MAC Section-B Group-9 M&M

8/3/2019 MAC Section-B Group-9 M&M

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Comparative Analysis between M&M

and Tata MotorsGroup 9 Section B

Anirudh Singh 2011PGP547 Ankita Srivastava 2011PGP555 Bishakha Majumdar 2011FPM04

Mayank Kumar 2011PGP718 Rahul Gaur 2011PGP808

S. Shankar 2011PGP840 Vignesh K P 2011PGP935


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SUMMARY OF MANAGEMENT AND DIRECTOR S REPORTS

Mahindra & Mahindra Tata Motors

Net income of Rs. 23,803 crores (26.6% growth )P rofit increased from Rs. 2,088Cr to Rs. 2,662Cr. (27.51%

growth)

Net income of Rs. 52136 crores (35.5% growth )P rofit declined by Rs. 428.26 Cr to Rs. 1811.82 Cr

debt reduced by $977 million

Rise in raw material prices, rigorous cost restructuring withcost controls, process efficiencies and product innovations,R&D activities

Significant reduction in cost with improved operational efficiencies, R&Dactivities

new brand position, RiseStrategic position of ALTERNATIVE THINKINGforsustainibility

Commercial vehicles show impressive recovery after meltdownCustomer financing initiatives the TMF financed 160781 vehicles.

P lans for expanding markets & refreshing product portfolios(eg., Genio & W201)

P lans for global acquisitions, product development, new productintroductions and operational synergies

Dividend payout of Rs.802.64 crores P lanned payout of 44% of the unconsolidated profits

Cordial & harmonious industrial relations with focus onhealth & safetyCSR activities 1% of PAT pledged to CSR activities

Energy saving initiatives with numerous awards wonCordial industrial relations

Credit ratings improved to AA+ from AA (CRISIL)Credit ratings maintained at LAA+ (ICRA)

Credit ratings revised to A+ (CRISIL) & LA+ (ICRA) domesticCredit ratings revised to B (S& P ) & B3 (Moody s) foreign

Acquisitions: 18 subsidiaries acquired during the yearSold : ID-EE S.r.l. & Mahindra Solar One P rivate

Limited

Acquisitions : Trilix Srl., Turin (Italy), Tata P recision Industries, Tata DaewooCommercial Vehicle Company Limited.

Sold : IN CAT SAS, Jaguar Land Rover Mexico SA de CV


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CORPORATE GOVERNANCE ANALYSIS: Mahindra & Mahindra

M&M follows Clause 49 of the Listing Agreementrelating to Corporate Governance to determine itsCorporate Governance policies

CRISIL' has re-affirmed the highest level rating 'GVC Level 1' forGovernance and Value Creation for the fifth year in a row.

Board of Directors : 12 membersVC-MD & Executive Director : whole time directorsN on executive independent directors form majorityamong the directorsQualified & experienced in relevant fieldsRemuneration as per market trends

Shares listed on :Bombay Stock ExchangeN ational Stock ExchangeDemat InternationalGDRs, LuxembourgInternational Order Book (IOB) of the London Stock Exchange

10 Board Meetings, Annual General Meeting held in July2010

Well-defined Risk Management framework in place

Codes of Conduct:2 codes of Conduct for senior management & foremployees

comprehensive Code of Conduct for Prevention of Insider Trading

Accounting treatment done according to Accounting Standards laiddown by The Companies (Accounting Standards) Rules, 2006

Audit Committee comprised of independent directors 98.67% of the paid-up Equity Share Capital is held in a

dematerialised form with N ational Securities Depository Limited andCentral Depository Services (India) Limited

VOLUNTARY INITIATIVESResearch & Development Committee (R&DStrategic Investment CommitteeLoans & Investment Committee

Is in substantial compliance with the Corporate Governance -Voluntary Guidelines, 2009 by Government of India, Ministry of Corporate Affairs


