Financial Analysis of Mahindra and Mahindra
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Transcript of Financial Analysis of Mahindra and Mahindra
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FINANCIAL ANALYSIS OF
MAHINDRA AND MAHINDRA
Group 12
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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.
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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
.
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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
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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
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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%
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COST OF CAPITAL
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Total Equity (in Crores) Rs. 10313.39
Total Debt (in Crores) Rs. 2405.29
Debt/(Debt+Equity) 0.189114751
Equity/(Debt+Equity) 0.810885429
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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%
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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%
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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%
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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
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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
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Capital Structure
2%
79%
19%
Equity share capital Reserves Debt
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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
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Leverage Calculation
DOL= %change in EBIT/ %change inSales
DFL= % Change in EPS/ % Change inEBIT
DTL= DOL*DFL
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Cont.
Company Mahindra & Mahindra Tata Motors
DOL 0.093261711 0.033022539
DFL 0.015690851 -0.026623909
DTL 0.001463356 -0.000879189
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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
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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
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DIVIDEND POLICYMahindra & Mahindra
Di idend Yield & Di idend Pa o t
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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
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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
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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
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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
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