FSAR Report

IMT Nagpur PGDM 2009-2011

Final Report
Mahindra & Mahindra

Vs
Ashok Leyland

Submitted to
Dr. Pawan Jain

Submitted by:-
Ajay Patidar (2009020)
Indian Economy Overview
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Indian economy has registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on
year (y-o-y) growth in its fourth quarter. The growth is driven by robust performance of the
manufacturing sector on the back of government and consumer spending.

GDP growth rate of 7.4 per cent in 2009-10 has exceeded the government forecast of 7.2 per
cent for the full year. According to government data, the manufacturing sector witnessed a
growth of 16.3 per cent in January-March 2010, from a year earlier.

Economic activities which showed significant growth rates in 2009-10 over the corresponding
period last year. The Gross National Income is estimated to rise by 7.3 per cent in 2009-10 as
compared to 6.8 per cent in 2008-09. The per capita income is estimated to grow at 5.6 per cent
in 2009-10.

India’s industrial output grew by 17.6 per cent in April 2010. The manufacturing sector that
accounts for 80 per cent of the index of industrial production (IIP) grew 19.4 per cent in April
2010, as against 0.4 per cent a year-ago.

Capital goods production grew by 72.8 per cent against a contraction of 5.9 per cent a year ago.
Consumer durables output continued to grow at a fast pace of 37 per cent, mirroring higher
purchase of goods such as televisions and refrigerators.

The Indian economy is expected to grow by more than 8.5 per cent. The monsoon has been
normal in 2010-11 and it is assumed that it will be normal in the next two years. Freight rates
have hardened indicating strengthening of demand. Growth in freight generating sectors such as
coal, cement, steel, food grains is expected to remain strong during 2010-13.

4- Wheelers sector overview

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The commercial vehicles sector recovered since July 2009 following the recovery in industrial
production. Monthly sales, which had slumped 20,000 units in December 2008 improved to cross
40,000 units in July 2009 and 50,000 units in December 2009.
It is expected them to be over 60,000 units in 2011-12 and over 70,000 units in 2012-13. On an
annual basis.There are several reasons for expecting buoyancy in vehicle sales over the next
three years.
Demand for light commercial vehicles is expected to be driven by substitution of three wheeler
LCVs with four wheeler LCVs, increasing demand for sub-3.5 tonne LCVs for last mile
transportation, recently launched models and their variants of Ace EX, Super Ace, 407 pick-up,
Trump, Gio and Maxximo. Improving road conditions, increasing road length being continuously
added by the NHAI and increasing mining, infrastructure and construction activities are expected
to result in strong demand for 16-49 tonne trucks and trailers. Introduction of new generation,
durable, easy to maintain, fuel efficient trucks with better cabin conditions are expected to
improve replacement demand over the next three years.
The sector is expected to witness a volume driven growth of 37 per cent in sales revenues during
the September 2010 quarter. With almost all manufacturers having raised prices at least twice,
average realizations would be higher by at least three per cent.
The passenger car industry has been recording a robust sales growth of over 23 per cent since
April 2010. The ensuing festive season is expected to help maintain the sales momentum in the
industry. Hence, we expect passenger car sales to rise by 19.6 per cent in 2010-11. On the back
of a robust domestic demand the MUV industry registered a 23.2 per cent growth in sales in the
period April-August 2010.. We expect Maruti and M&M’s sales growth to moderate in 2010-11.
Yet, it will remain healthy.
Buoyancy in car sales is expected to continue in the coming two years, aided by a healthy macro-
economic environment. Domestic demand is expected to remain strong, driven by a healthy rise
in corporate salaries and disposable income. Besides, interest rates are also expected to remain
stable during the period. Moreover, new product launches by car makers will support the overall
sales growth in the industry.