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CORPORATE GOVERNANCE ANALYSIS: TATA MOTORS

TM follows Clause 49 of the Listing Agreement relatingto Corporate Governance to determine its CorporateGovernance policies

Accounting treatment done according to Accounting Standards laiddown by The Companies (Accounting Standards) Rules, 2006

Board of Directors : 13 membersN on-executive Chairman,11 non-executive directors7 independent directors form majority among thedirectorsQualified & experienced in relevant fieldsRemuneration as per industry benchmarks,

performance & macroeconomic view

Shares listed on :Bombay Stock ExchangeN ational Stock ExchangeN ew York Stock Exchange ( N YSE)Luxembourg Stock ExchangeInternational Order Book (IOB) of the London Stock Exchange

Annual General Meeting held in September, 2010 Other Committees:Investors' Grievance CommitteeCorporate Social Responsibility (CSR)Ethics and Compliance Committee

Codes of Conduct:Tata Code of Conduct for employees and whole timedirectorsCode of Conduct for N on-Executive DirectorsTata Code of Conduct for P revention of Insider Trading(the Code)

Audit Committee functions as per the Companies Act, 1956,listing requirements and US regulations applicable to the CompanyNo audit qualification in the financial statements

Tata Business Excellence Model is employed as a meansto drive excellence. The Balanced Scorecardmethodology is used for tracking progress

Whistle Blower Mechanism : The Company has adopted a Whistle-Blower P olicy


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TATA MOTORS VS M&M VS IN DUSTRY


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P erformance of business segments:TATA MOTORS

- 1,080,994 vehicles sold in 2010-11, growth of 24.2% and 58,089 exported- 24.3% share in the Indian industryCommercial Vehicles

458,828 vehicles sold in 2010-11, a 22.7% growth

61.8% share in Indian market

Sale of M & HCV s grew by 26.7% during this period, market share of 60.1%

Sale of LCV s grew by 19.9%, market share of 63.2%

319,712 vehicles sold in 2010-11 (highest ever, inclusive of Tata, JLR and Fiat)

13% share in Indian market

243,621 vehicles were sold by JLR ( growth of 25.6% over the previous year)

Passenger Vehicles


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MAHIN DRA &MAHIN DRA

289,333 vehicles and 64,740 3-wheelers sold during 2010-11 a growth of 22.2% and 42.7% respectively

MUV sales up by 7.5% at 230,110 vehicles (market leader 60.9%)

Farm division sales up by 22.3% at 214,325 units ( Domestic tractor sales 202,513 and 11,812 exported)

Improved farm division market share of 42%


8/31

Dividend history for M&M and Tata motors

Dividends Declared -Mahindra and Mahindra Dividends Declared -Tata motors

EffectiveDate

DividendType

Dividend(%)

Remarks Effective Date Dividend TypeDividend

(%)

14/07/2011 Final 230%

Rs.10.50 per share(210%)Dividend

& Rs.1.00 per share(20%)SpecialDividend 19/07/2011 Final 200%

8/7/2010 Final 190%Rs.8.75 per share(175%)Dividend +

Rs.0.75 per share(15%)SpecialDividend

10/8/2010 Final 150%

9/7/2009 Final 100% 3/8/2009 Final 60%

3/7/2008 Final 115% 16/06/2008 Final 150%

5/7/2007 Final 40%25% Final Dividend + Special

Dividend 15%1/6/2007 Final 150%


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Rights and Bonus Issue

Rights issue M&M Tata Motors equity shareholder's position

A rights issue is an issue of new shares for cash to

existing shareholders in proportion to their existingholdings and therefore rightsissue is a way of raising new

cash from shareholders.

M&M has a rights ratioof 1 :5 ( one share for

every five shares held bythe eligible shareholders)

and shares would beissued at a price of Rs.305/- per share of facevalue of Rs. 10/- each

Tata motors has arights ratio of 1 :6

and shares would beissued at a face

value of Rs. 10 eachto the existing

equity shareholders

Equity shareholders react badly to firmscontinually making rights issues as they areforced either to take up their rights or sell

them. They may sell their shares in thecompany, driving down the market price.

