisition cost was approximately US$ 463 Million.

2) EPC Industries LTD.EPC established in 1981 is based in Nasik, Maharashtra and is known for its quality products. keeping the opportunities in Agricultural Sector in mind, company has acquired 38% of the paid-up Equity Share Capital through aPreferential Allotment in EPC Industries Limited (EPC), a company listed on the Bombay Stock Exchange Limited. EPC has grown as one of the top five companies in India in the micro-irrigation space.

3) SAFEGE
Its a France based Multi Disciplinary Consultancy Company. in Mahindra Consulting Engineers Limited (MACE).MACE, a subsidiary of the Company is engaged in engineering, project advisory and infrastructure consulting activities covering urban infrastructure, water, wastewater, waste management, environment, urban planning, industrial infrastructure, transportation, rural infrastructure, etc. MACE entered into a strategic partnership with SAFEGE, France and post induction of the strategic partner, your Company holds 54.16% of the Equity Share Capital of MACE, whilst 30.83% is held by SAFEGE and balance 15.01% is held by Mahindra Consulting Engineers Employees Stock Option Trust and /or its beneficiaries.
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4) Joint Venture with Arabia Holdings Limited and Ras-Al-Khaimah Transport Investments Co. Ltd
In order to address the large and growing market for uparmoured vehicles globally especially in West Asia, Central Asia and Africa, in June,2010, your Company had entered into a Joint Venture with Arabia Holdings Limited and Ras-Al- Khaimah Transport Investments Co. LLC through its Investment wholly owned subsidiary Mahindra Overseas

Company (Mauritius) Limited to form a Joint Venture company viz. Mahindra Emirates Vehicle Armouring FZ LLC or MEVA in the Emirate ofRas-Al- Khaimah in the UAE for armouring of vehicles.

Financial Performance of the company:The Automotive and Farm Divisions of Company has secured their best performance for the second year in a row reflecting in substantial growth in the net income of the Company by 26.60% to Rs. 23,803 crores in the year
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under review from Rs.18,801 crores in the previous year. Consequent to the remarkable performance, the Profit for the year before Depreciation, Interest, Exceptional items and Taxation recorded an increase of 19.37% at Rs. 3,766 crores as against Rs. 3,155 crores in the previous year. Similarly, Profit after tax clocked an increase of 27.51% at Rs. 2,662 crores as against Rs. 2,088 crores in the previous year. In the Overseas market, Company registered a volume growth of 62.2% over the previous year. This growth was driven by volume growth in SAARC, Chile and South Africa. Company outperformed the tractor industry with domestic sales of 2,02,513 tractors as compared to 1,66,359 tractors in the previous year recording a growth of 21.7%. This has also helped the Company to improve its market share which now stands at 42% as compared to 41.4% in the previous financial year, thus completing 28 years of leadership in the Indian tractor industry. Companys tractor exports has grown by 33.7% to reach 11,812 tractors as compared to 8,837 tractors exported in the previous year. The Company had outstanding Foreign Currency Convertible Bonds (FCCBs) aggregating USD 189.50 million at the beginning of the year. The subsidiary companies of Company continue to contribute to the overall growth of the Company. Major subsidiaries such as Mahindra & Mahindra Financial Services Limited with a 38.49% growth in its consolidated Profits and Mahindra Lifespace Developers Limited with a 37.81% growth in its consolidated Profits deserve special mention. The consolidated Group Profit for the year after exceptional items, prior period adjustments and tax and after deducting minority interests is Rs.3,079.73 crores as against Rs. 2,478.56 crores earned in the previous year.
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The company has repaid foreign currency loan aggregating Rs.176 crores and Non-Convertible Redeemable Debentures (NCDs) of Rs.200 crores during the year. It has successfully raised External Commercial Borrowings aggregating USD 150 million from banks at attractive terms and at benchmark pricing. The Companys total Debt to Equity Ratio was 0.23 as at 31st March, 2011.The automotive and farm division of the Company has secured their best performance for the second year in a row reflecting in substantial growth in the net income of the Company by26.60% to Rs. 23,803 crores in the year under review from Rs.18,801 crores in the previous year. Consequent to the remarkable performance, the Profit for the year before Depreciation, Interest, Exceptional items and Taxation recorded an increase of 19.37% at Rs. 3,766 crores as against Rs. 3,155 crores in the previous year. Similarly, Profit after tax clocked an increase of 27.51% at Rs. 2,662 crores as against Rs. 2,088 crores in the previous year.

