Mahindra & Mahindra

Mahindra & Mahindra
Rating Date CMP Price Target Upside HOLD 10 May 2012 INR 661 INR 731 +11%
INVESTMENT ANALYSIS
Sustained growth in Utility Vehicles (UV) We believe M&M will consolidate its leadership position in the UV industry (56% market share). We expect UV volumes to grow at 20% CAGR in the period FY12-14E, in line with the industry, largely driven by the recent success of its high end offering XUV 500 and likely new launch of a mini Xylo in the current year
COMPANY DATA Industry Equity (INR mn) Face Value KEY MARKET DATA BSE Code BSE Group NSE Code Bloomberg Code Mkt Cap. (INR Bn.) 52 Week high/low Monthly Avg Turnover 500520 A M&M MM 406 875 / 616 85 Mn Auto 2936 5
Tractor slowdown to prevail through FY13E Following strong growth of 28%/24%/19% in FY10/FY11/H1FY12, we expect the sharp deceleration in tractor sales witnessed in H2FY12 to continue during the course of FY13E driven by a) b) c) d) Slower increase in farmers income owing to lower increase in MSPs Slower increase in (a) Labor costs and (b) Non-availability of labor; owing to a slowdown in MGNREGA expenditure Declining agri-credit and likely rise in NPAs Slower economic activity coupled with a high volume base
SHARE HOLDING PATTERN (Mar 2012)
Margin pressures to persist We believe that slowing tractor demand will have a cascading impact on margins as capacity utilization levels begin to recede and reduce the operating leverage advantages enjoyed in FY10/11. The standalone auto segment especially on the LCV front is facing intense competition which is leading to softening of margins. The entry of Ashok Leyland in the LCV segment with Dost has further increased competition and could lower pricing power of incumbents like M&M Valuations We expect M&M to witness earnings growth of 10% CAGR over FY12-14E given strong traction for the recently launched XUV 500, to be launched compact SUV and a recovery in tractor demand in FY14E. We value the company on SOTP basis at INR 731 comprising of INR 583 for the standalone business (valued at 10.4x FY14E EPS of INR 56) and INR 148 for subsidiaries
Promoters MFs, FIs, Banks FIIs Others
47% 21% 26% 6%
PRICE PERFORMANCE Returns (%) 3 Month 6 Month 12 Month * Benchmark Abs -3 -18 -2 Rel.* 1 -14 7 Sensex
Analyst Contact No
Jehan Bhadha 022 43022128
Email ID jehan-bhadha@darashaw.com
Summary Financials (Standalone) INR Mn. FY10 FY11 FY12E FY13E FY14E
Sales 180 228 299 319 384
YoY 43% 26% 31% 7% 20%
EBIDTA 29.6 34.6 36.6 33.9 43.7
Margin 16.4% 15.2% 12.2% 10.6% 11.4%
PAT 20.0 25.4 27.5 25.4 32.9
Margin 11% 11% 9% 8% 9%
EPS 34 43 47 43 56
YoY 139% 27% 8% -8% 30%
RoE 26% 25% 23% 19% 21%
1001-Regent Chambers, Nariman Point, Mumbai
Mahindra & Mahindra

CONTENTS
Pg
Business Overview Tractors Utility Vehicles CVs, Three Wheelers, Two Wheelers, PVs Acquisitions based on strategic and economic rationale New model launches CAPEX Tractors pain to negate Autos gain & Standalone Assumptions Valuations Darashaw vs Consensus Financials
3 4 16 18 23 25 25 26 27 28 29

Mahindra & Mahindra

Business Overview
Mahindra & Mahindra (M&M) is the flagship company of the Mahindra Group. It has two main operating divisions, autos and farm equipment. Autos include utility vehicles, light commercial vehicles and three-wheelers, and farm equipment includes tractors and agricultural implements. The company also has investments in standalone entities operating in the areas of hospitality, trade & financial services, auto components, IT and telecom.
TRACTORS
UTILITY VEHICLES
M & M
Others 9% John Deree 1 0%
Others 13%
UNDISPUTED LEADERSHIP
Intl. Tractors 8% Escorts 1 0%
M&M 40%
TAMO 12%
M&M 56%
B U S I N E S S S N A P S H O T
Toyota 18%
TAFE 23%
LCV MHCV PRESENCE IN 3 Wheelers 2 Wheelers Cars
Market share of 31%; observed volume growth of 25% CAGR over the past 5 years, as against industry growth of 20% In JV with Navistar for manufacture of higher tonnage trucks Market share at 13% from 10% in FY10 Market share of 6% in the scooters since its entry in FY10; Restructuring underway for motorcycles Focusing on mid-size segment
Cost INR Mn
RECENT ACQUISITIONS
Ssangyong Reva EPC Inds.
20835 2025 450
40% volume growth in CY11; access to technology and products for Indian and Global markets Access to electric vehicle technology Entry into fast growing micro irrigation industry
Consolidated Revenue Mix - 9MFY12

Others 14% Steel Trading 2% Financial Serv. 4% I.T 5% Auto 52% Farm Equipment 22%
Consolidated EBIT Mix - 9MFY 12

Others 6% Steel Trading 3% Auto 25% Financial Serv. 17%
I.T 9%
Farm Equipment 42%
Source: Company
Source: Company
Mahindra & Mahindra

Tractor Industry
Classification
The Indian tractor industrys size in terms of volume sales stood at 6.1 lacs in FY12. Historically, bulk of the industry sales were in the lower HP (horse power) category (<40 HP). However in the past few years we have witnessed a shift towards higher HP category (>40 HP). Today 55% of the industry sales are in <40 HP category as against 80% a decade ago. The management believes the industry will witness a shift towards the >40 HP category in the long run.
Classification on Horse Power basis 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 26% 23% 22% 22% 23% 20% 18% 17% 15% 15% FY09 16% FY10 55% 55% 53% 55% 50% 4% 15% 7% 15% 7% 17% 5% 18% 7% 21% 8% 21% 8% 24% 8% 26% 11% 27% 15% 25% 14% 24% 16% 28% 17% 28%
51%
51%
49%
46%
46%
46%
42%
41%
>50 41-50 31-40 <30
14% FY11
14% FY12
Source: CMIE
Tractor Demand Drivers / Dampeners