Bonus Issue M&M Tata Motors equity shareholder's position

A Bonus issue is an offer of free additional shares toexisting shareholders to

increase the dividend payout. New shares are issued to

shareholders in proportion totheir holdings

Mahindra & MahindraLtd. follows a bonusshare ratio of 1 :1 (If a

bonus of 1:1 is issued,then ex-bonus share

price would adjust to Rs.50, which means that the

total market value willremain the same.)

Tata motors followsa bonus share ratio

of 3 :5

Bonus share increases the number of sharesoutstanding and reduces the earnings per

share (EPS)


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Stock split

In a stock split company's existing shares are divided into multiple shares.The number of shares outstanding increases by a specific multiple , and thestock price will be reduced since the number of shares outstanding hasincreased.

Stock splits are performed is that a company's share price has grown sohigh that to many investors, the shares are too expensive to buy.Stock splits help make shares more affordable to small investors and

provides greater marketability and liquidity in the market.

O ld Face value New Face value Record Date

M&M 10 5 30/03/2010

Tata motors 10 2 13/09/2011


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ESOP and WarrantsES OP M&M Tata Motors

equity shareholder'sposition

A n employee stock ownership plan (ESOP) is away in which employees of a company can own a shareof the company they work

for.

In 2011 the Company granted130,500 options to the employees

and/or directors of the Company or its subsidiary, granting them to

subscribe in aggregate up to 130,500equity shares of the face value of Rs.

10 each of the Company at theexercise price of Rs. 636 per share.

In Tata MotorsEmployee Stock Option

Scheme (ESOP),theoptions can be

converted into shareswith differential votingrights(DVRs) and a 5%

extra dividend isattached to DVRs.

Equity Shareholders benefit from an ESOP

because it creates amarket for their stock,and tax laws allow for the deferral of capital

gains of sales of stock toan ESOP

W arranty M&M Tata Motorsequity shareholder's

position

Warranty is a derivativesecurity that gives the

holder the right to purchasesecurities (usually equity)

from the issuer at a specific price within a certain time

frame

In 2010 Mahindra raised Rs 100crore by issuing warrants to

promoter group firm, Mahindra &Mahindra on preferential basis.

72,99,270 convertible warrants werealloted to Mahindra & Mahindra atRs 137 per piece, aggregating to Rs

100 crore.

Company issueswarrants to Tata

Companies with a rightto subscribe to oneordinary share per

warrant.

Warrants issued by acorporation as part of itscapitalization can dilute

the interest of prior shareholders.


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2011 2010 2009 2008 2007 2006

TIE (Tata)2.59 3.27 2.25 7.05 7.98 8.00

TIE (M&M)50.67 19.15 8.96 17.06 72.64 41.78

IndustryAverage 5.24 1.66 5.79 8.2 7.45 8.58

D/E Ratio(Tata) 2.52 3.18 1.77 1.96 0.99 1.02D/E Ratio(M&M) 1.92 1.83 2.51 3.31 2.31 3.03Industry

Average 1.05 0.91 0.66 0.55 0.57 0.53BEP (Tata)

4.71 8.02 5.33 12.61 15.01 14.42

BEP (M&M)93.60 23.76 11.68 18.74 66.65 38.15

CRITICAL RATIOS FOR CREDIT RATIN G


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TIE D/E Ratio BEP

CRITICAL RATIOS & CREDIT RATIN G

2007 2008 2009 2010 2011Tata (ST) AA+(ind) P1+ P1+ A1+Tata (LT) AA+(ind) AA+ AA+ AA+ AA+MnM(ST) AA+(ind) P1+ P1+ A1+MnM (LT) AA+(ind) AA+ AA+ AA+ AA+


14/31

INFERENCE ON CREDIT R ATING

Both the companies are well reputed in the market with turnover of over $4 b illion.TIE, D/E and BEP for both T AT A and M&M has been a bove the industry average.