DividendCompany has recommended a dividend of Rs.10.50 per Ordinary (Equity) Share and also a Special Dividend of Re.1 per Ordinary (Equity) Share aggregating Rs.11.50 per Ordinary (Equity) Share of the face value of Rs.5 each, payable to those Shareholders whose names appear in the Register of Members as on the Book Closure Date. The Special Dividend is being recommended in view of the Profit made by the Company on the sale of its entire holdings in Owens Corning (India) Limited. The proposed dividend will be paid on an
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enlarged capital base of Rs.306.99 crores (as against Rs.289.21 crores in the previous year). The equity dividend outgo for the Financial Year 2010-11, inclusive of tax on distributed Profits (after reducing the tax on distributed Profits of Rs.17.98 crores payable by the subsidiaries on the dividends receivable from them during the current Financial Year) would absorb a sum of Rs.802.64 crores (as against Rs.623.75 crores comprising the dividend of Rs.8.75 per Ordinary (Equity) Share and also a Special Dividend of Rs.0.75 per Ordinary (Equity) Share aggregating Rs.9.50 per Ordinary (Equity) Share of the face value of Rs.5 each paid for the previous year).

DIVIDEND SUMMARY OF THE COMPANY


Dividend Declared
Announce ment Date Effective Date Dividend Dividend Type (%) Remarks Rs.10.50 per share(210%)Divi dend & Rs.1.00 per share(20%)Spec ial Dividend Rs.8.75 per share(175%)Divi dend + Rs.0.75 per share(15%)Spec
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30-05-11

14-07-11 Final

230.00

24-05-10

08-07-10 Final

190.00

MAHINDRA & MAHINDRA

ial Dividend 19-05-09 16-05-08 23-05-07 07-03-07 19-05-06 09-07-09 Final 03-07-08 Final 05-07-07 Final 23-03-07 Interim 29-06-06 Final 100.00 115.00 40.00 75.00 100.00 AGM (25% Final Dividend + Special Dividend 15%) AGM AGM

SPLIT SUMMARY
Mahindra and Mahindra had last split the face value of its shares from Rs 10 to Rs 5 in 2010.The share has been quoting on an ex-split basis from March 29, 2010.

Splits History Mahindra)


Announcement Date 25-01-2010 Old FV 10

(Mahindra
New FV 5 Ex-Split Date 29-03-2010

and

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FINANCIAL STATEMENTS OF THE COMPANY FOR THE FINANCIAL YEAR 2010-11.

BALANCE SHEET
Mar '11 Mar '10 Sources Of Funds Total Share Capital 293.62 282.95 272.62 239.07 238.03
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Mar '09

Mar '08

Mar '07

Equity Share Capital Sh Application Money Pref Share Capital Reserves Revaluation Reserves Networth Secured Loans

293.62 282.95 272.62 239.07 238.03 33.97 0.00 8.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00

9,974.627,527.60 11.18 11.67

4,959.2 4,098.5 3,302.0 6 3 1 12.09 12.47 12.86

10,313.3 5,243.9 4,350.0 3,552.9 7,830.23 9 7 7 0 407.23 602.45 981.00 617.26 106.65 3,071.7 1,969.8 1,529.3 6 0 5 4,052.7 2,587.0 1,636.0 2,405.292,880.15 6 6 0 12,718.6 10,710.3 9,296.7 6,937.1 5,188.9 8 8 3 3 0 4,653.6 3,552.6 3,180.5 6 4 7 2,326.2 1,841.6 1,639.1 2,841.732,537.77 9 8 2 2,327.3 1,710.9 1,541.4 3,007.542,328.41 7 6 5 5,849.274,866.18 1,364.311,374.31 886.96 649.94 329.72 5,786.4 4,215.0 2,237.4 1 6 6 1,694.211,188.78 1,060.6 1,084.1 878.48 9,325.296,398.02
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Unsecured Loans 1,998.062,277.70 Total Debt Total Liabilities

