MIRA
INFORM REPORT
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Report Date : |
06.03.2008 |
IDENTIFICATION
DETAILS
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Name : |
MAHINDRA AND MAHINDRA LIMITED |
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Registered Office : |
Gateway Building, Apollo Bunder, Mumbai - 400 001, Maharashtra |
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Country : |
India |
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Financials (as on) : |
31.03.2007 |
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Date of Incorporation : |
02.10.1945 |
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Com. Reg. No.: |
004558 |
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CIN No.: [Company
Identification No.] |
L65990MH1945PLC004558 |
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TAN No.: [Tax
Deduction & Collection Account No.] |
NGPM00599E |
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Legal Form : |
A Public Limited Liability Company. The Company’s Share are Listed on
the Stock Exchanges. |
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Line of Business : |
Manufacturers of Light Commercial Vehicles, Agricultural Tractors, Implements and Utility Vehicles. |
RATING &
COMMENTS
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MIRA’s Rating : |
Aa |
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RATING |
STATUS |
PROPOSED CREDIT LINE |
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71-85 |
Aa |
Possesses adequate working capital. No caution needed for credit transaction.
It has above average (strong) capability for payment of interest and
principal sums |
Large |
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Maximum Credit Limit : |
USD 142116380 |
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Status : |
Good |
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Payment Behaviour : |
Regular |
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Litigation : |
Clear |
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Comments : |
Subject is a well established and reputed company of Mahindra Group. Available information indicates high financial responsibility of the company. Financial position is good. Payments are correct and as per commitments. The company can be considered good for any normal business dealings at usual trade terms and conditions. It can be regarded as a promising business partner in a medium to long run. |
LOCATIONS
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Registered Office : |
Gateway Building, Apollo Bunder, Mumbai - 400 001, Maharashtra, India |
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Tel. No.: |
91-22-22021031 |
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Fax No.: |
91-22-22028780/22875485 |
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E-Mail : |
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Website : |
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Factory 1 : |
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Branches : |
Located at :
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DIRECTORS
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Name : |
Mr. Keshub Mahindra |
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Designation : |
Chairman |
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Name : |
Mr. Anand G. Mahindra |
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Designation : |
Vice Chairman and Managing Director |
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Name : |
Mr. R. K. Pitambar |
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Designation : |
Director |
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Name : |
Mr. Deepak S. Parekh |
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Designation : |
Director |
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Name : |
Mr. Nadir B. Godrej |
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Designation : |
Director |
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Name : |
Mr. M. M. Murugappan |
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Designation : |
Director |
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Name : |
Mr. David Friedman |
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Designation : |
Director |
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Name : |
Mr. V. K. Chanana |
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Designation : |
Director – Nominee of Unit Trust of India |
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Name : |
Mr. R. N. Bhardwaj |
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Designation : |
Director - Nominee of Life Insurance Corporation of India |
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Name : |
Mr. Narayanan Vaghul |
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Designation : |
Director |
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Name : |
Mr. A. S. Ganguly |
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Designation : |
Director |
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Name : |
Mr. R. K. Kulkarni |
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Designation : |
Director |
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Name : |
Mr. Anupam Puri |
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Designation : |
Director |
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Name : |
Mr. K. J. Davasia |
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Designation : |
Executive Director |
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Name : |
Mr. Bharat Doshi |
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Designation : |
Executive Director |
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Name : |
Mr. Alan E. Durante |
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Designation : |
Executive Director |
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Name : |
Mr. A. K. Nanda |
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Designation : |
Executive Director |
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Name : |
Mr. Anand G. Mahindra |
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Designation : |
Vice Chairman and Managing Director |
KEY EXECUTIVES
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Name : |
Mr. K. J. Davasia |
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Designation : |
President - Farm Equipment Sector |
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Name : |
Mr. Narayan Shankar |
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Designation : |
Company Secretary |
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Name : |
Mr. Bharat Doshi |
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Designation : |
President – Trade and Financial Services Sector |
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Name : |
Mr. Alan E. Durante |
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Designation : |
President – Automotive Sector |
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Name : |
Mr. A. K. Nanda |
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Designation : |
President – Infrastructure Development Sector |
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Name : |
Mr. Ulhas N. Yargop |
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Designation : |
President - Telecom and Components Sector |
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Name : |
Mr. Uday Y. Phadke |
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Designation : |
Executive Vice President – Finance, Accounts and Legal Affairs |
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Name : |
Mr. Anjanikumar Choudhari |
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Designation : |
Executive Vice President – Human Resources and Corporate Services |
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Name : |
Mr. Raghunath Murthi |
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Designation : |
Executive Vice President - Business Development |
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Name : |
Mr. Hemant Luthra |
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Designation : |
Executive Vice President – Corporate Strategy |
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Name : |
Mr. R. R. Krishnan |
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Designation : |
Managing Director – Mahindra Intertrade Limited |
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Name : |
Mr. Rajeev Dubey |
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Designation : |
Executive Vice President- Human Resources and Corporate Services. |
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Audit Committee Deepak S. Parekh Chairman Nadir B. Godrej R. K. Kulkarni V. K. Chanana |
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Remuneration/Compensation Committee Narayanan Vaghul Chairman Keshub Mahindra Nadir B. Godrej M.M.Murugappan |
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Share Transfer and Shareholders/
Investors Grievance Committee Keshub Mahindra Chairman Anand G. Mahindra Bharat Doshi A. K. Nanda R. K. Kulkarni |
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Loans and Investment Committee Bharat Doshi Alan E. Durante A. K. Nanda R. K. Kulkarni Anand G. Mahindra Vice-Chairman and
Managing Director Deepak S. Parekh Nadir B. Godrej M. M. Murugappan V. K. Chanana Nominee of Unit
Trust of India |
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Research and Development
Committee A. S. Ganguly R. K. Kulkarni Anupam Puri Bharat Doshi Executive
Director |
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MANAGEMENT BOARD Anand G. Mahindra Vice-Chaifman and
Managing Director Bharat Doshi President -–Trade
and Financial Services Sector Ulhas N.Yargop President -–Telecom
and Software Sector Uday Y. Phadke Executive Vice
President -–Finance, Accounts and Legal Affairs Anjanikumar
Choudhari President -–Farm
Equipment Sector Hemant Luthra President- MSAT
Sector Raghunath Murti Managing Director
-–Mahindra Intertrade Limited Rajeev Dubey Executive Vice
President- Human Resources and Corporate Services Pawan Goenka President
designate -–Auto Sector and Member of the Management Board designate A. K. Nanda Executive
Director and Secretary |
MAJOR SHAREHOLDERS
/ SHAREHOLDING PATTERN
31.03.2007
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Names of Shareholders |
No. of Shares |
Percentage of
Holding |
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Promoters and promoter Group |
56178406 |
22.90 |
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Mutual Funds |
13226717 |
5.39 |
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Banks, Financial Institutions, Insurance Companies, State Government |
38751783 |
15.79 |
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FIIs/FFIs/FCs |
79368533 |
32.35 |
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Private Corporate Bodies |
13257527 |
5.40 |
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Indian Public |
25171278 |
10.25 |
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NRIs/OCBs |
2226425 |
0.91 |
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Bank of New York (for GDR Holders) |
17190596 |
7.01 |
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Total |
245371265 |
100.00 |
BUSINESS DETAILS
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Line of Business : |
Manufacturers of Light Commercial Vehicles, Agricultural Tractors, Implements and Utility Vehicles. |
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Products : |
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PRODUCTION STATUS
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Particulars |
Unit |
Licensed
Capacity |
Installed
Capacity |
Actual
Production |
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On Road
Automobiles having four or more wheels such as light, medium and heavy