Factors Driver until now Increasing irrigation is Monsoon & Irrigation enhancing crop output owing to lower dependence on monsoon MSPs increased at a CAGR of Farmers Income 17% between FY09-12 v/s 5% between FY97-08 Penetration levels Increased from lower levels Accelerated lending to Agri Agri Credit & NPAs sector. Farm loan waiver in 2009 got rid of NPAs Reduced farm labor and increase in farm wages Used for construction activity, transport of high-volume- lowvalue items over short distances Source: Darashaw Expected to continue Rate of increase will likely moderate To continue Outlook
To continue Lending expected to be subdued as NPAs continue to rise Incremental growth in expenditure and man days will be minimal
MGNREGA
Increase in non-farm usage
Mahindra & Mahindra

A. Monsoon and Irrigation
Contrary to peoples perception, tractor sales have not had a strong historical correlation with monsoon. The proportion of Indias arable land under irrigation improved to 45.3% in FY09 from 40.5% in FY04. The government expects average annual irrigation spending to be INR 492 bn during the XIth Plan period (2007-12), up from INR 213 bn during the Xth Plan period (2002-07), which should further improve the irrigation intensity in India. Rising irrigation intensity is a positive for tractor demand as it improves a farmers visibility and confidence on crop output and reduces dependence on rainfall.
Rainfall (% of Normal)
Tractor Growth
High correlation period 110% 100% 90% 80% 70%
Low correlation period 30% 15% 0% -15% -30%
FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Source: Department of Agriculture, Darashaw
Rising irrigation reduces dependence on monsoon and increases crop output
% of Area Irrigated
45%
40%
35%
30%
25% FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Source: Department of Agriculture
Mahindra & Mahindra

B. Increase in farmers income
Farmers income is dependent primarily on the increase in MSPs of crops. Between FY97-08, the average increase in MSPs stood at a mere 5% which translated into subdued increase in farmers incomes. However since FY09, the MSPs have been rising at a CAGR of 17% which has resulted in a substantial increase in their incomes.
Indexed Growth in MSP of major crops 35% Average growth in MSP at 17% between 2009-12
25%
15%
Average growth in MSP at 5% between 1997-2008
5% FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
-5%
Source: Ministry of Agriculture, Darashaw
MSP of various crops
MSP of various crops INR / Qtl Paddy Wheat Jowar Bajra/Maize Sugarcane FY06 585 700 525 525 115 FY12 1185 1285 990 980 240 Change 103% 84% 89% 87% 109%
1400 1200 1000 800 600 400 200 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: Agriculture Ministry
Paddy (F)
Wheat
Jowar
Bajra & Maize
Source: Ministry of Agriculture, Darashaw
However moving ahead, we do not believe that the increase in MSPs will be of the magnitude witnessed over the past four years (CAGR of 17% between FY09-12). We thus expect modest increases in MSPs to dampen tractor demand in the coming years.
Mahindra & Mahindra

C. Penetration levels
Indias penetration level at 19 tractors per 1,000 hectare appears reasonable vis--vis the global average of 21. There are countries having much higher as well as lower penetration levels than India.
Tractors / 1,000 Ha 70 60 50 40 30 20 10 0 28 27 26 19 43 64 64
World Avg
13
10
Brazil
Mexico
Argentina
Germany
Source: Food & Agriculture Organization, Crisil
The average per capita operational size of land holding in India is 1.33 ha per person, which is far below the world average of 3.70. Further, land holdings have shown a marginal decrease from the holding size of that of a decade ago (1.41 ha). Over 80% of the land holdings in India are classified as small and marginal land holdings with the farm size of less than 2 ha which makes the use of tractors unviable. The industry is trying to address this issue by focusing on low Horse Power tractors (<20 HP). M&Ms management believes that products such as Yuvraj are garnering good response from smaller famers.
Tractor Industry penetration is yet low Area (hectare) Large Farmers Medium Farmers Small Farmers >8 28 <2 Farmland Mix 1% 17% 82% Tractor penetration 38% 18% 1% Source: Company
Australia
France
Uruguay
China
Chile
India
USA
Mahindra & Mahindra

D. Slowing agri credit offtake combined with rising NPAs
As we have highlighted in the past, growth in agricultural credit has slipped sharply in the past few months.
Tractor Growth 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15%
Agri C redit Growth 22% Agri Credit Growth
Tractor Growth
16%
10%
Mar-11
May-11
Dec-10
Dec-11
Sep-11
Apr-11
Feb-11
Aug-11
Nov-10
Nov-11
Source: RBI Nearly 44% of incremental NPAs in FY11 were created in the agri sector whereas the sector formed just 13% of the overall gross credit. Anecdotal evidence suggests a considerable deterioration in credit culture post the loan waiver scheme implemented in early 2009. We argue that easy credit availability (assumed so in anticipation of more such waivers) was in part responsible for the boom in tractor sales in the last couple of years. Farm loan NPAs account for 19% of State Bank of Indias (SBI) total NPAs. The countrys largest lender, which reported INR 40,098 crore of bad loans in its books as on December 31, 2011 said the ratio of its gross NPAs in farm lending to gross advances stood at 9.45%, while the overall gross NPA ratio stood at 4.61%. We expect the current slowdown witnessed in agri credit offtake to prevail over the coming year as banks try to minimize their advances from turning into bad debts.
Feb-12
Oct-11
Jan-11
Jan-12
Jun-11
Jul-11
4%
Mahindra & Mahindra

E. Slowing MGNREGA spend
Since its introduction in FY06, MGNREGA has been gradually impacting the labor availability and wages for farming activities. Our interaction with farmers and agri based companies confirms with this belief. We are consequently witnessing that farmers are increasingly using tractors to substitute labor given the higher wage inflation as well as the growing scarcity of labor. However we believe that while absolute spends could remain intact (given the political environment), it has already affected the growth momentum of tractor sales. In fact, we observe that MGNREGA spends and person days in the current year have actually declined
Total Expenditure (in Mn) 400000 300000 200000 100000 FY08 FY09 FY10
Growth 100% 80% 60% 40% 20% 0% -20% FY11 FY12E

Source: MGNREGA website
Person Days (in Mn) 3000 2500 2000 1500 1000 FY08 FY09 FY10
Growth in Person Days 80% 60% 40% 20% 0% -20% FY11 FY12E
Source: MGNREGA website
F.
Rising usage of tractors in non-agricultural activities
During the non-farming season, farmers lease out tractors for construction activity, quarrying, transportation of bricks and haulage of water and other high-volume, low-value items over shorter distances. The proportion of tractor sales with higher HP has been rising in recent years indicating higher usage for cargo. Thus it makes owning a tractor more economically feasible for farmers. While average land size has declined, the share of higher HP tractors (>40HP) has doubled from 23% in FY03 to 45% in FY12.
Mahindra & Mahindra