Therefore their c redit rating is generally good.

Re cession :Automo b ile industry is has a high positive co-relation with the GD P gro wth rate.Therefore during the re cession both the firms got hit in their performan ce.Therefore the short term c redit rating of both the firms is lowered during re cession

and the long-term has remained good.


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SINK IN G FUN D RESERVE

Sinking fund provision is really just a pool of money set aside by a corporation tohelp repay a bond issue service and to protect investors against the possibility of default by the company.MnM has low debt capital structure and hence the requirement for sinking fundreserve has been less.

Analysis :The sinking fund reserve of M&M is reducing drastically as M&M has the strategyof reducing its long debt standing

Year Mar 11 Mar 10 Mar 09 Mar 08

TataMotors

Debenture Redemption Reserve(Rs inCrs) 1,102.15 1,102.15 602.15 334.35

M&MDebenture Redemption Reserve(Rs inCrs) 42.86 78.57 47.62 18


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OWNERSHIP STRUCTURE OF THE FIRM DIFFERENT TYPES OF OWNERS AND THEIR EQUITY POSITIONS MAHINDRA & MAHINDRA

Foreign ( P romoter& Group)

0.11% Indian ( P romoter &Group)

9%

Total of P romoter9%

N on P romoter(Institution)

16%

N on P romoter ( N on-Institution)

7%

Total N on P romoter24%

Total P romoter & N onP romoter

33%

Custodians(AgainstDepository Receipts)

2%

Ownership pattern

N o. of shares: 613974839, no. of shareholders: 178292


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M&M TATA

DFL OP ERATIN G IN COME/N ETIN COME

1.76 2.73

DOL TOTALCON TRIBUTION /O P ERATIN GIN COME

2.01 3.87

DCL DFL*DOL 3.53 10.56

DEGREE OF LEVERAGE


18/31

Analysis of Tax Rates

Statutory Income Tax Rate: the rate that isimposed on taxable income of corporations,which is equal to corporate receipts lessdeductions for labor costs, materials, anddepreciation of capital assets.In India, the rate is 33.9% for Indian Companiesand 42.33% for Foreign Companies.

Effective tax Rate: measures the taxes acorporation pays as a percentage of its economicprofit.


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Tax rates : A ComparisonTML 2011 TML 2010 TM Group

2011TM Group2010

M&M2011

M&M2010

P BT 2,196.52 2,829.54 10,437.17 3,522.64 3,519.61 2,846.75

Tax 384.70 589.46 1,216.38 1,005.75 857.51 759

Effective

tax rate %

17.51 20.83 11.65 28.55 24.36 26.66

StatutoryTax Rate %

33.9 33.9 33.9 33.9 33.9 33.9


20/31

Tax Rates Analysis

For Tata Motors: Tax expenses decreased to 384.70 crores from 589.46 crores in2009-10. The effective tax rate for 2010-11 is 17.5% of PBT as compared to 20.8%for 2009-10. The reduction is due to increase in tax benefits during the year.

For Tata Motors Group: Tax expense has increased to 1,216.38 crores in 2010-11

from 1,005.75 crores in 2009-10 but as a % to P BT was 11.7% in 2010-11 ascompared to 28.6% in 2009-10. The reduction in tax expense is mainly due to set-off of past tax losses at

Jaguar Land Rover Benefits of R & D expenses at TML, which are eligible for weighted deduction.

For M&M: The provision for current tax and deferred tax for the year ended 31 stMarch, 2011 as a percentage to profit before tax is lower than the previous year,on account of higher tax free dividend income during the year and on account of increased weighted deduction available for research and developmentexpenditure in Financial Year 2011.


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M&M has not used much of deferred tax liabilities aswe can see that TML has 2023 as deferred taxes.Normally allo wed method of depre c iation for taxation is De c lining balan ce method at varying

rates and

is

availa

ble

for

a

full

year.