commercial vehicles, jeep type vehicles and passenger cars covered under sub
heading (5) of Heading (7) of First Schedule [Note (iv) below] |
Nos. |
276000 |
192000 |
134665 |
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Three Wheelers |
Nos. |
80000 |
54000 |
34892 |
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Agricultural tractor |
Nos. |
169000 |
158000 |
101202 |
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Tractor Skids |
- |
- |
These are manufactured against spare capacity under 2 (a) |
2645 |
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Manufactured and purchased parts and accessories for sale |
Nos. |
- |
These are manufactured against spare capacityunder 1 and 2above |
187449 |
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Internal Combustion Engines |
Nos. |
110000 |
110000 |
100076 |
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Petrol / Diesel Engines 15 HP to 80 HP |
Nos. |
- |
- |
- |
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Industrial Petrol engines |
Nos. |
500 |
500 |
- |
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Agricultural implements |
Nos. |
238000 |
- |
- |
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Parts and accessories of motor vehicles |
Nos. |
500000 |
125000 |
104971 |
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Internal Combustion Engine |
Nos. |
50000 |
39000 |
36973 |
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D G Sets |
Nos. |
Assembly at 3rd party Locations |
- |
8877 |
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D G Sets |
Nos. |
24000 |
- |
- |
GENERAL
INFORMATION
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No. of Employees : |
18821 |
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Bankers : |
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Facilities : |
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Banking
Relations : |
Good |
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Auditors : |
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Name : |
A. F. Ferguson and Company Chartered Accountants |
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Address : |
Allahabad Bank Building, Mumbay Samachar Marg, Mumbai – 400001, Maharashtra, India |
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Associates : |
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Subsidiaries : |
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Joint Venture Company : |
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CAPITAL STRUCTURE
Authorised Capital :
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No. of Shares |
Type |
Value |
Amount |
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275000000 |
Equity Share |
Rs.10/- each |
Rs.2750.000 Millions |
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2500000 |
Unclassified Share |
Rs.100/- each |
Rs.250.000 Millions |
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Total |
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Rs.3000.000
Millions |
Issued, Subscribed & Paid-up Capital :
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No. of Shares |
Type |
Value |
Amount |
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245371265 |
Equity Share |
Rs.10/- each |
Rs.2453.713
Millions |
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7338558 |
Less :Ordinary Share (Fully Paid up issued to ESOP Trust but not allotted to employees) |
Rs.10/- each |
Rs.73.386
Millions |
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Total |
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Rs.2380.327 Millions |
FINANCIAL DATA
[all figures are in Rupees Millions]
ABRIDGED BALANCE
SHEET
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SOURCES OF FUNDS |
31.03.2007 |
31.03.2006 |
31.03.2005 |
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SHAREHOLDERS FUNDS |
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1] Share Capital |
2380.327 |
2333.996 |
1160.086 |
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2] Employee Stock Options Outstanding |
31.812 |
15.873 |
0.000 |
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3] Share Application Money |
0.000 |
0.000 |
0.000 |
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4] Reserves & Surplus |
33116.956 |
26738.840 |
18962.488 |
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5] (Accumulated Losses) |
0.000 |
0.000 |
0.000 |
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NETWORTH |
35529.095 |
29088.709 |
20122.574 |
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LOAN FUNDS |
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1] Secured Loans |
1066.534 |
2166.760 |
10526.195 |
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2] Unsecured Loans |
15293.532 |
6667.062 |
0.000 |
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TOTAL BORROWING |
16360.066 |
8833.822 |
10526.195 |
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DEFERRED TAX LIABILITIES |
197.862 |
1467.500 |
1897.500 |
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TOTAL |
52087.023 |
39390.031 |
32546.269 |
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APPLICATION OF FUNDS |
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FIXED ASSETS [Net Block] |
15905.685 |
13752.593 |
13641.523 |
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Capital work-in-progress |
2805.991 |
1791.860 |
1107.279 |
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INVESTMENT |
22374.570 |
16690.884 |
11897.890 |
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DEFERREX TAX ASSETS |
0.000 |
0.000 |
0.000 |
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CURRENT ASSETS, LOANS & ADVANCES |
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Inventories |
8784.837
|
8787.437 |
7294.207
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Sundry Debtors |
7008.867
|
6379.689 |
5115.283
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Cash & Bank Balances |
13260.719
|
7303.060 |
4567.864
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Other Current Assets |
33.124
|
31.412 |
0.000
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Loans & Advances |
8394.148
|
4988.983 |
6196.461
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Total
Current Assets |
37481.695
|
27490.581 |
23173.815 |
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Less : CURRENT
LIABILITIES & PROVISIONS |
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Current Liabilities |
19502.191
|
15208.412 |
17517.995 |
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Provisions |
7154.252
|
5308.021 |
0.000 |
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Total
Current Liabilities |
26656.443
|
20516.433 |
17517.995 |
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Net Current Assets |
10825.252
|
6974.148 |
5655.820
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MISCELLANEOUS EXPENSES |
175.525 |
180.546 |
243.757 |
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TOTAL |
52087.023 |
39390.031 |
32546.269 |
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PROFIT & LOSS
ACCOUNT
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PARTICULARS |
31.03.2007 |
31.03.2006 |
31.03.2005 |
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Sales Turnover |
96277.109 |
79887.679 |
67690.543 |
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Other Income |
6175.131 |
3377.715 |
0.000 |
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Total Income |
102452.240 |
83265.394 |
67690.543 |
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Profit/(Loss) Before Tax |
14376.710 |
10995.049 |
7141.715 |
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Provision for Taxation |
3692.845 |
2424.000 |
2015.000 |
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Profit/(Loss) After Tax |
10683.865 |
8571.049 |
5126.715 |
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Earnings in Foreign Currency : |
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Export Earnings |
6149.608 |
4651.026 |
NA |
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Commission Earnings |
518.641 |
111.575 |
NA |
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Other Earnings |
460.417 |
318.171 |
NA |
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Total Earnings |
7128.666 |
5080.772 |
NA |
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Imports : |
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Raw Materials |
179.623 |
368.566 |
NA |
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Stores & Spares |
1074.559 |
978.694 |
NA |
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Capital Goods |
827.237 |
290.716 |
NA |
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Others |
80.014 |
92.139 |
NA |
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Total Imports |
2161.433 |
1730.115 |
NA |
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Expenditures : |
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Raw Materials, Finished and Semi Finished
Products |
62519.169 |
54780.044 |
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Excise Duty |
(21.380) |
116.105 |
|
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Personnel |
6661.533 |
5517.839 |
60548.828 |
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Interests, Commitment Charges |
(674.543) |
(184.016) |
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Depreciation & Amortization |
2095.865 |
2000.053 |
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Finance Charges |
13185.727 |
10040.320 |
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Other Expenditure |
4309.159 |
0.000 |
|
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Total Expenditure |
88075.530 |
72270.345 |
60548.828 |
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QUARTERLY RESULTS
|
PARTICULARS |
30.06.2007 1st
Quarter |
30.09.2007 2nd
Quarter |
31.12.2007 3rd
Quarter |
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Sales Turnover |
26127.800 |
28024.000 |
29401.500 |
|
Other Income |
316.100 |
691.500 |
2094.300 |
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Total Income |
26443.900 |
28715.500 |
31495.800 |
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Total Expenditure |
23372.700 |
24189.400 |
26087.000 |
|
Operating Profit |
3071.200 |
4526.100 |
5408.800 |
|
Interests |
(51.100) |
82.500 |
217.100 |
|
Gross Profit |
3122.300 |
4443.600 |
5191.700 |
|
Depreciation |
571.000 |
576.600 |
590.300 |
|
Tax |
639.600 |
0.000 |
549.900 |
|
Reported PAT |
1911.700 |
2859.500 |
4051.500 |
KEY RATIOS
|
PARTICULARS |
31.03.2007 |
31.03.2006 |
31.03.2005 |
|
Debt Equity Ratio |
0.39 |
0.40 |
0.48 |
|
Long Term Debt Equity Ratio |
0.37 |
0.37 |
0.44 |
|
Current Ratio |
1.29 |
1.18 |
1.06 |
|
TURNOVER RATIOS |
|
|
|
|
Fixed Assets |
3.58 |
3.27 |
2.91 |
|
Inventory |
12.40 |
11.08 |
12.01 |
|
Debtors |
16.27 |
15.80 |
16.59 |
|
Interest Cover Ratio |
72.64 |
33.02 |
24.62 |
|
Operating Profit Margin (%) |
15.13 |
12.00 |
12.27 |
|
Profit Before Interest and Tax Margin (%) |
13.21 |
9.80 |
9.84 |
|
Cash Profit Margin (%) |
11.73 |
9.71 |
9.21 |
|
Adjusted Net Profit Margin (%) |
9.81 |
7.51 |
6.78 |
|
Return on Capital Employed (%) |
32.25 |
26.33 |
27.16 |
|
Return on Net Worth (%) |
33.20 |
28.03 |
27.47 |
LOCAL AGENCY
FURTHER INFORMATION
Performance Review
Automotive Sector:
The financial year ended 31st March, 2007 is the fifth consecutive
year of record growth in terms of vehicle production and sales. The year under
review, the Company produced 1,44,090 vehicles [i.e. multi utility vehicles
(MUVs), cars and light commercial vehicles (LCVs) including 8,811 LCVs produced
for Mahindra International Limited (MIL), a subsidiary of the Company and 614
cars produced for Mahindra Renault Private Limited (MRPL), another subsidiary
of the Company] and 34,892 three wheelers as compared to 1,28,601 vehicles
[including 2,705 LCVs produced for MIL]-and 22,317 three-wheelers in the
previous year.