Consolidation auguring well for the industry
Eight years back (FY04), the top-three tractor companies in India accounted for 53% of the market. After the acquisition of Eichers tractor business by TAFE in FY06 and the acquisition of Punjab Tractors by M&M in FY08, the topthree companies accounted for a much higher 74% of the market in FY12.
Market Share of Top 3 Players 80% 75% 70% 65% 60% 55% 50% 45% 40% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 59% 53% 60%
TAFE acquires M&M acquired Punjab Tractors
74%
73%
75%
73%
74%
65%
67%
Source: Darashaw
The greater level of industry consolidation has substantially improved pricing discipline within the industry in recent years and has boosted profitability.
Margins - Pre & Post Industry Consolidation M&M 20% 15% 10% 5% 0% FY02 -5% -10% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Escorts
Pre consolidation phase
Consolidation & post consolidation phase
Ignored as negative
* Escorts margins are at EBITDA level; M&M margins are at EBIT level
Source: Darashaw
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Mahindra & Mahindra

Tractor growth Long term outlook is robust
Over the past two decades, the tractor industry has witnessed 4 cycles. The first two cycles (FY89-94 & FY94-03) witnessed lower growth rates whereas, the next two cycles (FY03-09 & FY09-13E) witnessed annual growth rates which were significantly higher .
Tractor Growth - Mapping Cycles 40% 30% 20% 10% 0% -10% -20% -30% FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E
CAGR of 7% CAGR of 2% CAGR of 13% CAGR of 15% Cycle 2 Cycle 3 Cycle 4
Cycle 1
Source: Darashaw We believe the tractor industry will continue to witness higher cyclical growth rates in future cycles as witnessed in Cycles 3 & 4 owing to sustenance of factors which have enabled this growth over the last 2 cycles. We expect the next cycle to witness a CAGR of 13% which is the lower rate among the past 2 cycles. We expect the next cycle (starting in FY14E) to have support from higher irrigation, resumption of agri credit growth and continued increase in tractor usage towards non-farm usage.
Cycle 1 FY89-94
Cycle 2 FY94-03
Cycle 3 FY03-09
Cycle 4 FY09-13E* FY13E
Outlook Next Cycle Post FY13E
Monsoon Irrigated Area
104% 35%
97% 39%
96% 43%
95% 46% Positive Positive
CAGR in MSP
13%
5%
8%
16%
Moderate
Moderate-High
Agri Credit Growth
10%
18%
25%
17%
Low
High
MGNREGA (Labor Shortage)
NA
NA
Introduced
Full Impact
Best is behind
Best is Behind
Non-farm usage
Low
Low
Moderate
High
Positive
Positive
Tractor Sales CAGR
7%
2%
13%
15%
0%
13% Source: Darashaw
*We expect FY13E to be the last year of the 4th cycle
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Mahindra & Mahindra

..however, near term outlook is weak
Following strong growth of 28%/24%/19% in FY10/FY11/H1FY12, we expect the sharp deceleration in tractor sales witnessed over the last few months to continue during the course of FY13E driven by e) f) g) h) Slower increase in farmers income owing to lower increase in MSPs Slower increase in (a) Labor costs and (b) Non-availability of labor; owing to a slowdown in MGNREGA expenditure Decline in agri-credit growth and likely rise in NPAs Slower economic activity coupled with a high volume base over the past three years.
Tractor Growth (3 month moving average) 60% 50% 40% 30% 20% 10% 0% -10% Jan-10 Jan-11 Mar-10 Mar-11 May-10 May-11 Dec-09 Dec-10 Dec-11
FY14E
Feb-10
Apr-10
Sep-10
Feb-11
Apr-11
Sep-11
Jan-12
Jun-10
Jun-11
Aug-10
Aug-11
Nov-09
Nov-10
Source: CMIE
We have assumed the domestic tractor market to be flat in FY13E and grow by 7% in FY14E
Tractor Industry Volumes 700000 600000 500000 400000 300000 200000 100000 0 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05
Growth 40% 30% 20% 10% 0% -10% -20% -30% FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E
Source: CMIE, Darashaw
Nov-11
Feb-12
Oct-09
Oct-10
Oct-11
Jul-10
Jul-11
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Mahindra & Mahindra

M&Ms positioning in the tractor market
<20 HP FY112 Volumes Industry Mix No. 1 Company Market Share No. 2 Company Market Share No. 3 Company Market Share 7033 1% 21-30 HP 75748 13% M&M 55% TAFE 30% Escorts 11% 31-40 HP 250701 41% M&M 41% TAFE 37% Intl. Tractors 9% 41-50 HP 168695 28% M&M 28% Escorts 21% New Holland 17% >50 HP 105481 17% M&M 45% John Deree 29% Intl. Tractors 13% Total 607658 100% M&M 39% TAFE 24% Escorts 10% Source: Darashaw
M&M's Market Share

50% 45% 40% 35% 30% 25% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Entry of John Deree and New Holland
* Includes PTL volumes since the start
Source: Darashaw
Player-wise market share

0% 8% 18% 22% 2% 10% 13% 24% 5% 10% 13% 22% 6% 11% 13% 27% 7% 11% 10% 24% 6% 10% 14% 23% 8% 9% 14% 23% 9% 9% 13% 22% 9% 9% 12% 22% 10% 9% 12% 21% 9% 8% 10% 24% John Deree Intl. Tractors Escorts TAFE M&M
46%
44%
40%
40%
41%
38%
37%
39%
40%
40%
39%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
Source: Darashaw
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Mahindra & Mahindra

M&M to maintain leadership and market share
M&M has maintained its stronghold on the tractor industry over the past 8 years. New entrants were able to have an initial impact on M&Ms market share but since FY04, M&M has been able to guard its market share at around 40%. We attribute M&Ms success to its
Trusted Brand Equity

M&M is a trusted brand among the farmer community. M&M accounts for over 40% of Indias installed tractor base, which means a higher availability of spares which also improves customer perception.
Widest dealer network

Network of 1,300 direct dealers (closest competitor TAFE has 800 dealers)
Own financing arm