Company analysis
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Mahindra & Mahindra Limited is part of the Indian Industrial Conglomerate Mahindra
Group based in Mumbai. The company was set up in 1945 in Ludhiana as Mahindra &
Mohammed by brothers K.C. Mahindra and J.C. Mahindra along with Malik Ghulam
Mohammed. its name was changed to Mahindra & Mahindra in 1948.
M&M's automotive division makes a wide range of vehicles including MUVs, LCVs and three
wheelers. It offers over 20 models including new generation multi-utility vehicles like the
Scorpio and the Bolero. It formerly had a joint venture with Ford called Ford India Private
Limited to build passenger cars. M&M has a global presence . and its products are exported to
several countries. Its global subsidiaries include Mahindra Europe Srl. based in Italy, Mahindra
USA Inc., Mahindra South Africa and Mahindra (China) Tractor Co. Ltd.
M&M is one of the leading tractor brands in the world. It is also the largest manufacturer of
tractors in India with sustained market leadership of over 25 years. It designs, develops,
manufactures and markets tractors as well as farm implements. Mahindra Tractors(China) Co.
Ltd. manufactures tractors for the growing Chinese market and is a hub for tractor exports to the
USA and other nations

Ashok Leyland is a commercial vehicle manufacturing company based in Chennai, India.

Founded in 1948, the company is one of India's leading manufacturers of commercial vehicles,
such as trucks and buses, as well as emergency and military vehicles. Operating six plants,
Ashok Leyland also makes spare parts and engines for industrial and marine applications. It sells
about 60,000 vehicles and about 7,000 engines annually. It is the second largest commercial
vehicle company in India in the medium and heavy commercial vehicle (M&HCV) segment with
a market share of 28% . With passenger transportation options ranging from 19 seaters to 80
seaters, Ashok Leyland is a market leader in the bus segment.The company claims to carry over
60 million passengers a day, more people than the entire Indian rail network. In the trucks
segment Ashok Leyland primarily concentrates on the 16 ton to 25 ton range of trucks. However
Ashok Leyland has presence in the entire truck range starting from 7.5 tons to 49 tons. The joint
venture announced with Nissan Motors of Japan would improve its presence in the Light
Commercial Vehicle (LCV) segment.

Ratio Analysis

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Return on Investment Ratios

ROA suggests better utilization of the assets used, over the years mainly because of the high
profits that the company has generated.ROE, RONW and ROCE have been very much
uptrend (expect for the year when recession was there), considering the foreign
competition by way of cheap imports. These ratios will definitely attract more investors
and lenders to invest their funds in the organization seeing the uptrend in current year.

35
30
25
20
ROCE (%)(AL)
15 ROCE (%)(M&M)
10
5
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

35
30
25
20
RONW (%)(AL)
15 RONW (%)(M&M)
10
5
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

35
30
25
20
 ROE(%) (AL)
15  ROE(%) (M&M)
10
5
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

Liquidity Ratios

The current ratio has been over 1 for most of the years.
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1.6

1.4

1.2

0.8 Current Ratio (AL)

Current Ratio (M&M)
0.6

0.4

0.2

0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

Activity Ratios

Total asset turnover suggests effective use of assets to generate sales, implying the
company is able to take advantage of economies of scale in operations. The steadily rising
invested capital and net worth turnovers are good news for all the stakeholders, while the
inventory turnover has been fluctuating over the past two years for the period , suggesting
there may be a stacking up of inventory in the organization, probably due to minor hiccups
in demand and supply. The number of credit days has also been reduced, thus improving
the working capital status, which was a cause of concern in the previous years.

4.5
4
3.5
3
2.5 Assets Turnover Ratios(AL)
2 Assets Turnover Ratios
(M&M)
1.5
1
0.5
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

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20
18
16
14
12 Inventory Turnover
10 Ratios(AL)
8 InventoryTurnover Ratios
6 (M&M)
4
2
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

Solvency Ratios

Increased DER suggests more reliance on debt as compared to equity, over the years. The
same can be seen in the total invested capital. The Low interest coverage can be matter of
concern for the two company.