The Company recorded sales of 1,35,961 vehicles and 33,718
three-wheelers as compared to 1,25,172 vehicles and 22,419 three-wheelers in the
previous year registering a growth of 8.6% and 50% in vehicles sales and three
wheelers sales respectively.
The domestic total sales volume of 1,61,658 vehicles and
three-wheelers was higher by 14% than the previous year's volume of 1/42,057
vehicles and three-wheelers.
Over all, a record number of 1,27,856 MUVs were sold by the
Company in the domestic market during the year under review as against the sale
of 1,14,694 M U Vs in the previous year. The Company's domestic MUVs sales
volumes grew by 11% as against the industry MUVs sales growth of 14%. In the
large three-wheeler segment, the Company's sales volumes declined by 22%
against a 28% decline for the industry as a whole. In the smaller three-wheeler
segment, which the Company had entered in the previous year, the Company during
the year under review sold 19,554 Champion Alfas against the sale of 4,307
Champion Alfas in the previous year.
The Company's subsidiary MIL, sold 8,550 LCVs during the
year. The combined LCVs sales of the Company and MIL stood at 8,652 as compared
to the last year's sales of 6,777 [including 1,833 sold by MIL] registering an
increase of 28% against the industry (upto 4 MT payload LCVs segment) growth of
4%.
The spare parts sales volume was Rs.3073.300 Millions
(Exports Rs.235.400 Millions) in the current year as compared to Rs.2360.000
Millions (Exports Rs.128.400 Millions) in the previous year.
The commencement of the manufacture of the Logan, a
mid-sized sedan, in the last quarter of the year marked the entry of the Company
into the passenger car segment through its subsidiary MRPL, a joint venture of
the Company with Renault s.a.s. of France.
Over the last three years, the Company introduced its
vehicles in many new overseas markets including Europe, Middle East, South
America and South-East Asia by adapting unique business models for each
country. The Company launched a pick-up version of the Scorpio in South Africa
during the year, becoming the first Indian automotive company to launch a
product internationally. These initiatives resulted in the Company exporting
8,021 vehicles [including 254 LCVs sourced from MIL] during the year under
review which is an increase of 45% over the previous year's exports of 5,534
vehicles [including 175 LCVs sourced from MIL].
The Company's performance also reflected a significantly
improved level of customer satisfaction as demonstrated by its 2006-07 scores
in independent syndicated customer satisfaction and sales satisfaction studies.
In the TNS study on Dealer Satisfaction released in 2007, the Company came
first. The Company was also rated in a TNS study, one among the top two Most
Trusted Indian car companies. The all new Scorpio launched at the end of the
previous year received the Business World National Institute of Design Award in
the 4Best Automobile Design - Four Wheeler' category and was also awarded the
coveted Golden Peacock Award for Innovative Products/Services in the Automobile
segment. These awards augur well for the future. In the last quarter, the
Company also unveiled the bio-diesel Scorpio and Bolero DI vehicles for 100%
real world usage trials. The Scorpio with indigenously developed CRDe
technology is the first Asian vehicle in its class to run on 100% bio-diesel.
Given the high growth expectations from the Indian
automotive industry and given the Company's participation in ever increasing
areas of the industry, the Company is planning to set up two greenfield plants,
one near Pune and another near Chennai, to meet future domestic and export
requirements. The plant near Pune will specialize in commercial vehicles for
the Company as well as for MIL. The plant near Chennai will be set up in
partnership with Renault s.a.s. and Nissan Motor Company Limited. To
manufacture new generation personal segment Utility Vehicles and Sports Utility
Vehicles for the Company as well as cars and other vehicles for Renault and
Nissan. Both the plants should become operational over the next three years.
Farm Equipment Sector:
The year under review, the tractor industry grew by 21.2%.
It is the fourth consecutive year the industry saw growth which was due to a
good monsoon, better availability of credit and focus on retail tractor
financing by the Banking Sector. However, the growth has tapered in the last
quarter on account of the retail squeeze.
The Company sold 1,02,531 tractors as against 85,029
tractors sold in the previous year registering a significant growth of 21% and
produced 1,03,847 tractors as against 87,075 produced in the previous year
recording a notable growth of 19%. The Company maintained its market leadership
for the 24th consecutive year in the domestic tractor market.
The year under review, the Company launched the 'Mahindra
Shaan', a Multi-Utility Tractor, another "first of its kind" in
India. Shaan is a 25 HP innovative product designed to serve small and medium
farmers in multiple ways, not only on the field but also on the road. Besides,
being used as a regular tractor, the inbuilt trolley feature enables the
customer to use Shaan for transportation of farm produce and other commercial
loads.
The Company continued with its export focus with volumes
growing by 8%. Some of the major export markets such as Sri Lanka and
Bangladesh recorded highest ever sales growth with a market share of 22% and
27% respectively. Satellite Plants were set up in Chad, Mali in Africa and
there were strategic tie-ups with AI-Frat in Syria and ITMCO in Iran. The
turnover of the Company's Genset and Engine businesses also touched a new high
of Rs.2710.000 Millions. The Company has started manufacturing Gensets at Delhi
and Pune and has added several corporate clients in the current year for
supplying Gensets and Engines. The Company sold 24,141 Engines and Gensets
during the year under review as against 15,776 sold during the previous year,
registering a phenomenal growth of 53%.
Subject Defence Systems Division:
The Company provides world-class armouring solutions forb
Light Combat Vehicles, Multi-Utility Vehicles and Sports Utility Vehicles besides
design and development for prototyping special Military Vehicles and conversion
of available vehicle platforms to special vehicles. The Company supplied 200
Rakshaks, a bullet proof vehicle to the Indian Army during the year under
review. The Company is also considering venturing into supply of light armoured
vehicles, high mobility vehicles and underwater naval systems.
Subject Logistics Division:
The Company offers differential and specialised end to end
logistics solutions to select industries in the Automotive, Retail, BPO and
ITES Segments by channelising internal and global capabilities and resources.
This Division of your Company achieved revenues of Rs.3820.000 Millions with a
client base of more than 165 customers including various corporates and
multinationals, registering an impressive growth of 52% over the previous year.
Profits:
The Profit for the year before Depreciation, Interest,
Provision for Contingencies, Exceptional items and Taxation was Rs.1,4578.300
Millions as against Rs.1,0718.800 Millions in the previous year registering an
increase of 36.01%. Profit after tax was Rs.1,0683.900 Millions as against
Rs.8571.000 Millions in the previous year recording an increase of 24.65%. The
Company continues with its rigorous cost restructuring exercises, which have
resulted in significant savings by efficiency improvements through continued
focus on optimisation of plant capacity utilisation, market performance and
controlling operating and financing costs and right sizing in almost all areas.
Finance:
The Company in May, 2004, had made a US$ 100 million Foreign
Currency Convertible Bond (FCCB) offering to international investors. The
period upto 28 May, 2007, several Bondholders exercised their conversion option
resulting into Bonds of value US$ 98.20 million getting converted into Equity
Shares/Global Depositary Receipts.
As already reported last year, in April, 2006, the Company
made a FCCB issue of US$ 200 million to the international investors. The issue
carried a zero coupon rate and the tenure of the issue was five years with a
yield to maturity of 5%, the conversion price being Rs.9220.400 Millions. The
issue proceeds are earmarked for product development, modernisation and
expansion of existing manufacturing facilities and expansion by internal growth
as well as overseas acquisitions and in addition, for such purposes as may be
permitted from time to time under applicable laws.
The Company raised an External Commercial Borrowing of US$
20 million for meeting part of funds required for modernization and expansion
plans. Funds were raised for a three year period at highly competitive rates.
The Consortium of Bankers continues to rate the Company as a prime customer and
extend facilities/services at prime rates. The Company follows a prudent
financial policy and aims to maintain optimum financial gearing at all times.
The Company's total Debt to Equity Ratio was 0.46 as at 31st March, 2007.