M&M Financial Services (57% subsidiary of M&M) helps M&M penetrate areas of the country where financing by mainstream banks is sometimes an issue. MMFSL finances 35% of M&Ms tractor sales. None of the other tractor companies in India have a financing arm.
Highest resale value

M&Ms tractors have the highest resale value within the industry and it is relatively easier to sell M&Ms tractors in the second-hand market than those of its peers. M&Ms Mahindra Vishwas - an initiative to create a market for used tractors - has also contributed to this.
M&M tractor volumes to remain flat in FY13E; bounce likely in FY14E

We expect M&M to hold its turf by protecting its market share over the next couple of years and thus expect it to replicate industry growth rates. We expect M&M to grow its tractor volumes by -1%/13% in FY13E/14E.
14
Mahindra & Mahindra

Tractor margins are exhibiting declining trends from all time high levels
The tractor business, like CVs, is capex intensive involving high fixed costs and hence has a high operating leverage. The upsurge in volumes led to M&Ms capacity utilization in tractor plants rising from 50% in FY09 to over 80% in FY11. Consequently, M&Ms EBIT margins expanded from 11% in FY09 to over 17% in FY11.
Capacity Utilisation 90% Capacity Utilisation 80% 70% 60% 50% 40% 30% 20% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 EBIT Margin 20% 18% EBIT margin 16% 14% 12% 10% 8% 6%
Source: Darashaw We believe that slowing demand will have a cascading impact on margins as the capacity utilization levels begin to recede and reduce the operating leverage advantages enjoyed in FY10/11. The ongoing capacity expansion of 100k tractor capacity will be operationalised in H2FY13E capacity will rise ~40% - an additional risk from an operating leverage perspective, if volume growth doesnt escalate at that juncture. We expect segmental EBIT margins at 13.4%/14.4% for FY13E/14E from levels of 15.6% witnessed in 9M FY12.
Tractor - EBIT Margins are softening 21% 20% 19% 18% 17% 16% 15% 14% Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Source: Darashaw
Assumptions for the tractor segment

FY11 Volumes (in 000) Growth Avg. Realisations Growth Revenue Growth EBIT EBIT Margin 215,452 22% 454,709 1% 97,968 23% 17,083 17.4% FY12E 238,269 11% 485 7% 115,599 18% 17,820 15.4% FY13E 224,958 -6% 389 -20% 87,552 -24% 11,745 13.4% FY14E 234,964 4% 463 19% 108,833 24% 15,689 14.4%
Source: Darashaw
15
Mahindra & Mahindra

Utility Vehicles
Utility Vehicles (UVs) have registered 13% sales CAGR over the past decade compared to 14% for the PV industry. As such, the segment now contributes 12% of domestic passenger vehicle demand. We expect the UV industry to grow at 20% CAGR for the period FY12-14E. This high growth is on the back of introduction of new products like the compact SUV from M&Ms stable & Marutis Ertiga.
M&M dominating the UV industry
Strong franchise and product portfolio M&M UV volumes have grown at a CAGR of 17% since FY07 whereas the industry has grown at 10%. M&Ms above industry average growth trends has been driven by (1) exceptional franchise built around successful launches, such as Scorpio (2003), Xylo (2008) and XUV 500 (2011), all targeting urban customers and, (2) relatively better reach, which has aided rural centric models such as Bolero. M&M has steadily increased its already dominant share from 41% in FY07 to 55% in FY12
UV Market Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 42% 46% 47% 45% 43% 41% 42% 47% 55% 53% 55% 24% 22% 22% 10% 24% 7% 25% 9% 22% 17% 18% 19% 18% 19% 19% 18% 20% 18% 20% 17% 17% 18% 12% 20% 13% 14% 20% 14% 13% 19% Others 13% Toyota TAMO M&M
22%
20%
Source: CMIE
Competition less focused, but that could change TAMO and Toyota remain relevant competitors but are unlikely to pose significant threats with market shares of 13% and 20% respectively. We however expect fresh challenges from new global entrants. Of this, we would highlight Maruti Suzukis foray in MUV space in FY13E as significant, especially given its cost advantage and distribution reach. We believe global majors operating in the car business in India will also enter this segment soon. Competition has been increasing, but mainly in the premium SUV segment with products like Toyota Fortuner, Tata Aria, Skoda Yeti, Honda CRV and many others. The direct competitors to M&Ms current portfolio are from the entry level segment products like Chevrolet Tavera, Toyota Innova and Tata Safari.
16
Mahindra & Mahindra

XUV 500 to tap into latent demand for mid level SUVs A look at the urban SUV products available in the Indian market reveals that while there are multiple products in the entry level segment (INR 5-10 lacs) & premium segments (more than INR 20 lacs), there are no options in the mid level segment (INR 10-16 lacs). We believe that M&Ms XUV 500 has been rightly positioned and could tap into large latent demand for mid level SUVs.
XUV 500 - Rightly Positioned 24 22 20 18 16 14 12 10 8 6 4 2 0
Ford Edeavour Suzuki Grand Vitara Toyota Fortuner Mitsubishi Outlander Mitsubishi Pajero
INR 10-16 Lacs range
Toyota Innova
Chev Tavera
ICML Rhino
Mah Scorpio
Premier Rio
Mah Bolero
Mah Thar
Mah XUV 500
Tata Safari
Mah Xylo
Hyundai Tuscan
Skoda Yeti
Source: Darashaw
Based on our growth assumption of 20% CAGR over FY12-14E, we expect M&M to marginally loose market share by 150 bps in FY13E from 55.3% in FY12, owing to the launch of Marutis Ertiga. This is largely driven by the recent success of its high-end offering - XUV 500 (well ahead of competition), and the new launch of a compact SUV in Q3 FY13E, which should likely offset loss in other existing models.
Hyundai Santa Fe
No competition in the
INR Lacs
Tata Aria
Nissan X-Trail
BMW X1 Honda CRV
17
Mahindra & Mahindra

Commercial Vehicles, Three Wheelers, Two Wheelers, Passenger Vehicles
Second largest player in LCVs