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories

Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits

7 1 1,043.6 1,004.8 1,354.721,258.08 700.89 5 8 447.62 475.17 635.61 310.58 415.89 2,739.9 2,399.5 1,995.2 3 7 6 1,402.4 1,011.5 2,653.522,034.47 866.19 5 0 3,496.552,922.03 167.021,268.06 938.82 550.65 910.18

Total CA, Loans & 5,081.2 3,816.4 3,916.9 6,317.096,224.56 Advances 0 1 4 Deffered Credit 0.00 0.00 0.00 0.00 0.00 3,520.2 2,525.3 2,138.7 0 1 7 1,277.5 2,005.881,796.54 943.46 715.43 6 4,797.7 3,468.7 2,854.2 7,295.555,619.04 6 7 0 1,062.7 -978.46 605.52 283.44 347.64 4 5,289.673,822.50 Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 0.00 4.12 12.55 13.53 17.55

12,718.6 10,710.3 9,296.7 6,937.1 5,188.9 8 8 3 3 2 1,220.3 1,008.2 2,632.102,307.70 985.35 9 7 174.85 138.02 191.91 181.43 148.72

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PROFIT AND LOSS A/C


------------------------------------in Rs. Cr.

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Income
Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost 16,604.88 12,461.56 9,208.71 143.93 120.97 98.69 7,963.82 91.33 853.65 73.35 1,108.33 257.84 -46.49 6,937.16 65.19 666.15 68.80 891.29 210.03 -47.10 25,569.55 20,323.63 14,668.13 12,894.94 11,231.99 2,092.02 1,807.30 1,587.05 1,584.57 1,310.65

23,477.53 18,516.33 13,081.08 11,310.37 9,921.34 563.13 202.23 285.09 23.69 132.65 -156.29 575.96 149.11 531.17 6.41

24,242.89 18,825.11 13,057.44 12,035.44 10,458.92

1,445.56 1,199.85 1,024.52 96.92 75.36

Other Manufacturing 98.33 Expenses Selling and Admin 1,735.63 Expenses Miscellaneous 261.10 Expenses Preoperative -50.87 ExpCapitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation

1,439.26 1,109.96 264.21 -59.55 165.83 -42.83

20,238.56 15,523.22 11,640.24 10,301.83 8,791.52 3,441.20 3,016.80 1,284.55 4,004.33 3,301.89 1,417.20 70.86 156.85 134.12 1,157.65 1,733.61 87.59 1,646.02 238.66 1,136.23 1,667.40 19.80 1,647.60 209.59
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3,933.47 3,145.04 1,283.08 413.86 370.78 291.51

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Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Tax Dividend Extra-ord

0.00

0.00

0.00

0.59 1,406.77 0.00 1,406.77 303.40 1,103.37 2,338.01 0.00 282.61 38.48

0.33 1,437.68 -19.19 1,418.49 350.10 1,068.39 1,854.37 0.00 282.23 42.50

3,519.61 2,774.26 991.57 0.00 72.49 48.97

3,519.61 2,846.75 1,040.54 857.51 759.00 199.69

2,662.10 2,087.75 836.78 3,633.68 3,061.66 2,431.53 0.00 706.08 96.56 0.00 549.52 74.23 0.00 278.83 33.23

Per share data (annualised) Shares in issue (lakhs) 5,872.47 5,659.08 2,726.16 Earning Per Share (Rs) 45.33 Equity Dividend (%) Book Value (Rs) 230.00 174.85 36.89 190.00 138.02 30.69 100.00 191.91 2,390.73 46.15 115.00 181.43 2,380.33 44.88 115.00 148.7

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CASH FLOW
Cash Flow Mahindra Mahindra of ------------------and ------------------in Rs. Cr.