Both TML and Mahindra use S traight line method for a cc ounting purposes. The companies can avail this for getting tax benefits

M&M2011 M&M 2010 TML 2011 TML 2010

Deferred TaxAssets 173.61 182.17 685 791.5

Deferred TaxLiability 527.99 422.5 2,708.16 2,300.14

N et Deferred Tax -354.38 -240.33 -2,023.16 -1,508.64


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Financial flexibility for further borrowing andraising of equity

TML M&M

ROE N et Income/Equity 0.10 0.25D/E Total Liability / Total Asset 0.79 0.23TIE EBIT/Interest expense 2.59 50.67

EP S N et Income / OutstandingShares 25.51 43.29

Dividend YeildAnnual Dividend per share/price per share 200% 230%

The Debt/Equity ratio is around 80% for TML while only 23% for M&M. AsTML is already working on high leverage, it will be difficult for further

borrowing as compared to M&M.The TIE ratio is around 50 for M&M making it further more favorable forborrowing.The Dividend yield as well as the E P S is higher for M&M and thereforeraising money through equity is easier.M&M has a Z Score =5.4 which proves that the company is safe and Tata

motors with a Z of 2.77 can be assumed to be riskier in the long run.


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Cash Conversion Cycle2011 2010 2009 2008 2007

Inventory Conversion P eriod 51 57 47 42 40Receivables Conversion P eriod 21 24 18 19 17TOTAL 72 81 65 62 58 P ayables Conversion P eriod 98 104 84 77 57CASH CON VERSION P ERIOD -26 -23 -19 -15 1

TATA MOTORS LTD.

M&M

2011 2010 2009 2008 2007

Inventory Conversion P eriod 69 62 69 65 65Receivables Conversion P eriod 46 42 55 54 51TOTAL 115 105 124 118 115P ayables Conversion P eriod 97 92 93 80 87CASH CON VERSION P ERIOD 18 13 31 38 29

Strongimprovementsover the years

Favorablepresent position

Fairimprovementsover the years

Relativelyweaker position


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Deviations identified on Clause 49 compliances of SEBITATA MOTORS

P roceeds from Initial P ublic Offering(IP O)- N ot Disclosed

Clause 49 of the Listing Agreement specifies a maximum tenure of nine years forIndependent directors but management believes that they can exceed this tenure whichis a significant deviation.

Nusli N Wadia, Chairman of the Wadia Group, who joined the Tata Motors board as anIndependent director in 1997, is seeking reappointment.

Some Tata Group companies have been delisted on reasons of non-compliance with theclauses of Listing Agreement violation of SEBI takeover regulation, amalgamation,merger and winding-up. Examples are Tata Construction & Projects Ltd-on winding up of company, Tata Finance Ltd- on amalgamation with Tata Motors Ltd.


25/31

Deviations identified on Clause 49 compliances of SEBIMAHIN DRA & MAHIN DRA

Term of office of N on ExecutiveDirector- N ot Disclosed

P roceeds from Initial P ublicOffering (I P O)- N ot Disclosed

Clause 49 of the Listing Agreement specifies a maximum tenure of nine years forIndependent directors but management believes that they can exceed this tenurewhich is a significant deviation.

M M Murugappan, (chairman of Carborundum Universal, Tube Investment of India, who joined in 1992) is seeking reappointment on the board of Mahindra & Mahindra .


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OFF BALAN CE SHEET ITEMS (OBS)

Purpose of OBS Reality of OBS

Transfer corporate risk. Hide liabilities and portray a healthyfinancial picture. (Example : Enron )

P rotect investors from the risk of newventures and investments done by theparent company.

Transfer of liabilities and henceimprove the credit worthiness of thefirm.

Access to alternative funding Transfer of risk even though the parentfirm is exposed to the risk and rewards.