Fitch Ratings India Private Limited (FITCH) reaffirmed the
"AA+(Ind) with a Positive Outlook" rating assigned by it to the
Company's outstanding Debentures in the previous financial year. The rating
indicates strong capacity for timely payment of financial commitments and low
expectation of credit risk. Similarly, CRISIL Limited (CRISIL) has reaffirmed
the "AA+" rating but has revised its rating outlook to
"Negative" from "Stable". The revision in outlook reflects
CRISIL's belief that the Company could leverage its Balance Sheet to finance
its capital expenditure and inorganic growth plans, thereby increasing its
financial risk profile. CRISIL's rating indicates High Safety on timely payment
of interest and principal.
MANAGEMENT
DISCUSSION & ANALYSIS
Industry
Structure
The automotive industry is one of the key components of the Indian
manufacturing economy. The Indian automotive industry achieved a turnover of
Rs.1650000.000 Millions in 2005-06 and accounted for over 13 million direct and
indirect jobs and 17% of the total indirect taxes. (Source: Automotive Mission
Plan 2016, Government of India). In the year under review, total vehicle
production (including two wheelers) grew 14%.
The total production of Multi Utility Vehicles (MUVs), Light
Commercial Vehicles (LCVs) and three wheelers in India during the year under
review was 1,088,676 vehicles. This is a growth of 25% over the previous year
(Source: SIAM). The Company's production was 178,982 vehicles. Thus the Company
accounted for 16.4% of the Indian production of MUVs, LCVs and three wheelers
in the year under review. MUVs are a family of vehicles having versatile forms
for various applications like passenger transport or goods transport or a
combination of the two. MUVs are further categorized into soft tops, hard tops
and pick-ups. There are six manufacturers of MUVs in India. The Company is the
largest manufacturer of MUVs in India, offering a range of over 20 models.
274,520 MUVs were sold in India in the year F-07, a growth of 14% over F-06
(Source: Industry and internal).
LCVs carrying 2MT to 4 MT of payload are commercial vehicles
(CVs) used mostly for intrastate movement of goods. The Company competes in
this category of LCVs through its subsidiary Mahindra International Limited.
(MIL). In F-07 43,113 LCVs (upto 4 MT payload) were sold - a growth of 4% over
F-06 (Source: Industry and internal). There are six manufacturers in India in
this specific LCV segment.
India provides the largest market in the world for three
wheelers. 403,909 three wheelers were sold in India in F-07 demonstrating a
growth of 12% (Source: SIAM). The larger three wheeler segment, (i.e. three
wheelers with a gross vehicle weight (GVW) of over 1 MT) accounts for roughly
13% of the three wheeler market in volume terms (Source: SIAM) The Company has
established a very strong presence in this segment, since its entry in
2001. In F-06 the Company made an entry into the smaller three wheeler category
with the launch of its small load carrying three wheeler Champion Alfa.
The
Farm Equipment Sector:
The Indian Tractor market is the largest in the world, in
terms of sales volumes. In the current year 3,18,317 tractors were sold in
India and 34,415 tractors were exported.
The tractor market is segmented by horsepower into the low
25 HP segment, the mid segment of 35 HP and the higher segment of above 45 HP.
Most of the major players cater to all the three segments. However, their
relative strengths and market positions differ from segment to segment. The
domestic tractor industry is fragmented, with about 14 major players and a
couple of small local players. Many factors affect tractor sales including the
monsoon, means of irrigation and reach of water, government declared support
prices for crops, commodity prices, crop production expenses (including seeds,
fuel, fertilizer, pesticides and other costs) and the credit policy announced
by RBI. This last factor is relevant since more than 90% of tractor sales are
on credit.
M&M's Farm Equipment Sector (FES), which designs,
develops, manufactures and markets tractors for Indian arid overseas markets,
is the largest manufacturer of tractors in India and has sustained its market
leadership in the Indian tractor market for over 24 years. FES is going global
at a rapid pace. Mahindra tractors are exported to U.S.A., China, and
Australia, African countries, the SAARC countries like Nepal, Bangladesh and
Sri Lanka and Eastern European nations, where they are sold under the parent
^Mahindra' brand name.
Industry
Developments
The
Automotive Sector
The high growth of the Indian economy in the year under review
fuelled the growth of the Indian automotive industry - vehicle production
(including two wheelers) increased by 14% over the previous year (Source:
SIAM). This growth needs to be seen in the context of several adverse
developments during the year. High fuel prices and increase in commodity prices
led to increased vehicle prices for all segments except small cars (as excise
duty on small cars dropped from 24% to 16% in the 2006 Union Budget). Interest
rates went up significantly during the year. Clearly these adverse developments
were overcome by the increased purchasing power of the Indian consumer as well
as the economic boom in manufacturing and services sectors.
The total number of MUVs sold in India increased by 14%. The
LCV segment (2-4 MT of payload) increased by 4% in sales volumes. The large
three wheeler segment witnessed a decline in volumes of 28% following the 20%
decline last year. (Source: Industry and internal)
Within MUVs, after a 7% decline last year, the pick-up
market bounced back to grow 20%. The hard top sub segment, which is the largest
sub segment in MUVs, saw volumes increase 16 % in the year under review. The
soft tops sub segment has been declining significantly over the last few years
and declined a further 24 % in the year under review.
The
Farm Equipment Sector
The first monsoon (between June and September) of FY 06-07
was 99% of the Long Period Average. The second monsoon was also good and
resulted in a 2.6% increase in Rabi sowing this year. Due to this and water availability
during the year, crop production (Rabi and Kharif combined) is estimated to be
1.4% higher than last year. The Government also announced higher Minimum
Support Prices for various crops for both Rabi and Kharif periods. It is
estimated that the agricultural GDP of India will grow by 2.7%.
Increased credit to agriculture, estimated at Rs.1940000.000
Millions, in this year, and a better focus on retail tractor financing by the
banking sector, helped the growth of the tractor industry. The industry witnessed
a growth of 21.2% in domestic sales volumes over F-06. The domestic industry
closed at 318317 tractors in F-07, compared to 262621 tractors in F-06. Exports
from India amounted to 34415 tractors in F- 07, a growth of 13.4% over last
year.
The industry had to bear the impact of hikes in the price of
raw materials. Over the last three years, the prices of important input
materials like steel, pig iron, and rubber have continuously increased. The
prices of crude oil increased significantly in the current year. Margins
therefore continued to be under pressure, despite the upturn in the industry.
The industry is witnessing consolidation in the domestic
market. In F-06 Tractor and Farm Equipment Limited (TAFE) bought Eicher
Tractors Limited. This year, M&M successfully bid for a 43.3% shareholding
in Punjab Tractors Limited. (PTL).
M&M
Performance
The
Automotive Sector
The Automotive Sector (AS) of the Company has been a full
participant in the robust growth of the automobile industry. It is engaged in
the MUV and three wheeler segments and in the LCV segment through its
subsidiary MIL. The Company is now entering the passenger car segment through
another subsidiary Mahindra Renault Private Limited (MRPL). Production of the
Logan mid sized sedan commenced around the end of the fiscal year 2006-07.
Sales commenced from April 2007. The Company manufactures LCVs for MIL and
passenger cars for MRPL on contract basis and also markets these under
distribution contract for a fee.
For the fifth consecutive year, the Company's vehicle
production and sales touched an alltime high during the year under review.
144,090 vehicles [including 8,811 LCVs for MIL and 614 cars for MRPL] and
34,892 three wheelers were produced, a growth of 12% and 56% respectively. A total
of 127,958 vehicles and 33,700 three wheelers were sold by the Company in the
domestic market, a growth of 7% and 50% respectively. MIL sold 8,550 LCVs in
the domestic market. Thus the Company and its subsidiary MIL together sold
170,208 vehicles and three wheelers in the domestic market demonstrating a
growth of 18% over the previous year.
Overall, a record number of 127,856 MUVs were sold by
M&M in the domestic market in the year under review as against the sale of 114,694
MUVs in the previous year. The Company's domestic MUV sales volumes grew 11%,
against the industry MUV sales growth of 14%. LCV sales volume of the Company
and MIL taken together was 28% higher than last year against the industry
growth of the 2-4 MTn payload segments of 4%. In the large three wheeler
segment, the Company's sales volumes declined by 22% against a 28% decline for
industry as a whole, leading to an improvement in market share.
The success of the refreshed Scorpio and the Bolero variants
helped the Company grow by 11% in the hard top MUV sub segment. A refreshed
version of the Bolero was launched in March 2007.
