OVERVIEW

Founded in 1945 as a steel trading company, we

entered automotive manufacturing in 1947 to bring the iconic Willys Jeep onto
Indian roads. Over the years, weve diversified into many new businesses in
order to better meet the needs of our customers. We follow a unique
business model of creating empowered companies that enjoy the best of
entrepreneurial independence and Group-wide synergies. This principle has
led our growth into a US $16.5 billion multinational group with more than
200,000 employees in over 100 countries across the globe.
Today, our operations span 18 key industries that form the foundation of
every modern economy: aerospace, aftermarket, agribusiness, automotive,
components, construction equipment, consulting services, defense,
energy, farm
equipment, finance
and
insurance,
industrial
equipment, information technology, leisure and hospitality, logistics, real
estate, retail, and two wheelers.
Our federated structure enables each business to chart its own future and
simultaneously leverage synergies across the entire Groups competencies.
In this way, the diversity of our expertise allows us to bring our customers the
best in many fields.The Mahindra Group comprises ten business sectors
Aftermarket, Automotive & Farm Equipment, Defense Systems, Financial
Services, Hospitality, Information Technology, Real Estate, Systech, Two
Wheelers and Mahindra Partnerswith a presence in 18 industries.

Mahindra & Mahindra was set up as a steel trading company in 1945

in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra andJ.C.
Mahindra and Malik
Ghulam
Mohammed. After
India
gained independence and Pakistan was formed, Mohammed emigrated to
Pakistan. The company changed its name to Mahindra & Mahindra in 1948.
It eventually saw business opportunity in expanding into manufacturing
and selling larger MUVs, starting with assembly under licence of
the Willys Jeep in India. Soon established as the Jeep manufacturers of India,
the
company
later
commenced
manufacturing light
commercial
vehicles (LCVs) and agricultural tractors.
Today, Mahindra & Mahindra is a key player in the utility vehicle
manufacturing and branding sectors in the Indian automobile industry with its

flagship UV Scorpio and uses India's growing global market presence in both
the automotive and farming industries to push its products in other
countries.Over the past few years, the company has taken interest in new
industries and in foreign market.They entered the two-wheeler industry by
taking over Kinetic Motors in India. M&M also has controlling stake in REVA
Electric Car Company and acquired South Korea's SsangYong Motor
Company in 2011. In the 2010-11 M&M entered in micro dripp irrigation with
the takeover of EPC Industries' Ltd, Nashik.

Our motivation to give our best every day comes from our core
purpose: we will challenge conventional thinking and innovatively use all our
resources to drive positive change in the lives of our stakeholders and
communities across the world, to enable them to Rise. Our products and
services support our customers ambitions to improve their living standards;
our responsible business practices positively engage the communities we join
through employment, education, and outreach; and our commitment to
sustainable business is bringing green technology and awareness into the
mainstream through our products, services, and light-footprint manufacturing
processes.
This commitment to sustainabilitysocial, economic, and environmental
rests upon a set of core values. They are an amalgamation of what we have
been, what we are, and what we want to be. These values are the compass
that guides our actions, both personal and corporate. They are:

Professionalism
We have always sought the best people for the job and given them the
freedom and the opportunity to grow. We will continue to do so. We will
support innovation and well-reasoned risk taking, but will demand
performance.

Good corporate citizenship

As in the past, we will continue to seek long-term success, which is in
alignment with the needs of the countries we serve. We will do this without
compromising ethical business standards.

Customer first
We exist and prosper only because of the customer. We will respond to the
changing needs and expectations of our customers speedily, courteously and
effectively.

Quality focus
Quality is the key to delivering value for to our customers. We will make
quality a driving value in our work, in our products and in our interactions with
others. We will do it 'First Time Right.'

Dignity of the individual

We will value individual dignity, uphold the right to express disagreement and
respect the time and efforts of others. Through our actions, we will nurture
fairness, trust, and transparency.

What is Capital Structure ?

A mix of a company's long-term debt, specific short-term debt, common equity
and preferred equity. The capital structure is how a firm finances its overall
operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while
equity is classified as common stock, preferred stock or retained earnings.
Short-term debt such as working capital requirements is also considered to be
part of the capital structure.
A company's proportion of short and long-term debt is considered when
analyzing capital structure. When people refer to capital structure they are
most likely referring to a firm's debt-to-equity ratio, which provides insight into
how risky a company is. Usually a company more heavily financed by debt
poses greater risk, as this firm is relatively highly levered.
Factors affecting Capital Structure
Trading on Equity- The word equity denotes the ownership of the company.
Trading on equity means taking advantage of equity share capital to borrowed
funds on reasonable basis. It refers to additional profits that equity

shareholders earn because of issuance of debentures and preference shares.