M&M entered the LCV goods segment with its range of pick-ups built on the Bolero platform Bolero Pik Up, Bolero Maxi Truck, Bolero Camper, Maxx Pik Up, and Maxx Maxi Truck. With the addition of Maxximo, Gio and Genio to the range in recent years, M&M today has one of the widest portfolios in the LCV goods segment with payloads ranging 0.53.5 ton. Notably, vehicles with payload >3.5 ton are marketed under the JV with Navistar. M&M (including its JV with Navistar) currently accounts for 33% of the domestic LCV goods segment. It has increased market share by 640 bps in the past four years and has regained share lost due to the launch of Tatas Ace. M&Ms LCV goods volumes have seen 40% CAGR in the last three years, ahead of industry growth of 34%.
M&M Market Share 35% 36% 29% 29% 32% 34%
32%
33%
33%
32%
31%
26%
26%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13E
FY14E
Source: CMIE LCV growth to moderate We expect M&Ms market share trends to reverse over our forecast period. While industry should register 28% volume CAGR over FY12-14E, we expect M&M to register 22% growth, there by losing market share of 270 bps. (from 30.7% to 28.0%). Market share loss will primarily be triggered by (a) the entry of Ashok Leyland in the LCV industry with the launch of Dost which has received good response since its launch in October 2011 and (b) the capacity expansion of Tatas Ace from 3 Lac units per annum to 4.5 Lacs.
Marginal player in three wheelers

The domestic 3 wheeler industry has grown at a CAGR of 11% over the past decade where as exports have grown at a higher rate of 28%. The passenger carrier segment commands 88% of the 3 wheeler market with the balance being goods carriers. Further, over the last few years, 3 wheelers have become dependent on replacement demand, as state governments have not released many new permits. M&M is a marginal player with a 13% market share. We expect M&Ms three wheeler volumes to register a CAGR of 5% for the period FY12-14E v/s 10% for the industry.
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Mahindra & Mahindra

MHCVs success likely in the long run
M&M entered the Indian MHCV market with Mahindra Navistar Automotive - a 51:49 JV with Navistar, a US-based commercial vehicle company having annual sales of USD 14 bn and is the third largest commercial vehicle company in the world. M&M is looking to leverage its strong brand equity among commercial vehicle users. The MHCV goods segment has registered 16% CAGR over the past decade and 27% CAGR over FY09-12 after a decline during the slowdown in FY08 and FY09. While the market is cyclical, we are confident of a 9% CAGR over the next two year and five year period. Tata Motors and Ashok Leyland account for 63% and 19% of the market respectively, and we see increasing competition from Volvo (now with Eicher), Asia Motor Works and Mahindra Navistar. The MHCV vehicles will be manufactured at M&Ms new Chakan plant, which has initial annual production capacity of 50,000 medium and heavy commercial Vehicles. Increasing distribution network & high localization The company is setting up an alternative distribution network for the JV. The current dealer network for the JV stands at 65 as on FY12 and is expected to increase to 100 over the next year. The company will also look at its existing dealerships in rural/semi-urban areas as points of servicing for its trucks. M&M is also ensuring that the designing of the CV product range is done to fulfill the requirements specific to Indian business, with the technological support of Navistar. Further, the companys localization levels are high at 85% which will ensure that pricing remains competitive. Strong growth prospects in medium term Having a strong technical partner, a good understanding of local markets, wide distribution and service networks and ensuring products meet local needs, should all aid the companys efforts to gain respectable market share in the MHCV space in the next 3-5 years. Break-even unlikely in near term This JV operates a range of heavy duty trucks, tractor trailer and tippers. We believe that ramp up could be delayed in this period of economic slowdown. In the interim, investments will have to be stepped up delaying operational breakeven.
MHCV Volumes 600 500 400 300 200 100 0 Mar-11 Nov-10 Nov-11 Dec-10 May-11 Dec-11 Sep-11 Aug-11 Mar-12 Apr-11 Jan-11 Jul-11 Feb-11 Jan-12 Feb-12 Jun-11 Oct-11
Source: CMIE Although JV with Navistar Automotives will provide M&M access to new age design and technology, we believe that taking market share from present incumbents will prove difficult. Furthermore, unlike LCVs, M&HCV sales need to be supported by nationwide service network. In FY12, it was able to sell 3490 MHCV units, capturing 1.2% MHCV market backed by financing support from subsidiary M&M Finance. In FY11, the JV incurred a loss of INR 1.9 bn and the engine manufacturing JV (which supplies engines to the JV) incurred a loss of INR 0.5 bn. We believe that the JV with Navistar would prove to be a drag to consolidated earnings in the near term.
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Brief Financials of JVs with Navistar INR Mn Mahindra Navistar Automotive FY10 LCV Volumes MHCV Volumes Total Volumes Capital Employed Net Revenue EBITDA PAT 11,152 0 11,152 6925 5474 -180 -257 FY11 10,538 845 11,383 8520 6969 -1192 -1863 Mahindra Navistar Engines FY10 1900 0 -96 -141 FY11 3102 418 -280 -504
Source: Company
Success of motorcycles key to 2-wheeler profitability

M&M forayed into 2-wheelers with the acquisition of an 80% stake in Kinetic Motor Company for INR 1.1 Bn in 2008. With a series of scooter launches (Rodeo, Duro and Flyte), M&M scaled up its scooter portfolio to 137k units in FY12 (as against 160k in FY11). M&M has an 8% share of the scooter market. However, the 110cc motorcycle, Stallio, launched in 2010 faced issues with its clutch and gear and the sales had to be discontinued. While M&M has taken corrective action, we believe it would be some time before dealers regain confidence in the product and rebuild inventory. While a degrowth of 14% in scooters in FY12 implies that 2-wheeler revenues would decline in FY12, the segment would continue to incur losses. Given scooters is a low-margin business, growth of the motorcycle portfolio would be critical for long-term profitability of this business segment. Mahindra Two Wheelers Brief Financials FY10 Motorcycles Scooters Total Volumes Capital Employed Net Revenue EBITDA PAT 71,600 71,600 2685 2370 -715 -969 FY11 4,672 160,471 165,143 5055 5164 -1246 -1692
Source: Company
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Post-split M&M recording impressive volumes in passenger car segment
Mahindra Renault was established as a 51:49 JV between M&M and Renault in 2005 to manufacture and sell Logan. The car is manufactured at M&Ms Nashik plant and sold through more than 100 dealer outlets around the country. The model was commercially launched in the Indian market in July 2007. In April 2010, restructuring plans for the JV were announced wherein M&M bought out Renaults equity stake, resulting in Mahindra Renault becoming Mahindra Automobile Distributor, a 100% subsidiary of the Mahindra group. A year later in April 2011, M&M renamed the Logan to Verito, along with replacing the Renault badge with the M&M badge. Verito has emerged as the fastest growing sedan post the JV split as M&M now has better decision making power. With higher number of diesel variants (7) vis--vis petrol variants (5), Verito has posted a high 50% growth in FY12 outpacing the Supar Compact + Midsize PV segment, which logged 11% growth in FY12. M&Ms market share has increased to 4.5% in FY12 vis--vis 2.7% in FY11. Verito is well placed to take on competition in terms of product variants at effective price points. We believe M&M will outpace the market in terms of volume and grow by 28% for the period FY12-14E. We expect M&Ms market share to increase by 100 bps to 5.5% by FY14E. Mahindra Automobile Distributor Brief Financials FY10 Volumes Capital Employed Net Revenue EBITDA PAT 6,332 6112 2877 -348 -815 FY11 11,913 7859 5015 155 -208 Source: Company
Auto segment margins under pressure