In the pick up sub segment, the Company launched a new low
priced model, Maxi Truck, during the year, which did very well in the market
leading to the Company's pick up volumes increasing 25% and hence also driving
the industry sub segment growth of 20% which made this the fastest growing M U
V sub segment once again. The soft tops MUV sub segment declined 24 %, while
the Company's soft top sale volume declined 21 %. Due to these sub segment
shifts and performances, the Company's MUV market share in India declined
slightly from 47.6% in the previous year to 46.6% in the year under review.
In LCVs, M&M, through its subsidiary MIL, has a presence
only in the lower GVW (< 4MT) segment of the market. As mentioned earlier,
this LCV sub segment witnessed a growth of 4% in the year under review, while
the Company's and its subsidiary's LCV sales improved by 28% due to recent
launches in the passenger segment as welj as the repositioning of a load
carrying model. One of the principal reasons for this very healthy growth was
the increased focus on the business through its subsidiary. This led to an
increase in market share in the segment from 16.3% in the previous year to
20.1% in the year under review. The subsidiary company is currently also
working on developing products for the higher end of the LCV segment as well as
larger CVs.
In the declining large three wheeler segment, the Company
sold 14,146 large three wheelers against 18,112 in the previous year and
against 22,953 the year prior to that. The Company's small goods carrying three
wheeler, Champion Alfa that was launched in select markets last year was
introduced in all the major markets in the year under review. The Company sold
19,554 Champion Alfas in the year under review against 4,307 sold in the
previous year.
Given the high growth expectations from the Indian
automotive industry, and given the Company's participation in ever increasing
areas of the industry, the Company is planning to set up two greenfield plants,
one near Pune and another near Chennai, to meet future domestic and export
capacity requirements. The plant near Pune will specialize in commercial types
of vehicles for the Company as well as CVs for MIL. The plant near Chennai will
be set up in partnership with Renault s.a.s and Nissan Motor Company Limited to
manufacture new generation personal segment MUVs for the Company and cars and
other vehicles for Renault and Nissan.
The Company has intensified its efforts to identify niche
markets for its automotive products throughout the world, especially
geographical areas that have similar sales, distribution and marketing
conditions as India. Over the last three years the Company introduced its
vehicles into many new geographies including Europe, Middle East, South America
and South-East Asia by adapting unique business models for each country. It
established a beachhead for Europe with a JV in Italy that sells the Scorpio
(called the Goa in Europe) and, the Bolero. The Company's vehicles are now sold
in Italy, France, Spain and Portugal as part of a plan to cover Europe
gradually. The Company launched a pick up version of the Scorpio in South
Africa during the year, becoming the first Indian automotive company to launch
a product internationally outside India for sale. These initiatives resulted in
a continuation of the strong growth in the Company's export volumes. Volumes
grew 45% from 5,534 [including 175 vehicles sourced from MIL] in the previous
year to 8,021 vehicles [including 254 vehicles sourced from MIL] in the year
under review. In line with the Company's objective of promoting and
establishing the Mahindra brand across the globe, the entry into all these new
markets was under the "MAHINDRA" brand name.
In Operations, the Company focused on increasing capacity at
existing plants, a ramp up of its new Uttaranchal plant and on rigorous cost
reduction. In recognition of the Company's efforts at conserving energy, the
Kandivli Plant and the Zaheerabad Plant were awarded the National Energy
Conservation Award – with the Kandivli Plant being given the Award for the 4th
consecutive year, a unique feat. It also bagged a State level award for Energy
Conservation. AS' Nashik plant won the National Award for excellence in water
conservation. The year, the Company was granted a patent for an apparatus
developed by AS for testing the decorative automotive components for combined
effects of chemical and mechanical wiping.
The Company has also been making significant efforts to take
customer satisfaction to even higher levels. The Company significantly improved
its ranking on customer and sales satisfaction in syndicated studies conducted
by independent third party agencies like J.D. Power. In the TNS study on Dealer
Satisfaction released in 2007, the Company ranked first. The Company was also
rated second in a TNS study on Most Trusted Indian car companies. The allnew
Scorpio launched at the end of the previous year received the Business World
National Institute of Design Award in the Best Automobile Design - Four
Wheeler' category and was also awarded the coveted Golden Peacock Award for
Innovative Products / Services in the Automobile segment. These awards augur
well for the future.
In the last quarter, the Company also unveiled the
bio-diesel Scorpio and Bolero DI vehicles for 100% real world usage trials. The
Scorpio is the first Asian vehicle in its class to run on 100% bio-diesel.
The
Farm Equipment Sector
M&M became the first tractor company in India to sell
more than 100000 tractors in a year. The Company sold 102531 tractors in F-07
as against 85029 tractors sold during F-06. This includes export of 7525
tractors as against 6,981 tractors
exported last year. The Company crossed another milestone in F-07; the
cumulative sale of tractors till date crossed the 1200000 tractors mark. It
sustained its leadership position for the 24th consecutive year with a market
share of 29.8% in the domestic tractor market.
The Company has been a pioneer in the Indian tractor
industry in many ways. It had introduced the first Turbo tractor in India. It
was the first tractor company in the world to win the prestigious Deming Award.
In the current year,
F-07, it launched the Mahindra Shaan', a Multi Utility
Tractor, another "first of its kind" in India. Shaan is a 25 HP
innovative product designed to serve small and medium farmers in multiple ways,
not only on the field but also on the road. Besides being used as a regular
tractor, the inbuilt trolley feature enables the customer to use Shaan for
transportation of farm produce and other commercial goods like sand, bricks and
flowers.
The Arjun Ultra-1, which was launched in F-06 for the domestic
market, was well received and. has significantly contributed to growth in the
higher HP segment in F-07. Apart from this, the Company continued to evolve new
products and upgrade the aesthetics, styling and ergonomics of existing
products. It also rolled out two new product variants each for the 55 and 60 HP
categories for the US markets.
This year, the Company has trained a special focus on
Customer Centricity and rural technology development. A 24x7 toll free number
has been introduced to address customer queries and complaints - another first
in India from M&M. In line with the growing demand for automobiles running
on alternate fuels, a Bio-Diesel programme for tractors was initiated. On 7th
February 2007, a tractor that can run on 5% bio-diesel was displayed in New
Delhi in the presence of the Union Minister for Petroleum and Natural Gas.
The Company also sells engines and gensets to various
industries. The gensets are sold under the Mahindra Powerol' brand. In F-07,
engine and genset sales put together increased by 53% m volume terms while the
sales more than doubled in value terms. In F-06, the Company had made an entry
into the retail and nongenset segments. This year it developed noise resistant
canopies for gensets in accordance with the Central Pollution Control Board
norms. It became the market leader in the telecom sector for Powerol gensets.
Oh the global front the Company's strategic joint venture in
China - Mahindra China Tractor Company Limited (MCTCL) - was able to reach
planned capacity by the end of its first year. A few products of MCTCL are
being tested in target markets. It is also using suppliers in China as an
alternative source for some commodities. MCTCL aids this process.
Strategically, this JV offers M&M a faster entry into China and a
complementary product range for China as well as for export markets.
In the USA, the 0-70 HP tractor industry declined by 12%
between April 2006 and March 2007. The major reasons were fuel price increases,
softening of the housing market and higher energy costs. Mahindra USA slowed
down at the lesser rate of 7%.
The overall growth in exports for Rest of the World (ROW)
tractor markets (excluding USA and China) in F-07 was an impressive 132%.
Australia and Africa were major contributors to this growth. The Australia
operations, which began in F-06 with the setting up of an assembly plant at
Brisbane, are doing well. The Company also entered new markets in F-07
including the Middle East and South America.
The Company continued its journey towards excellence in
business process improvements in several ways. A Lean Manufacturing initiative
was started at all its plants. TPM was launched at the Mumbai plant in November
2006. Involving suppliers in the process strengthened the ongoing focus on continuous
improvement.The Mumbai and Rudrapur plants were certified in F-07 for
'Occupational Health and Safety Assessment Series' (OHSAS- 18001). This makes
all the four of the Company's plants OHSAS certified. The Company was also
granted a patent for a Self Air-bleeding fuel supply system with gravity-primed
fuel feed pump developed by it for diesel engines.
The Company continues to improve its supply chain by
reducing dealer stocks and outstandings. It believes that its dealer stocks and
outstandings, in terms of number of days, are much lower than other industry
players.