Mar Mar Mar Mar '10 '09 '08 '07 Net Profit Before 2756.0 1026.2 1241.5 1315.6 3402.13 Tax 0 0 7 9 Net Cash From 2336.4 1631.3 1168.9 Operating 2979.75 825.83 9 0 5 Activities Net Cash (used in)/from 1345.4 -1941.0 2075.0 -950.39 Investing 3734.99 4 8 Activities Net Cash (used in)/from -383.72 -783.87696.91 811.34 418.08 Financing Activities Net (decrease)/incre 207.18 387.21 -437.91636.64 ase In Cash and 1138.96 Cash Equivalents Opening Cash & 1543.6 1174.6 1361.7 1753.13 725.15 Cash Equivalents 3 2 9 Closing Cash & 614.17 1750.8 1561.8 923.88 1361.7 Mar '11
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Cash Equivalents

RATIOS
Key Financial Ratios of Mahindra and Mahindra
Mar11 Mar '10 Investment Valuation Ratios Face Value 5.00 Dividend Per Share 11.50 Operating Profit Per 58.60 Share (Rs) Net Operating Profit Per 399.79 Share (Rs) Free Reserves Per Share 165.14 (Rs) Bonus in Equity Capital 58.10 Profitability Ratios Operating Profit 14.65 Margin(%) Profit Before Interest 12.67 And Tax Margin(%) Gross Profit Margin(%) 12.89 Cash Profit Margin(%) 12.19 Adjusted Cash 12.19 Margin(%) Net Profit Margin(%) 11.14 Adjusted Net Profit 11.14 Margin(%) 5.00 9.50 53.31 Mar '09 Mar '08 10.00 10.00 47.12 10.00 11.50 48.42 473.09 168.36 71.36 10.23 7.87 8.12 9.68 9.68 9.45 9.45 Mar '07 10.00 11.50 47.73 416.81 135.66 71.67 11.45 8.97 14.73 12.37 11.34 10.34 9.30
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327.20 479.84 120.24 170.32 60.29 16.29 14.04 14.29 12.84 12.84 11.08 11.08 62.58 9.81 7.41 7.59 9.38 9.38 6.25 6.25

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Return On Capital 26.96 Employed(%) Return On Net Worth(%) 25.92 Adjusted Return on Net 24.33 Worth(%) Return on Assets 174.85 Excluding Revaluations Return on Assets 175.04 Including Revaluations Return on Long Term 27.05 Funds(%) Liquidity And Solvency Ratios Current Ratio 0.86 Quick Ratio 0.61 Debt Equity Ratio 0.23 Long Term Debt Equity 0.32 Ratio Debt Coverage Ratios Interest Cover 48.36 Total Debt to Owners 0.23 Fund Financial Charges 54.20 Coverage Ratio Financial Charges 44.41 Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio 15.64 Debtors Turnover Ratio 17.97 Investments Turnover 15.64 Ratio Fixed Assets Turnover 4.08 Ratio Total Assets Turnover 1.86 Ratio Asset Turnover Ratio Average Holding Raw Material 4.08 19.18

27.70 26.74 26.23

13.99 16.03 18.49

18.52 25.51 20.61 180.87 181.39 19.64

25.71 30.18 27.28 147.98 148.52 26.09

137.95 191.45 138.15 191.90 27.73 14.51

1.11 0.86 0.37 0.46 18.90 0.37 21.26 16.67

0.90 0.83 0.77 0.83 9.69 0.77 11.86 9.41

0.86 0.74 0.60 0.63 14.64 0.60 17.37 16.33

1.31 1.01 0.46 0.53 67.24 0.46 77.85 65.57

17.91 16.09 17.91 3.85 1.74 3.85 15.22

14.56 12.77 14.56 2.84 1.42 2.84 16.05

12.49 13.26 12.49 3.22 1.64 3.22 16.77

11.75 14.82 13.42 5.88 1.92 3.14 16.64


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Average Finished Goods 14.24 Held Number of Days In -15.00 Working Capital Profit & Loss Account Ratios Material Cost 70.72 Composition Imported Composition of Raw Materials 1.79 Consumed Selling Distribution Cost 4.41 Composition Expenses as Composition of Total 4.68 Sales Cash Flow Indicator Ratios Dividend Payout Ratio 30.15 Net Profit Dividend Payout Ratio 26.09 Cash Profit Earning Retention Ratio 67.88 Cash Earning Retention 72.44 Ratio AdjustedCash Flow 0.83 Times Earnings Per Share 45.33 Book Value 174.85