1
0.9
0.8
0.7
0.6
0.5 Debt-Equity Ratio (AL)
0.4 Debt-Equity Ratio (M&M)
0.3
0.2
0.1
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

80
70
60
50
40 Interest Cover Ratio(AL)
30 Interest Cover Ratio(M&M)
20
10
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

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Profitability Ratios

Net profit margin as well as operating profit margin has improved well over the years,
while gross profit margin, being affected by the high lead prices, has marginally decreased
over the years.

18
16
14
12
10
 PBIDT/Sales(%)
8
 PBIDT/Sales(%)
6
4
2
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

4
3.5
3
2.5
2  Sales/Net Assets
1.5  Sales/Net Assets
1
0.5
0
10-Mar 9-Mar 8-Mar 7-Mar 6-Mar

25,000.00

20,000.00

15,000.00
Sales Turnover(M&M)
Sales Turnover (AL)
10,000.00

5,000.00

0.00
1 2 3 4 5

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2500

2000

1500
Reported Net Profit
Reported Net Profit
1000

500

0
1 2 3 4 5

Components of Cash Flow Statement (in Rs. Millions)

Net cash flow from operations has always been in the green, indicating the tremendous
growth of the company. The two company has been actively investing in high growth
potential companies, in mutual funds, in subsidiaries and more prominently in capex for
value maximization of its shareholders. Also they expand its shareholder base, while
decreasing its long term borrowings at the same time. Hence, the free cash flow for the
company has been promising, along with the huge reserve and surplus account that will
help it to pursue further opportunities to develop new products, make acquisitions, pay
dividends and reduce debt.

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Management Discussion and Analysis Report

Mahindra & Mahindra
Depreciation Method used is SLM and it remaned same for the 5 yrs.
The depreciation for the year ended 31st March, 2010 is at Rs.370.78 crores as compared to
Rs.291.51 crores in the previous year due to the full impact in the current year of capitalisation
of Xylo related fixed assets and intangibles and due to fresh capitalisation of projects in the
current year.
Company spent Rs.664.86 crores (including Rs.390.72 crores on capital expenditure) on
Research and Development work during the year which was approximately 3.23% of the total
turnover.
In absolute terms the debtors have gone up, as a percentage of gross sales and income from
operations debtors are lower at 6.17% for the year ended 31st March, 2010 as compared to
7.09% for the previous year. The Company has been able to achieve this: improvement in its
debtor's level due to its proactive, emphasis on collections.

Ashok leyland
Depreciation Method used is SLM and it remaned same for the 5 yrs.
The increased in deprecation to Rs.204 crores compared to Rs.178 crores in the previous year
mainly due to additions made during the year and commissioning of Pantnagar plant.
Excluding interest capitalization of Rs.36 crores for the Pantnagar plant, interest cost is at about
the same level as in the previous year. The Company has aligned its short-term and long-
term borrowings in line with investment requirements.
The Company switched over from credit to 'Cash and Carry' system of sales from May 31,
2009 which resulted in significant improvement in liquidity and brought down working
capital. This is evident from the marginal increase in sundry debtors as on March 31, 2010
as compared to March 31, 2009 despite increase in activity levels by around 20% over the
previous year. Factoring comfortable liquidity position, payments to suppliers were prompt with
no overdue as of year end.

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Conclusion
Investors with a three-to five year perspective can invest in Mahindra & Mahindra
Industries. Robust demand for automotive, capacity expansions increased sourcing of raw
material from captive units signal good earnings prospects over the given time-frame.

The company is one of the market leaders in automotive. The current scenario of strong
demand for automobile has created high demand of automobiles. They are expanding
capacity for the company, trying to tap new foreign market by mergers and adding new
product line.

This apart, given the growing rural demand for small cars and bikes as also the company’s
plans to garner a good market share in the tractor, bikes and cares segment in the next one
or two years, it is running a CRM initiative, strengthens its foothold and is also increasing
its retail touch points.

Thus, it is a bright outlook for the company’s future.

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