Opportunities
The Indian economy has been growing at an annual average
growth rate of well above 8% for the last three years making it one of the
fastest growing large economies in the world. This kind of growth focus
combined with the Company's diligent expansion of its technological and product
development capabilities, and its active search for overseas partners and
markets, augurs well for the coming years.
India's automotive sector is one of the fastest growing in
the world. With the Indian economy on a high growth path and with the
consequently increased disposable incomes of the population at large, the
Indian automotive industry is expected to have significant growth opportunities.
The Indian Government is also working on a plan to significantly increase the
growth prospects of the Indian automobile industry. It has announced a new
automotive policy, viz. Automotive Mission Plan 2016 (AMP 2016), in partnership
with the industry with the objective of doubling its contribution to the Indian
economy over the next ten years. With the Company's enhanced presence in the
Indian automotive industry through its joint ventures for CVs and cars as well
with its entry into the smaller three wheeler categories, the Company is well
poised to garner an increasing share of this fast growing segment of the Indian
economy.
In the Automotive Sector, the Company believes that its core
MUV market is likely to increase its share in the light vehicles category due
to the inherent versatility of MUVs for a fast growing developing country. The
proportion of MUVs in India is relatively low compared to corresponding figures
in Asian countries that share a similar or more developed profile. In the long
term, we believe that the light vehicle market will expand at a fast clip in
India and that MUVs will take an increasing share of this market. The AMP 2016
also states that fiscal benefits should be provided to MUVs, which could lead
to further MUV growth. The Company's entry into the car market through a joint
venture and its strong presence in the MUV segment will enable the leveraging
of the full range of opportunities.
The ongoing WTO and Free Trade Area negotiations with
Thailand, ASEAN, SAARC countries and the Mercosur countries are likely to lead
to lowered tariffs across many target export markets. This could provide a
significant opportunity to generate larger volumes from export sales and
further the sector's strategic emphasis on the development of exports.
Given the current state of road infrastructure in the
interiors, as well as the extremely high cost required for improvement, MUVs
will continue to be the most appropriate and economical vehicles for
transporting people in the interiors. Rural public transportation is not as
extensively developed as in the urban areas, providing further opportunities
for MUVs and LCVs.
MUVs and CVs are preferred vehicles for projects and
construction sites like the Golden Quadrilateral road project and the North, South,
East and West Corridor project. A higher level of industrial development
generally leads to a greater demand for MUVs and CVs. Hence if the planned rate
of GDP growth is achieved over the next decade, the demand for MUVs and CVs
should increase commensurately.
The increased infrastructural investments required
maintaining the high growth of the Indian economy - like the North South East
West corridor which has a budget of tens of Millions - and the increased goods
movement from a fast growing economy would maintain a high demand for
CVs. To capture a share of the growing medium and heavy CV segment, the
Company's subsidiary, MIL, will launch a new range of medium and heavy CVs over
the next few years and thus ensure the Company's participation in this
important segment of the Indian automotive industry.
The burgeoning Indian middle class population, with fast
growing disposable incomes, with an increasing propensity to spend, along with
the huge increase in the working age population expected over the next 10
years, will drive high growth for passenger vehicles. Given that over half the
Indian market is accounted for by passenger cars, the Company's partnership
with Renault to introduce Renault models suitable for India through its
subsidiary MRPL will provide the Company incremental growth from participating
in the other fast growing segment of the Indian auto industry.
Thus, through these strategic initiatives, the Company has
put in place plans to increase its size of the addressable market of the Indian
automotive industry from the current 17% to 75%, providing a huge opportunity
for growth. Regulatory measures on compulsory scrapping of vehicles beyond a
particular vintage have been mooted in some States. The adoption of these norms
could lead to higher demand due to a surge in the replacement demand of the
scrapped vehicles.
There are opportunities for the Farm Equipment Sector as
well. The Government of India has given increased focus to agriculture in the
budget for F-08. The crop and water situation also appears satisfactory, which
is an encouraging sign for the tractor industry. The Rabi crop sowing increased
by 2.6% this year, compared to F-06. This crop will be harvested in the first
quarter of next year. In India, 76 water reservoirs are identified as xmajor
reservoirs' since they contribute to 63% of the total water capacity in the
country. The water level in these major reservoirs across India was higher than
last year by 12%.
There are also certain states in India where penetration is
low and these provide opportunities for growth. The Company will leverage these
opportunities by strong marketing initiatives like brand building, creating
stronger franchises, restructuring dealers and the introduction of new
products.
The USA and China are among the top three tractor markets in
the world apart from India. The Company plans to continue its focus on these
markets to become a global leader. Subject USA plans to introduce a new series
of models in US markets that will open up new customer segments. In China,
MCTCL has started selling tractors in the domestic Chinese market. M&M is
well positioned to grow sales in the Chinese market. M&M is also exploring
various global tractor markets in Africa, East Europe and the Middle East.
Facilities at the Nagpur and Rudrapur Plants will ensure low
cost manufacturing bases for the Company, China will also serve as a low cost
sourcing base for its products.
The pressing need of overseas automotive players to cut
costs has created an outsourcing opportunity for India in the area of
automotive systems/aggregate production. India has a competitive edge due to
its strong base of highly skilled (and relatively low cost) engineers. M&M
already has domain expertise in many of the required areas and can offer global
O.Es and Tier 1 suppliers, products and services across the chain, right from
the sourcing of steel to the design of systems. These capabilities have been
strategically integrated into a single sector, Mahindra Systech. This move is
expected to result in further business growth and to establish the Mahindra
brand in the global automotive arena. It will also partially de-risk the
cyclically inherent in the Automotive and Farm Equipment businesses.
Apart from this, the sectors will share synergies of resources,
especially for sourcing, giving major opportunities for savings.
Threats:
For the Automotive Sector more stringent regulatory norms
are being introduced. While these measures are welcome, they may result in an increase
in manufacturing costs, which, in turn, may affect margins or demand in a price
sensitive situation.
Import tariffs have been progressively reduced and are
expected to be reduced further in the future in line with India's obligations
under WTO and its bilateral free trade agreements with certain countries, with
the possible eventual elimination of import tariffs on imports from these
countries. This will increase competitive pressures on the Company.
The Company's exports, a strong thrust area, can be
adversely affected if the Rupee continues to appreciate.
Current trends indicate that interest rates for vehicle and
tractor loans given by NBFCs and Banks in India are likely to increase over the
years and this may affect the Company's sales volume leading to lower
profitability.
The entry of new players has made the passenger car and MUV
markets much more competitive affecting the margins of all participants. The
Company is countering this threat by a stronger focus on reducing costs and
increasing efficiency of operations. It also hopes to garner greater economies
of scale from its entry into the car market with its joint venture with
Renault.
Any reduction in the price differential between petrol and
diesel could increase demand for petrol MUVs at the expense of diesel MUVs.
Almost all of the Company's MUV models are diesel powered and an increase in
preference for petrol vehicles could be a disadvantage to the Company. However
even after four years of fuel price decontrol, a substantial differential has
been maintained.
Mandatory use of vehicles powered by alternative energy
sources could lead to a demand for different types of vehicles. The Company has
developed products powered by alternate energy like CNG and electricity to
provide lower polluting products for a better environment, which minimizes this
risk. The Company has also developed prototypes of a hybrid Scorpio and
hydrogen powered three wheeler, thus demonstrating its capabilities. As mentioned
earlier, it also developed bio diesel powered Scorpio and Bolero in the year.
Hence the Company is well placed to move with the trend towards alternative
energy vehicles, should it take place.
Consistently high fuel prices increase the running cost of
vehicles, and may therefore impact demand for automobiles. The impact could be
felt on the auto sector bottom-line if not passed on to the customer. The
Company continued to be amongst the most aggressive in passing on these costs
to consumers, but may not be able to always do so in the future.
High fuel prices increase the running costs, and may
directly impact the tractor industry. Diesel constitutes over 60% of the
running cost of a tractor. Any further increase in the price of diesel may
adversely impact input costs for farmers. If not compensated by a crop price
increase, this can impact the availability of funds with farmers and, in turn,
the tractor demand.
For the Company, the mandatory use of vehicles powered by
alternative energy sources could lead to a demand for different types of
tractors. To minimise this risk, it is customising products powered by
alternate energy like bio diesel. In F-07 it successfully tested a tractor
powered by 5% bio diesel and will introduce it soon. The Company is well placed
to move with the trend towards alternative energy tractors, should it become a
norm in future.