Common off-balance sheet items:

Operating LeasesFinancial guaranteesBank Loan commitments

Contingent liabilitiesN otes Issuance SupportSecuritizationSynthetic LeasesSubsidiaries and spin-offs.Employee Benefit P lan ( P ension P lans)


27/31

M&M OFF-BALAN CE SHEET ITEMS:

Operating Leases : M&M has a N et Block of Rs3385 Cr.

Lease holdings = Rs 33 Cr.

Group Companies: Subsidiaries 111Joint Ventures 7Associate Companies 14A significant increase of 45% in other investments in 2011 of Rs9325 Cr.

It includes a 77% increase in equity(quoted and unquoted) of Rs6568 Cr.The risk associated with these investments is not quantifiable easily.

Employee Benefit P lan: Discount Rate = 7.50 8.50% (Risk free interest rate 7.92%)Expected Return from investment = 7.12% (7.07% in 2010)Unfunded Gratuity P lans = Rs 1000 Cr.

Contingent Liabilities: Rs1896 Cr.Significant components : Excise Duty = Rs1212 CrGuarantees undertaken = Rs 316 Cr.


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Operating Leases : TATA has a Gross Block of Rs13417 Cr.

Lease holdings on Fixed Assets = Rs.255 Cr.

Group Companies: Subsidiaries 69Joint Ventures 2

Other Investments in 2011 of Rs22624 Cr.

Employee BenefitP

lan: Discount Rate = 6.75-8.50% (Risk free interest rate 7.92%)Expected Return from investment = 8.00% (8.00% in 2010)

Contingent Liabilities: Rs3370 Cr.Significant components : Sales Tax = Rs1003 Cr

Capital contracts remaining = Rs1857 Cr.

TATA OFF BALAN CE SHEET ITEMS


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ITEM TATA M&M

Operating Lease 2% of N et Assets 1% of N et Assets

Group Companies 1% YoY increase ininvestment.

45% YoY increase in investment.

Employee Benefit P lan N o revision in expected returnfrom 8%.

Increase in expected returns to7.12%

Income fromsecuritization

N egligible 25% YoY increase.

Other Income High YoY fluctuation. (100%decrease) Rs1203 Cr.

997 Cr.Sale of Investment = Rs 145Cr.Misc Income = Rs200 Cr.

COMPARISON


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Cash Flow Statement Analysis: M&M

OPERATING 2011 2010 2009 2008 2007

Cash Flow beforeExtraordinary Items

2,979.75 2,336.49 1,631.30 825.83 1,168.95

P roportion of N etIncome as CFs

87.58% 84.78% 158.97% 66.92% 88.85%

27% 43% 97% -29%

OPERATING >0135% increase in trade payables, 270% in inventoriesOver the years, increased role of trade payables, trade receivables and inventoriesManaged 158%(of net income) CF in 2009 by lowering receivables and holding

payables and inventory reductionINVESTING < 0Enhanced activity in purchase and sale of investmentsIncreased pace of investment in fixed assets

FINANCING< 0Trend of decreasing long term borrowings ( creating cash outflows)Increased outflows towards dividends


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Cash Flow Statement Analysis: TML

OPERATING 2011 2010 2009 2008 2007Cash Flow beforeExtraordinary Items

1505.56 6400.18 1284.48 6164.92 2208.85

P roportion of N etIncome as CFs

83.1% 285.71% 129.34% 304.57% 115.50%

-76% 394% -79% 179%

OPERATING >0High depreciation values and heavy cash inflows from interest create cash inflows

amounting to 100%-120% of net incomeHigh values of trade payables over the years, except 2011Able to create cash flows in multiples of net income

INVESTING < 0Heavy reduction in investment in fixed assets, investments and subsidiaries bringing

the cash outflow down by about 80%FINANCING> 0Trend of increasing short term borrowings ( creating cash outflows)Significant increase in outflows towards short term borrowings

Heavy decrease in Other long term borrowings in 2011 bringing the value lowerthan ast ears

Documents

MAC Section-B Group-9 M&M