The standalone auto segment especially on the LCV front is facing intense competition which is leading to softening of margins. We believe the entry of Ashok Leyland in the LCV segment with Dost will further increase competition and lower pricing power of incumbents as the product has received good response since its launch in October 2011.
Auto - EBIT Margins are softening 16% 14% 12% 10% 8% 6% Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Source: Company, Darashaw
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Assumptions for the automotive segment
FY11 Volumes Goods LCV Growth 3 Wheelers Growth Utility Vehicles Growth Total Volumes Growth Avg. Realisations Growth Revenue Growth EBIT EBIT Margin 114,926 30% 64,740 43% 172,933 13% 352,599 23% 386,702 4% 13,635 28% 1,717 12.6% 146,993 28% 71,275 10% 207,864 20% 426,132 21% 445,836 15% 19,072 40% 1,697 8.9% 183,627 25% 79,206 11% 254,367 22% 517,199 21% 463,670 4% 23,981 26% 1,911 8.0% 220,226 20% 80,147 1% 290,636 14% 591,010 14% 482,216 4% 28,499 19% 2,413 8.5% FY12E FY13E FY14E
Source: Darashaw
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Mahindra & Mahindra

Acquistions based on strategic and economic rationale
M&M has a proven track record of successful acquisitions, which offer strategic value while they are also backed by economic rationale. Acquisition of Punjab Tractors is a case in point - it offered a portfolio at higher HP, distribution in North India and capacity of 60,000 units. We see immense merit in M&Ms recent acquisition of Ssangyong as it not just adds INR 90 bn of revenues but also gives M&M access to the much-needed premium SUV platform and network of 1,300 dealers globally. Similarly, acquisition of Reva gives M&M access to the next-generation electric car technology. Through the acquisition of EPC Industries, M&M has also secured entry into the fast growing micro irrigation business, where it can leverage its strong brand equity among the farming community.
A 70% stake acquired in Ssangyong for USD 463 mn

M&M acquired a 70% stake in Ssangyong for USD 463 mn (including debt of USD 85 mn) in 2010. Most of Ssangyongs technology has been sourced from Mercedes Benz, with whom the company had a technology partnership. Ssangyong has SUVs like Rexton, Kyron, Actyon Sports, and Kornado, the MPV Rodius and luxury sedans Chairman W and Chairman H in its stable. The home market accounts for 34% of Ssangyongs volumes driven by a network of 140 dealers. Exports, which account for 66% of volumes, come from more than 100 countries and a 1,300 strong dealer network. Europe (primarily east Europe) remains the main market, accounting for 70% of total exports. While the performance in Russia has been encouraging, Ssangyong plans to enter China in September 2012.
Volumes
160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: Company
We see immense strategic value from the deal for both Ssangyong and M&M 1. Comfort amongst Ssangyongs dealers
Ssangyongs immediate gain is that acquisition by a strong auto company would address concerns over management uncertainty. This is critical to infuse confidence among the Korean companys 1,300-strong dealer network and, thereby, drive growth. M&Ms entry would also address Ssangyongs financial concerns, implying better ability to invest in product development. 2. Access to Ssangyongs technology for product development
M&M will also have access to Ssangyongs technology for developing new products.
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3. Ssangyongs Premium SUVs to plug the gap in the Indian market
M&M does not have presence in premium SUVs, the fastest growing segment of UVs in India. Ssangyongs recently launched Korando model and its highest selling brand, Rexton, would give M&M entry into the INR 14 - 20 Lac category premium SUV market. 4. Access to global markets for M&Ms products
Ssangyong will also help M&M make further inroads in markets like Europe, Russia, South America, Middle East, Africa and Asia by giving access to Ssangyongs global dealer network of 1300 dealers to sell its own brands.
Ssangyong - turnaround underway Despite owning some strong SUV brands, the company had been facing significant financial stress (losses and high debt) for the past few years, which aggravated operational issues as it could not invest in R&D. It had a debt of USD 650m at the end of CY09. According to agreements with various creditors, funds infused by M&M were used for settlement of debt, which has now come down to USD 85 mn. Ssangyong sold over 113k units globally in 2011. It aims to achieve volumes of 160k units in 2013 with revenue of 4 Trn won (USD 3.5 bn). It aims to sell 300k units by 2016 by boosting volumes in emerging markets of India, Russia and China. Robust volumes and debt restructuring has led to significant reduction in losses FY11 losses stood at USD 11 mn against a loss of USD 74 mn in FY10. Management expects Ssangyong to turn profitable in FY13E.
Acquisition of Reva access to electric vehicle technology

M&M acquired a 55% stake in the electric car maker Reva in 2010 for INR 1.6 Bn. While it sells just 1,000 vehicles annually, Reva gives M&M access to electric car technology. Given increasing environmental concerns and rising fuel prices, hybrid vehicles are clearly an important emerging trend. Electric cars account for 1.5 mn units in global sales. Manufacturers including Toyota, Honda, Suzuki and General Motors are investing heavily in hybrid technology. Reva is setting up an assembly plant with an annual capacity of 30,000 vehicles in Bangalore for an investment of INR 400 Mn. While M&Ms distribution would help Reva scale up multifold from the current levels, major benefits would come only over the next decade as the re-charge infrastructure, which is critical for expansion of the electric car market, expands.
EPC Industries delving into the micro-irrigation opportunity