With M&M's strong focus on globalisation, any form of
tariff/non-tariff barriers imposed by any country where M&M has a
significant presence or has plans to grow will be a threat. As for all
exporters, any political, economic uncertainty or natural calamity in the
countries of export would be a potential threat.
A major threat to both sectors lies in the escalation in raw
material prices. Such price hikes, especially for iron, steel and rubber are
likely to put pressure on prices and could affect margins or demand. Apart from
this, a steep increase in crude oil prices globally, has an inflationary impact
on the overall economy.
Risks
and Concerns
Stringent legislation on pollution and emission requirements
will increase the cost of the Company's products for the Automotive Sector.
Holding the price line could have an impact on profitability. Price increases
on the other hand could impact volumes.
The Company has established two joint ventures during F-06.
If these do not develop as per their business plan, the returns from them may
be lower than expected and this could have an impact on the Company's margins
and cash flows.
The Company is planning to set up two new green field plants
in association with global partners. With the addition of the full capacity of
these new plants, the Company's dedicated final capacity will significantly
increase as compared to its current capacity. If for some reason, the demand
for the Company's products does not allow a significant utilization of these
new capacities, the increased fixed costs would impact the Company's
profitability in the future. The Company has plans to bring in the incremental
capacity from these new plants, phase wise to protect it from this risk.
Additionally, the Company has tied up with other OEMs to jointly share the
costs and bring in economies of scale for the full plant, even if individually
the Company's volumes would account for only a part of the total.
For the Farm Equipment Sector a fluctuation in forex rates
could be a risk. However, M&M, as a practice, is taking appropriate steps
to hedge currency exposure thus limiting the impact of risk. It will continue to
focus on cost cutting measures through value engineering.
Domestically, growing NPAs of banks are a concern for the
Company, as this puts pressure on the credit availability to the farmers, 90%
of whom buy tractors against loans.
Interest rates for tractor loans tend to be higher than for
housing and car loans. Banks have been increasing the interest rates, which
could impact the1 loan repayment ability of the farmers, and thus impact
tractor demand. However/the Finance Minister, in his budget speech, has talked
about 2% subvention to support farmers for short-term crop loans.
Excise:
In, 1991, an excise dispute arose at the Nashrk and
Kandivili factories relating to the Commander range of ten-seater vehicles. The
jurisdictional Central Excise authorities, after due inquiry, approved the
classification of these vehicles as ten-seaters which attracted a lower rate of
excise duty under Tariff Entry 8702. The Company successfully contested the
subsequent challenge by the excise authorities, in two different, fora. The
Excise Department accepted these decisions and the classification of the
vehicle as a ten-seater was consistently approved by the authorities.
Inspite of the above, the Excise Department subsequently
disputed the classification on the ground that classification of the Commander
under Tariff Entry 8702 as ten-seater did not meet certain parameters of the
Motor Vehicles
Act, 1988 and the Maharashtra Motor Vehicles Rules, 1989,
and demanded differential duty. The Department's stand was that the Commander
should be classified under Tariff Entry 8703, attracting a higher rate of
excise duty. The Company challenged these demands by writ petitions before the
Bombay High Court, which stayed the further proceedings unconditionally. The
High Court remanded these matters for adjudication before the Excise
authorities.
The Commissioner (Adjudication), Navi Mumbai passed an order
dated 30th March 2005 confirming the demand of Rs.2160.300 Millions and imposed
a penalty of Rs.880.800 Millions The Company has filed an appeal and a stay
application in the Tribunal challenging this order. Initially, a bench of the
Tribunal passed an order (stay order) directing the Company to pay Rs.540.000
Millions and furnish bank guarantee of Rs.540.000 Millions as pre-deposit. The
Company challenged this before the Bombay High Court, which was pleased to sef
aside this stay order and remand the matter back to the Tribunal for hearing on
the stay application afresh. The matter is yet to be heard.
In another concurrent proceeding, the Tribunal passed an
order in July 2005 holding that the vehicles were appropriately classifiable
under Tariff Entry 8702 as ten-seaters. The Department has challenged this
order by filing a Civil Appeal, before the Supreme Court, which has been admitted.
The matter is yet to be finally heard.
The Company does not expect any liability on this account as
it has been advised that an extraneous legislation like the Motor Vehicles Act
cannot be referred to for the purpose of excise classification. The Excise
Commissioners, the Tribunal and various expert/statutory bodies holding the
vehicle to be a ten-seater have accepted this stand.
The current year, the Commissioner of Central Excise, Nashik
has also confirmed a demand of Rs. 245.500 Millions and imposed a penalty of
Rs.2.000 Millions in respect of "Armada" range of vehicles
manufactured by its Nashik Unit during the period 1992 to 1996, on the same
basis as adopted for Commander Range of vehicles. The Tribunal was pleased to
grant an unconditional stay against this order as well. The final hearing in
the matter is awaited.
Trade Reference:
- Acey
Engineering Private Limited 55
- Aditya
Engineering Company 56
- Advance
Cooling Systems Private Limited 57
- Aerocom
Automotives Private Limited 58
- Agrofab Machineries
India Private Limited
- Anandji
Haridas and Company Private Limited
- Behzad
Engineering Private Limited
- Bentex
Engineering Private Limited
- Caspro Metal
Industries Private Limited
- Chisty
Engineers Private Limited
- Choice
Precitech India Private Limited
- Circlips India
Private Limited
- Drill jig
Bushing Company (Madras) Private Limited
- Esoofali
Esmailji Karachiwalla and Company
- Gear Master
Engineering Company
- Genuine
Manufacturing Company
- A J Auto Private Limited
- Aarvee Waxpol Tools India Private Limited
- Acey Engineering Private Limited
- Agrofab Machineries India Private Limited
- Akal Spring Limited
- Anilux Coated Products Private Limited
- Ashish Autoparts Private Limited
- Asia Automotive Limited
- Atai Filters Private Limited
- Atop Products Private Limited
- Avesta Enterprise Private Limited
- Avi Autoriders Private Limited
- Behzad Engineering Private Limited
- Bell Agroma China Limited
- Bemco India Private Limited
- Benara Udhyog Private Limited
- Bentex Engineering Private Limited
- Bhagyashri Home Appliances Private Limited
- Bhpl Auto Engineers Private Limited
- Bil Metal Industries Limited
- Brahans Rubber Private Limited
- Caspro Metal Industries Private Limited
- Cast Metal Industries Private Limited
- Chishty Engineering Private Limited
- Circlips India Private Limited
- Classic Stripes Private Limited
- Deshpande Automech Private Limited
- Devki Auto Industries Private Limited
- Dham Fastners
- Disha Engineering
- Ehara Engineering Private Limited
- Emdet Engineers Private Limited
- Enginetech Systems India Private Limited
- Eros Metal Work Private Limited
- Fibre Foam (Bombay) Private Limited
- Goldseal Engineering Products Limited
- Gole Precision Tools Private Limited
- Hind Auto Cranks Private Limited
- Hindustan Fasteners Private Limited
- Hodek Engineering Works Private Limited
- Isha Steel Treatment Private Limited
- Jayashree Iron & Steel Alloys Private Limited
- K P Tools Private Limited
- Kamala Engineering (Diamonds) Private Limited
- Kaykay Fluid Seals Limited
- Lele Auto Private Limited
- Lumax Industries Limited
- Mac Steel Private Limited
- Magnum Engineers
- Menon Engines Limited
- Metal Processing Industries Private Limited
- Modern Cable Company
- Nimai Export Private Limited
- Nippon Audiotronix Limited
- Om Sai Auto Precision (India) Private Limited
- Padmini Engineering Private Limited
- Panorama Automotive Industries Private Limited
- Paras Mechanical Works Private Limited
- Perfect Electric Concern Limited
- Perfect Mechanical Works Private Limited
- Phiroze Sethna Private Limited
- Polar Auto and Engineering Industries Private Limited
- Pravin Auto Engineering Private Limited
- Pravin Wipers and Ancillaries Private Limited
- Precision Autowares Limited
- Precision Gears Indore Private Limited
- Radheya Machining Limited
- Rain Aagri Company Private Limited
- Ramkrishna Iron Works Private Limited
- Reliable Techno Craft Private Limited
- Ritvij Plastics Private Limited
- Sang Fasteners Private Limited
- Sarna Auto Tex Private Limited
- Satpuda Engineering Private Limited
- Seven Seas Forgings Private Limited
- Shivam Paints Private Limited
- Shivani Locks Limited
- Shroff Textiles Limited
- Sunax Automotive Plastics Private Limited
- Susira Engineering Industries Private Limited
- Suyog Rubber (India) Private Limited
- Sylea Automotive India Limited
- Tide Wateroil Company (India) Limited
- Tigon Pipe Benders Limited
- Tooledge Industries
- Toshira Auto Industries Private Limited
- Toyo Metal Lurgical Limited
- Trikaya Coatings Private Limited
- Unitech Engineers Private Limited
- Windals Precision Private Limited
- Trusa Engineering Private Limited
- Unitech Engineers Private Limited
- Varun Aluminium Industries Limited
- Veltech Forging Private Limited
- Vidharbha Agro Industries Private Limited
- Vidharbha Gas Vessels Private Limited
- Vikas Automatic Fasteners Private Limited
- Vrc Plastmould India Private Limited
- Windals Auto Private Limited
- Zoroastrian Automobiles Private Limited
Fixed Assets:
- Land Freehold
- Land Leasehold
- Cycles
- Technical Knowhow
- Development Expenditure
- Software Expenditure
- Land
- Building
- Plant and Machinery
- Furniture and Fitting
- Vehicles
Contingent Liability:
(a)
Guarantee Given by the company 31.03.2007
|
|
Guarantee |
Outstanding the Guarantee |
|
For Employees |
10.500 |
0.035 |
|
For other companies |
509.500 |
469.400 |
(b)
Claims against the company not acknowledged as
debts comprise of :
·
Excise Duty, Sales Tax and Service Tax claims disputed by
the Company relating to issues of applicability and classification aggregating
Rs.523.749 Millions (Net of Tax : Rs.401.211 Millions).