13.32 11.77

16.26 7.80

23.39 11.07

21.17 38.56

67.30 1.51 4.33 4.11

70.39 1.39 4.39 5.28

70.41 1.59 7.11 7.81

69.92 1.97 6.40 7.18

29.87 25.37 69.55 74.22 1.19

37.29 27.65 67.67 75.17 3.22

29.10 23.91 63.99 71.61 2.29 46.15 181.43

30.39 25.40 66.22 72.28 1.40 44.88 148.72

36.89 30.69 138.02 191.91

SOME GRAPHICAL REPRESENTATION OF COMPANY SCENARIO

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FIG 1.3

FIG 1.4

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FIG

FIG 1.6
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HORIZONTAL FIG AND VERTICAL ANALYSIS


HORIZONTAL ANALYSIS:Total Income Total Exp PBIT Interest PBT Extra-ordinary items PBT Tax PAT Shares EPS Mar '11 24,242.9 20,652.4 3,590.5 70.9 3,519.6 0.0 3,519.6 857.5 2,662.1 58.7 45.3 0.3 0.3 0.2 (0.5) 0.3 (1.0) 0.2 0.1 0.3 0.0 0.2 Mar '10 18,825.1 15,894.0 2,931.1 156.9 2,774.3 72.5 2,846.8 759.0 2,087.8 56.6 36.9 0.4 0.3 1.6 0.2 1.8 0.5 1.7 2.8 1.5 1.1 0.2 Mar '09 13,057.4 11,931.8 1,125.7 134.1 991.6 49.0 1,040.5 199.7 840.9 27.3 30.8 0.1 0.1 (0.2) 0.5 (0.3) (0.3) (0.3) (0.2) 0.1 (0.3) Mar '08 12,035.4 10,541.1 1,494.4 87.6 1,406.8 0.0 1,406.8 303.4 1,103.4 23.9 46.2 0.2 0.2 0.0 3.4 0.0 (1.0) 0.0 (0.1) 0.0 0.0 0.0 Mar '07 10,458.9 9,001.4 1,457.5 19.8 1,437.7 (19.2) 1,418.5 350.1 1,068.4 23.8 44.9

VERTICAL ANALYSIS:MAHINDRA & MAHINDRA Page 1

Total Income Total Exp PBIT Interest PBT Extra-ordinary items PBT (Post Extra-ord Items) Tax PAT Shares EPS

2008 15.07% 17.10% 2.53% 342.37% (2.15%) (100.00%) (0.83%) (13.34%) 3.27% 0.44% 2.82%

2009 8.49% 13.19% (24.67% ) 53.12% 29.5 1% (26.03% ) (34.18% ) (23.79% ) 14.03% (33.17% )

2010 44.17% 33.21%

2011 28.78% 29.94%

160.38% 22.50% 16.95% (54.82%) 179.78% 26.87% 48.03% (100.00%) 173.58% 23.64% 280.09% 12.98% 148.29% 27.51% 107.58% 3.77% 19.61% 22.88%

Determination of Value of a Share:


To determine the value of a share we need to find out I. II. Projected EPS for the year ending 2012 Projected PE Ratio for the year ending 2012

Projection for the EPS of year 2012:


Particulars Total Income Mar Mar '12 Assumption '11 (Project based on Past (Actual ed) Yrs. Trend ) 24,242. 31,515.7 Increase by 30%
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Total Expense PBIT Interest Profit Before Tax Tax @ 25% Profit After Tax No. of Equity Shares (in Cr.) Earnings Per Share

89 20,652. 42 3,590.4 7 70.86 3,519.6 1 857.51 2,662.1 0 58.72 45.33

6 27,103.5 5 4,412.21 70.86 4,341.35 1,085.34 3,256.01 58.72 55.45

86% of Total Income

No change

25% of Income

The earnings and the EPS forecasted are based on the assumptions mentioned in the above column and these assumptions are made on the past trend of the company.