M&M acquired a 38% stake in micro-irrigation company EPC Industries in Feb 2011 for INR 430 Mn. Given M&Ms strong brand equity in the farm community, we see this as a big and scalable opportunity. With water conservation becoming a major area of concern, the government has increased its thrust on micro irrigation systems (MIS). It is currently subsidizing 50% of MIS cost for farmers, which has helped MIS coverage grow from 0.16 Mn hectares per annum in FY07 to 1.1 Mn hectares in FY11 (62% CAGR). Despite such high growth, less than 4 Mn hectares of the 69 Mn hectares of irrigated land in India is under MIS. As the central and state governments continue to make higher budgetary allocations and farmers realize the productivity benefits of MIS, we see the USD 800 Mn MIS market expanding at 25%+ CAGR in the foreseeable future. The market is currently dominated by the pioneer Jain Irrigation, which has about 50% market share. Brand equity among the farming community, a wide distribution network and ability to infuse capital (given a high receivables cycle for the business) are key to success in this industry. M&Ms leadership in the tractor business gives it strong brand equity and a readymade network of 1,300 dealers. A healthy balance sheet and an NBFC in its fold, Mahindra and Mahindra Financial Services, equip it well to infuse capital in the business. We see M&M emerging as a relevant player in the rapidly growing MIS market.
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NEW MODEL LAUNCHES
M&M will be launching 5 new products in FY13E which should add on to the companys future performance after the success of XUV 500. Vehicle Mini Van Rexton (Ssangyong) Launch Q1 FY13E Q3 FY13E Comments Positioned as a personal passenger car. Built on the Maxximo platform. Will be sold in India through the CKD route. Assembly to be done at Chakan plant. Aim to sell 500-600 units/month. Significant improvements vis--vis the older car from Reva. Eg: single NXR electric car Q2 FY13E charge range increased from 80 kms to 160 kms, seating capacity increased from 2 to 4, top speed increased from 80 kmph to 100 kmph. Compact SUV Verito Sub 4 meter Q3 FY13E Q4 FY13E Is the most awaited product from M&Ms stable after XUV 500 Under 4 meter version will qualify the vehicle for lower excise duty thereby allowing M&M to price it closer to premium hatchback cars. Source: Company, Darashaw
CAPEX
M&M is likely to spend INR 50 Bn over the next 3 years for capacity expansion. In addition to this, they are looking for investments of INR 20 Bn spread over the next 3 years. The ongoing capacity expansion of 100k tractor capacity will be operationalised in H2FY13E capacity will rise ~40% - a tad risky from an operating leverage perspective, if volume growth doesnt escalate at that juncture.
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Mahindra & Mahindra

Tractors pain to negate Autos gain
We forecast M&M to register -1% volume CAGR in tractors, 18% in UVs and 22% in LCVs over FY12-14E. Despite our expectations of a healthy outlook on the auto segment, the standalone company would yet witness a decline inFY13E profitability owing to subdued performance from the tractor segment. This should drive 13% revenue growth, 9% EBITDA growth and 10% PAT growth for the standalone company over the two year period FY12-14E.
Standalone Assumptions
FY11 Tractors Volumes Growth Avg. Realisations Growth Revenue Growth EBIT EBIT Margin 215,452 22% 454,709 1% 97,968 23% 17,083 17.4% FY11 Auto Goods LCV Vols. Growth 3 Wheelers Vols. Growth Utility Vehicles Vols. Growth Total Vols. Growth Avg. Realisations Growth Revenue Growth EBIT EBIT Margin 114,926 30% 64,740 43% 172,933 13% 352,599 23% 386,702 4.4% 13,635 28% 1,717 12.6% FY11 Standalone Revenue Growth EBITDA EBIT DA Margin EBIT EBIT Margin PAT PAT Margin EPS Growth
FY12E
FY13
FY14E
238,269 11% 485 7% 115,599 18% 17,820 15.4% FY12E
224,958 -6% 389 -20% 87,552 -24% 11,745 13.4% FY13
234,964 4% 463 19% 108,833 24% 15,689 14.4% FY14E
146,993 28% 71,275 10% 207,864 20% 426,132 21% 445,836 15% 19,072 40% 1,697 8.9% FY12E
183,627 25% 79,206 11% 254,367 22% 517,199 21% 463,670 4% 23,981 26% 1,911 8.0% FY13
220,226 20% 80,147 1% 290,636 14% 591,010 14% 482,216 4% 28,499 19% 2,413 8.5% FY14E
227,575 26% 34,562 15.2% 30,423 13.4% 25446 11.2% 43.3 27%
298,970 31% 36,570 12.2% 31,398 10.5% 27453 9.2% 46.7 8%
319,462 7% 33,926 10.6% 27,465 8.6% 25355 7.9% 43.2 -8%
384,186 20% 43,710 11.4% 36,433 9.5% 32936 8.6% 56.1 30%
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VALUATION
Standalone Value
In order to arrive at M&Ms standalone valuation, we compare M&M (SA) with other large cap auto companies who are leaders in their core business areas Parameter EBITDA Margin Free Cash Flow / Op. Cash Flow ratio ROE Dividend Payout Leadership in Fair P/E Description 5 year avg lower % denotes higher capex intensity 5 year avg 5 year avg TAMO (SA) 10% 11% 16% 43% LCV, MHCV 12.0 M&M (SA) 14% 51% 27% 28% Tractors, MUVs Maruti 13% 22% 20% 8% Cars- Mini, Compact, Midsize. MPVs 13.0 Hero Moto 14% 53% 46% 73% <125cc motorcycles 14.5
We feel M&M should command a premium to TAMO and a discount to Hero Moto based on various qualitative parameters listed in the above table. M&Ms positional dynamics are similar to that of Marutis on the business front as well as on qualitative parameters. Thus we feel M&M should be valued in line with Maruti at 13x one year forward earnings. However under todays circumstances of a slowdown in the tractor industry we value M&M at a 20% discount to the value we ascribe it under normal circumstances. Thus we value M&M (SA) at 10.4x FY14E EPS of INR 56 to arrive at our fair value of INR 583.
Subsidiaries Value
We value M&Ms listed auto related subsidiaries at a 30% discount to their market cap and listed non-auto businesses at a 50% discount. We assign value of 1x P/B to M&Ms two unlisted subsidiaries that have Navistar as its partner. Mkt Cap (INR Bn) Auto related Ssangyong M&M Financial Mahindra Forgings Swaraj Engines Mahindra Ugine Non-auto Tech Mahindra Mahindra Holidays Mahindra Lifespace Mahindra EPC Value / Share 84 23 13 2 48.2% 83.1% 51.1% 38.0% 40 19 6 1 69 32 11 1 50% 50% 50% 50% 34 16 6 1 137 Value / Share 8 3 11 5% 2% 1% 0% 19% % of Final Value 1% 0% 2% 33 69 5 5 2 70.0% 56.0% 50.7% 33.2% 50.7% 23 39 3 2 1 39 66 5 3 1 30% 30% 30% 30% 30% 27 46 3 2 1 4% 6% 0% 0% 0% M&M's holding M&M's Stake (INR Bn) Value / Share Holding Co Discount Value / Share % of Final Value
Unlisted Subsidiaries Mahindra Navistar Mahindra Navistar Engines Value / Share
BV 495 165
P/BV 1.0 1.0
Implied Value 495 165
Thus, the total value of listed & unlisted subsidiaries is INR 154/share.
Our SOTP based fair value for M&M is INR 731