·
Other Matters (excluding claims where amounts are not
ascertainable): Rs.102.662 Millions (Net of Tax: Rs. 73.323 Millions)
·
Claims on capital account: Rs.11.820 Millions
(c) Uncalled
liability on equity shares partly paid Rs.105.000 Millions
(d) Taxation Matters
(i) Demands against the Company not acknowledged as debts
and not provided for, relating to issues of deducibility and taxability in
respect of which the Company is in appeal and exclusive of the effect of similar
matters in respect of assessments remaining to be completed:
- Income tax:
Rs. 1405.300 Millions
(ii) Items in respect of which the Company has succeeded in
appeal, but the Income tax Department is pursuing/likely to pursue in
appeal/reference and exclusive of the effect of similar matters in respect of
assessments remaining to be completed:
- Income tax
matters: Rs 379.645 Millions
- Surtax
matters: Rs.1.280 Millions
(e) Bills discounted not matured Rs.
626.643 Millions
CMT REPORT
(Corruption, Money Laundering & Terrorism]
The Public Notice information has been collected from various sources
including but not limited to: The Courts, India Prisons Service,
Interpol, etc.
1] INFORMATION ON
DESIGNATED PARTY
No exist designating subject or any of its beneficial owners,
controlling shareholders or senior officers as terrorist or terrorist
organization or whom notice had been received that all financial transactions
involving their assets have been blocked or convicted, found guilty or against
whom a judgement or order had been entered in a proceedings for violating
money-laundering, anti-corruption or bribery or international economic or
anti-terrorism sanction laws or whose assets were seized, blocked, frozen or
ordered forfeited for violation of money laundering or international
anti-terrorism laws.
2] Court Declaration :
No records exist to suggest that subject is
or was the subject of any formal or informal allegations, prosecutions or other
official proceeding for making any prohibited payments or other improper
payments to government officials for engaging in prohibited transactions or
with designated parties.
3] Asset Declaration :
No records exist to suggest that the property or assets of the subject are
derived from criminal conduct or a prohibited transaction.
4] Record on Financial
Crime :
Charges or conviction
registered against subject: None
5] Records on Violation of
Anti-Corruption Laws :
Charges or
investigation registered against subject: None
6] Records on Int’l
Anti-Money Laundering Laws/Standards :
Charges or
investigation registered against subject: None
7] Criminal Records
No
available information exist that suggest that subject or any of its principals
have been formally charged or convicted by a competent governmental authority
for any financial crime or under any formal investigation by a competent
government authority for any violation of anti-corruption laws or international
anti-money laundering laws or standard.
8] Affiliation with
Government :
No record
exists to suggest that any director or indirect owners, controlling
shareholders, director, officer or employee of the company is a government
official or a family member or close business associate of a Government
official.
9] Compensation Package :
Our market
survey revealed that the amount of compensation sought by the subject is fair
and reasonable and comparable to compensation paid to others for similar
services.
10] Press Report :
No press reports / filings exists on
the subject.
CORPORATE
GOVERNANCE
MIRA INFORM as part of its Due Diligence do provide comments on
Corporate Governance to identify management and governance. These factors often
have been predictive and in some cases have created vulnerabilities to credit
deterioration.
Our Governance Assessment focuses principally on the interactions
between a company’s management, its Board of Directors, Shareholders and other
financial stakeholders.
CONTRAVENTION
Subject is not known to have contravened any existing local laws,
regulations or policies that prohibit, restrict or otherwise affect the terms
and conditions that could be included in the agreement with the subject.
FOREIGN EXCHANGE
RATES
|
Currency |
Unit
|
Indian Rupees |
|
US Dollar |
1 |
Rs.40.29 |
|
UK Pound |
1 |
Rs.79.97 |
|
Euro |
1 |
Rs.61.23 |
SCORE & RATING
EXPLANATIONS
|
SCORE FACTORS |
RANGE |
POINTS |
|
HISTORY |
1~10 |
9 |
|
PAID-UP CAPITAL |
1~10 |
9 |
|
OPERATING SCALE |
1~10 |
9 |
|
FINANCIAL CONDITION |
|
|
|
--BUSINESS SCALE |
1~10 |
9 |
|
--PROFITABILIRY |
1~10 |
9 |
|
--LIQUIDITY |
1~10 |
9 |
|
--LEVERAGE |
1~10 |
9 |
|
--RESERVES |
1~10 |
9 |
|
--CREDIT LINES |
1~10 |
9 |
|
--MARGINS |
-5~5 |
- |
|
DEMERIT POINTS |
|
|
|
--BANK CHARGES |
YES/NO |
YES |
|
--LITIGATION |
YES/NO |
NO |
|
--OTHER ADVERSE INFORMATION |
YES/NO |
NO |
|
MERIT POINTS |
|
|
|
--SOLE DISTRIBUTORSHIP |
YES/NO |
NO |
|
--EXPORT ACTIVITIES |
YES/NO |
YES |
|
--AFFILIATION |
YES/NO |
YES |
|
--LISTED |
YES/NO |
YES |
|
--OTHER MERIT FACTORS |
YES/NO |
YES |
|
TOTAL |
|
81 |
This score serves as a reference to assess SC’s credit risk
and to set the amount of credit to be extended. It is calculated from a composite
of weighted scores obtained from each of the major sections of this report. The
assessed factors and their relative weights (as indicated through %) are as
follows:
Financial
condition (40%) Ownership
background (20%) Payment
record (10%)
Credit history
(10%) Market trend
(10%) Operational
size (10%)
RATING
EXPLANATIONS
|
RATING |
STATUS |
PROPOSED CREDIT LINE |
|
|
>86 |
Aaa |
Possesses an extremely sound financial base with the strongest capability
for timely payment of interest and principal sums |
Unlimited |
|
71-85 |
Aa |
Possesses adequate working capital. No caution needed for credit
transaction. It has above average (strong) capability for payment of interest
and principal sums |
Large |
|
56-70 |
A |
Financial & operational base are regarded healthy. General
unfavourable factors will not cause fatal effect. Satisfactory capability for
payment of interest and principal sums |
Fairly Large |
|
41-55 |
Ba |
Overall operation is considered normal. Capable to meet normal
commitments. |
Satisfactory |
|
26-40 |
B |
Unfavourable & favourable factors carry similar weight in credit
consideration. Capability to overcome financial difficulties seems
comparatively below average. |
Small |
|
11-25 |
Ca |
Adverse factors are apparent. Repayment of interest and principal sums
in default or expected to be in default upon maturity |
Limited with
full security |
|
<10 |
C |
Absolute credit risk exists. Caution needed to be exercised |
Credit not
recommended |
|
NR |
In view of the lack of information, we have no basis upon which to
recommend credit dealings |
No Rating |
|