Projection of PE Ratio for the year 2012:


The other half of the valuation exercise is concerned with the price-earning ratio which reflects the price investors are willing to pay per rupee of EPS. In essence, it represents the markets summary evaluation of a companys prospects. The PE Ratio can be derived from the constant growth dividend model and the formula for which is given below: Dividend PE Ratio = Reqd. Return on Equity Expected growth rate in Dividends
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A)Dividend Payout Ratio: Most companies consider their dividend commitment seriously. Consequently, once dividends are set at a certain level they are not reduced unless there is no alternative. Further, dividends are not increased unless it is clear that a higher level of dividends can be sustained. The dividend payout ratio for 2012 is set equal to the average dividend payout ratio for the period of 2007-2011 0.3212+0.3045+0.3233+0.3601+0.3378 =0.32 5 94
B)

Required Return on Equity:

Return on equity is the most important indicator of financial performance. Equit RETURN ON EQUITY y = Equity The return on equity of Mahindra & Mahindra for the previous five years (2007-2011) was: Mar Mar Mar Mar Mar '11 '10 '09 '08 '07 2,662.1 2,087. 1,103. 1,068. 0 75 836.78 37 39 10,268. 7,810. 5,231. 4,337. 3,540. 24 55 88 60 04 26.74 16.03 25.51 30.18 25.92% % % % %

PAT Equity & Reserves ROE

The average RETENTION & ROE of M&M is given below: Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 AVERA GE
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ROE RETENTION GROWTH RATE

25.92 % 67.88 % 17.59 %

26.74 % 69.55 % 18.60 %

16.03 % 67.67 % 10.85 %

25.51 % 63.99 % 16.32 %

30.18 % 66.22 % 19.99 %

24.88% 67.06% 16.67%

The growth rate of the company is calculated by the formula given below: GROWTH RATE = %ROE * % RETENTION The cost of equity is derived from the dividend discount model (DDM) and hence Do P Do = Rs. 11.5 Po = Rs. 700 g = 16.67% Hence, the value of Ke will be 18.58%.

Ke =

Now the PE Ratio can be calculated by the above given formula as: 0.329 4 0.1858 0.1667

PE Ratio =

= 17.18

Historical Analysis:
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We have calculated the average of the PE Ratio for M&M and it depicted in the table below: Mar '11 45.3 3 710 15.6 6 Mar '10 Mar '09 Mar '08 Mar '07 AVERA GE 10.48

EPS MPS PE RATIO

36.89 30.69 46.15 44.88 545 192 335 380 14.77 6.26 7.26 8.47

The Weighted PE Ratio:


We arrive at the two PE Ratio estimates: PE Ratio based on the constant growth DDM : 17.18 PE Ratio based on the historical analysis : 10.48

We can combine these two estimates by taking a simple arithmetic average of them. This means that both the estimates are accorded equal weight. Doing so, we get the weighted PE Ratio of: 17.18 + 10.48 2 = 13.83

Determination of Value Anchor and a Value Range:


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The value anchor is obtained as follows: Projected EPS * Appropriate PE Ratio = 55.45 * 13.83 = Rs. 767 As valuation is inherently an uncertain and imprecise exercise, it would be nave to put great faith in a single point intrinsic value estimate. Practically we should define an intrinsic value range around a single point estimate. Hence by taking the value range of 10% we can define the intrinsic value range as 690 840. Given this the value range, decision rule may be as follows: Market Price Less than Rs. 690 Between Rs. 690 and Rs. 840 Mare than Rs. 840 Decision Buy Hold Sell

REFRENCES
MAHINDRA & MAHINDRA Page 1

www.moneycontrol.com. Wikipedia.

www.nseindia.com

Security and Portfolio Management by Prasanna Chandra.

MAHINDRA & MAHINDRA

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