M&M (SA) Subsidiaries Consolidated Value
Value / Share 583 148 731
% of Final Value 80% 20% 100%
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Mahindra & Mahindra

Darashaw vs Consensus Standalone Financials
Figs. In INR Bn FY13E Darashaw Net Revenue EBITDA EBITDA Margin PAT 319.5 33.9 10.4% 25.4 Consensus 347.9 42.4 12.2% 30.1 Variation -8% -20% 180 bps -16% Darashaw 384.2 43.7 11.2% 32.9 FY14E Consensus 393.3 47.2 12.0% 33.4 Variation -2% -7% 80 bps -2%
We believe the market has yet not factored in the possibility of a flat or negative volume growth for tractors in FY13E. Further, we are considerably below on the EBITDA margin front as compared to the consensus for FY13E and FY14E.
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Mahindra & Mahindra
Standalone Financials - Figures in INR Bn
Profit & Loss Net Sales Growth Income from Ops. Other Income Income Expenditure Raw Materials Employee SGA EBIDTA Margin Depreciation EBIT Interest PBT Tax PAT Growth EPS
FY11 228 26% 7 3 238 200 163 14 23 38 14.9% 4 34 (1) 34 9 25 27% 43
FY12E 299 31% 8 4 311 270 223 19 29 41 12.0% 6 35 (2) 37 9 27 8% 47
FY13E 319 7% 9 4 332 294 243 20 31 38 10.4% 6 32 (2) 34 9 25 -8% 43
FY14E 384 20% 10 5 400 351 290 24 37 49 11.2% 7 42 (2) 44 11 33 30% 56
Balance Sheet Equity Reserves & Surplus Networth Debt Sources of Funds Application of Funds Gross Fixed Assets Less Acc. Depreciation Net Fixed Assets Capital WIP Investments Inventories Debtors Cash Loans & Advances Other Curr Assets Current Assets Current Liabilities Provisions Curr Liab & Prov Non-Curr Liab
FY11 2.9 100 103 24 127 127 62 28 34 10 93 17 14 6 24 1 61 50 20 68 4
FY12E 2.9 117 120 35 155 155 85 34 51 0 121 22 18 6 31 1 78 74 27 91 3
FY13E 2.9 133 136 49 185 185 97 41 57 0 144 23 19 7 33 1 83 79 26 96 3
FY14E 2.9 154 157 44 201 201 110 48 62 0 158 27 23 8 40 1 99 95 33 116 2
Ratios Sales Growth EBIDTA Growth PAT Growth
FY11 26% 19% 27%
FY12E 31% 8% 8%
FY13E 7% -6% -8%
FY14E 20% 28% 30%
FCFF EBIT Less Adj. Taxes NOPLAT Inc / (Dec) in WC
FY11 34 8 25 (2) 27 31 38 36 (11) (11) 6 (10) (0) 7 (3) (11)
FY12E 35 9 26 (3) 29 26 33 30 (4) (4) 8 0 (1) (11) 1 (2)
FY13E 32 8 24 (0) 24 23 29 29 (5) (5) 10 0 (2) (14) 1 0
FY14E 42 11 31 (1) 32 14 19 18 13 13 9 0 (2) 5 1 0
Raw Materials Employee Other Exp EBIDTA margin EBIT margin Tax Rate
71% 6% 10% 14.9% 14.7% 25%
75% 6% 10% 12.0% 11.7% 25%
76% 6% 10% 10.4% 10.0% 25%
75% 6% 10% 11.2% 10.8% 25%
Operating Cash Flow Inc / Dec in other op assets Net Capex Net Investment Free Cash Flow Financing Cash Flow Dividend (inc/dec in prov)
PAT / Sales Sales / Assets Assets / Equity Dupont RoE RoE RoCE
11% 1.8 1.2 25% 25% 24%
9% 1.9 1.3 23% 23% 24%
8% 1.7 1.4 19% 19% 19%
9% 1.9 1.3 21% 21% 14%
Equity buyback/(issue) After-tax Interest Debt Repayment/(issue) Inc/(Dec) in Non-op Inv Inc/(Dec) in Excess Cash
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Important Disclosure This material has been prepared by Darashaw & Co Pvt Ltd, Mumbai, India (www.darashaw.com). The views expressed herein correctly reflect our views. The company, its directors, and clients hold long position in the stock of the company as on the date of the report. The information contained herein is confidential and is intended solely for the addressee(s). Any unauthorized access, use, reproduction, disclosure or dissemination is prohibited. This information does not constitute or form part of and should not be construed as, any offer for sale or subscription of or any invitation to offer to buy or subscribe for any securities. The information and opinions on which this communication is based have been complied or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, correctness and are subject to change without notice. Darashaw & Co. Pvt. Ltd., 2012.
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SHARE HOLDING PATTERN (Mar 2012)

Promoters MFs, FIs, Banks FIIs Others

47% 21% 26% 6%

Jehan Bhadha 022 43022128

Sales 180 228 299 319 384

YoY 43% 26% 31% 7% 20%

EBIDTA 29.6 34.6 36.6 33.9 43.7

Margin 16.4% 15.2% 12.2% 10.6% 11.4%

PAT 20.0 25.4 27.5 25.4 32.9

Margin 11% 11% 9% 8% 9%

YoY 139% 27% 8% -8% 30%

RoE 26% 25% 23% 19% 21%

1001-Regent Chambers, Nariman Point, Mumbai