Financial Analysis of Mahindra and Mahindra

download Financial Analysis of Mahindra and Mahindra

of 25

Transcript of Financial Analysis of Mahindra and Mahindra

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    1/25

    FINANCIAL ANALYSIS OF

    MAHINDRA AND MAHINDRA

    Group 12

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    2/25

    Introduction

    The company was set up in 1945 in Ludhianaas Mahindra & Mohammed by brothers K.C.Mahindra and J.C. Mahindra along with MalikGhulam Mohammed.

    With the Mahindra brothers as the whole soleof the company, the name was changed toMahindra & Mahindra in 1948

    At present, M&M is the leader in the utilityvehicle 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.

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    3/25

    M&M has a global presence and its products

    are exported to several countries.Its globalsubsidiaries include Mahindra Europe Srl.based in Italy, Mahindra USA Inc., MahindraSouth Africa and Mahindra (China) Tractor

    Co. Ltd. M&M has partnerships with international

    companies like Renault SA, France andInternational Truck and Engine Corporation,USA.

    M&M is one of the leading tractor brands inthe world.

    M&M has a 100% subsidiary, MahindraUSA, which assembles products for theAmerican market

    .

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    4/25

    Beta

    Sensitivity of the security to the marketmovements.

    bj = Cov (Rj, RM)/2M

    Beta has a positive value which impliesthat the security return varies positivelywith the market return.

    2

    M Cov (Rj , RM)Beta.09789 .00008899 .22908

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    5/25

    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

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    6/25

    Risk Component

    Systematic risk is risk that influences a largenumber of assets. Also called market risk

    Unsystematic risk is risk that influences a

    single company or a small group ofcompanies. Also called unique risk or firm-specific risk.Total Risk = systematic risk +unsystematic riskSecurity Variance = .31587Systematic Risk = 0.005137Unsystematic Risk = 0.3107

    Total risk =.31587 or 31.58%

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    7/25

    COST OF CAPITAL

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    8/25

    Total Equity (in Crores) Rs. 10313.39

    Total Debt (in Crores) Rs. 2405.29

    Debt/(Debt+Equity) 0.189114751

    Equity/(Debt+Equity) 0.810885429

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    9/25

    COST OF DEBT :-

    It is the before tax rate of return required by thelenders.

    Measures the current cost of the firm of borrowing fundsfor 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 croresKd M&M= 70.86/2405.29

    = 2.95%

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    10/25

    COST OF EQUITY (using CAPM model):-

    From the firms point of view, the expected rateof return from a security of equivalent risk is thecost 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 = 0.22908Ke = Rf + j (RM - Rf )

    Ke = 17.15%

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    11/25

    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 bycalculating 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) 0.189114751

    E/(D+E) 0.810885429

    Cost of Debt 2.95%

    Cost of Equity 17.15%

    Cost of Capital 14.28%

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    12/25

    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

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    13/25

    Capital Structure

    As atMarch31, 2007

    As atMarch31,2008

    As atMarch31, 2009

    As atMarch31, 2010

    As atMarch31,2011

    Equity Shared

    Capital

    238.03 239.07 272.62 282.95 293.62

    Preferenceshare capital

    0 0 0 0 0

    Reserve 3302.01 4098.53 4959.26 7527.60 9974.62

    Net worth 3552.90 4350.07 5243.97 7830.23 10313.39

    Unsecuredloans

    1529.35 1969.80 3071.76 2277.70 1998.06

    Secured Loans 106.65 617.26 981 602.45 407.23

    Total Debt 165.17 6937.13 4052.76 2880.15 2405.29

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    14/25

    Capital Structure

    2%

    79%

    19%

    Equity share capital Reserves Debt

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    15/25

    Leverage Analysis

    Company Mahindra & Mahindra Tata Motors

    EBIT for 2011(In Crores (Rs.)) 3,426.70 3,659.47

    EBIT for 2010(In Crores (Rs.)) 2,964.01 3,257.20

    EPS 2011 (Rs.) 43.36 28.55

    EPS 2010 (Rs.) 36.1 39.26

    Sales 2011(In Crores (Rs.)) 23,477.53 47,957.24

    Sales 2010(In Crores (Rs.)) 18,516.33 35,775.56

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    16/25

    Leverage Calculation

    DOL= %change in EBIT/ %change inSales

    DFL= % Change in EPS/ % Change inEBIT

    DTL= DOL*DFL

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    17/25

    Cont.

    Company Mahindra & Mahindra Tata Motors

    DOL 0.093261711 0.033022539

    DFL 0.015690851 -0.026623909

    DTL 0.001463356 -0.000879189

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    18/25

    Working capital

    2009-10

    Company Current Assets Current LiabilitiesNet working

    capital

    Mahindra &Mahindra 6,224.56 5,619.04 605.52

    Tata Motors 12,329.48 19,672.73 -7,343.25

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    19/25

    Working capital

    2010-11

    Company Current Assets Current LiabilitiesNet working

    capital

    Mahindra &Mahindra

    6,317.09 7,295.55 -978.46

    Tata Motors 14,775.61 18,963.40 -4,187.79

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    20/25

    DIVIDEND POLICYMahindra & Mahindra

    Di idend Yield & Di idend Pa o t

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    21/25

    Dividend Yield & Dividend PayoutRatio

    Mahindra & Mahindra Tata Motors

    2011 2010 2011 2010

    Annual Dividend pershare

    11.50 9.50 20.00 15.00

    Book Value per share 5.00 5.00 10.00 10.00

    Dividend yield 0.015 0.012 0.015 0.017

    Dividend in Crores 706.08 549.52 1274.23 859.05

    Earnings in Crores 2662.10 2087.75 1811.82 2240.08

    Dividend Payout Ratio(%)

    26.52 26.32 70.3 38.34

    Auto Industry Dividend Yield for year FY11 : 0.005

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    22/25

    Mahindra & Mahindra- KeyRatios

    Year FY11 FY10 FY09 FY 08

    Current Ratio 0.86 1.11 0.90 0.86

    Quick Ratio 0.61 0.86 0.83 0.74

    Debt Equity Ratio 0.23 0.37 0.77 0.60

    Long Term Debt EquityRatio

    0.32 0.46 0.83 0.63

    Auto Industry Long Term Debt Equity for year FY11: 0.59

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    23/25

    Comparison of Ratios

    Year Mahindra &Mahindra

    Tata Motors

    Current Ratio 0.86 0.53

    Quick Ratio 0.61 0.54

    Debt Equity Ratio 0.23 0.80

    Long Term DebtEquity Ratio

    0.32 0.52

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    24/25

    Valuation of SharesMahindra Tata Motors

    EPS 45.33 28.55

    Market price of Share Apr31, 2010

    510.30 170.30

    P/E 16.27 5.96

    No. of Shares 573,973,345 538,272,284

    Estimated Share Value(Dividend Discount Model)

    151.35 37.34

    Calculated Current Market

    P/E 4.626 16.276

    P/B 2.834 4.219

    P/S 1.3 1.65

  • 8/3/2019 Financial Analysis of Mahindra and Mahindra

    25/25