It is based on the thought that if the rate of dividend on preference capital and
the rate of interest on borrowed capital is lower than the general rate of
companys earnings, equity shareholders are at advantage which means a
company should go for a judicious blend of preference shares, equity shares
as well as debentures. Trading on equity becomes more important when
expectations of shareholders are high.
Degree of control- In a company, it is the directors who are so called elected
representatives of equity shareholders. These members have got maximum
voting rights in a concern as compared to the preference shareholders and
debenture holders. Preference shareholders have reasonably less voting
rights while debenture holders have no voting rights. If the companys
management policies are such that they want to retain their voting rights in
their hands, the capital structure consists of debenture holders and loans
rather than equity shares.
Flexibility of financial plan- In an enterprise, the capital structure should be
such that there is both contractions as well as relaxation in plans. Debentures
and loans can be refunded back as the time requires. While equity capital
cannot be refunded at any point which provides rigidity to plans. Therefore, in
order to make the capital structure possible, the company should go for issue
of debentures and other loans.
Choice of investors- The companys policy generally is to have different
categories of investors for securities. Therefore, a capital structure should
give enough choice to all kind of investors to invest. Bold and adventurous
investors generally go for equity shares and loans and debentures are
generally raised keeping into mind conscious investors.
Capital market condition- In the lifetime of the company, the market price of
the shares has got an important influence. During the depression period, the
companys capital structure generally consists of debentures and loans. While
in period of boons and inflation, the companys capital should consist of share
capital generally equity shares.
Period of financing- When company wants to raise finance for short period, it
goes for loans from banks and other institutions; while for long period it goes
for issue of shares and debentures.
Cost of financing- In a capital structure, the company has to look to the factor
of cost when securities are raised. It is seen that debentures at the time of
profit earning of company prove to be a cheaper source of finance as
compared to equity shares where equity shareholders demand an extra share
in profits.
Stability of sales- An established business which has a growing market and
high sales turnover, the company is in position to meet fixed commitments.
Interest on debentures has to be paid regardless of profit. Therefore, when
sales are high, thereby the profits are high and company is in better position

to meet such fixed commitments like interest on debentures and dividends on

preference shares. If company is having unstable sales, then the company is
not in position to meet fixed obligations. So, equity capital proves to be safe in
such cases.
Sizes of a company- Small size business firms capital structure generally
consists of loans from banks and retained profits. While on the other hand, big
companies having goodwill, stability and an established profit can easily go for
issuance of shares and debentures as well as loans and borrowings from
financial institutions. The bigger the size, the wider is total capitalization.

Capital Structure Theories

In order to grasp the capital structure and the cost of capital
controversy property, the following assumptions are made:
Firms employ only two types of capital: debt and equity.
The total assets of the firm are given. The degree of average can be changed
by selling debt to purchase shares or selling shares to retire debt.
The firm has a policy of paying 100 per cent dividends.
The operating earnings of the firm are not expected to grow.
The business risk is assumed to be constant and independent of capital
structure and financial risk. The corporate income taxes do not exist. This
assumption is relaxed later on.
The following are the basic definitions:

The above assumptions and definitions described above are valid under any
of the capital structure theories. David Durand views, Traditional view and MM
Hypothesis are tine important theories on capital structure.
David Durand Views
The existence of an optimum capital structure is not accepted by all. There
exist two extreme views and a middle position. David Durand identified the
two extreme views the Net income and net operating approaches.
a) Net income Approach (Nl):
Under the net income (Nl) approach, the cost of debt and cost of equity are
assumed to be independent of the capital structure. The weighted average
cost of capital declines and the total value of the firm rise with increased use
of average.
b) Net Operating income Approach (NOI):
Under the net operating income (NOI) approach, the cost of equity is
assumed to increase linearly with average. As a result, the weighted average
cost of capital remains constant and the total of the firm also remains constant
as average changed.
Thus, if the Nl approach is valid, average is a significant variable and
financing decisions have an important effect on the value of the firm, on the
other hand, if the NOI approach is correct, then the financing decision should

not be of greater concern to the financial manager, as it does not matter in the
valuation of the firm.
2. Traditional view:
The traditional view is a compromise between the net income approach and
the net operating approach. According to this view, the value of the firm can
be increased or the cost, of capital can be reduced by the judicious mix of
debt and equity capital.
This approach very clearly implies that the cost of capital decreases within the
reasonable limit of debt and then increases with average. Thus an optimum
capital structure exists and occurs when the cost of capital is minimum or the
value of the firm is maximum.
The cost of capital declines with leverage because debt capital is chipper than
equity capital within reasonable, or acceptable, limit of debt. The weighted
average cost of capital will decrease with the use of debt. According to the
traditional position, the manner in which the overall cost of capital reacts to
changes in capital structure can be divided into three stages and this can be
seen in the following figure.

Criticism:
1. The traditional view is criticised because it implies that totality of risk
incurred by all security-holders of a firm can be altered by changing the way in
which this totality of risk is distributed among the various classes of securities.
2. Modigliani and Miller also do not agree with the traditional view. They
criticise the assumption that the cost of equity remains unaffected by leverage
up to some reasonable limit.

3. MM Hypothesis:
The Modigliani Miller Hypothesis is identical with the net operating income
approach, Modigliani and Miller (M.M) argue that, in the absence of taxes, a
firms market value and the cost of capital remain invariant to the capital
structure changes.
Assumptions:
The M.M. hypothesis can be best explained in terms of two propositions.
It should however, be noticed that their propositions are based on the
following assumptions:
1. The securities are traded in the perfect market situation.
2. Firms can be grouped into homogeneous risk classes.
3. The expected NOI is a random variable
4. Firm distribute all net earnings to the shareholders.
5. No corporate income taxes exist.
Proposition I:
Given the above stated assumptions, M-M argue that, for firms in the same
risk class, the total market value is independent of the debt equity
combination and is given by capitalizing the expected net operating income by
the rate appropriate to that risk class.
This is their proposition I and can be expressed as follows:

According to this proposition the average cost of capital is a constant and is

not affected by leverage.
Arbitrary-process:
M-M opinion is that if two identical firms, except for the degree of leverage,
have different market values or the costs of capital, arbitrary will take place to
enable investors to engage in personal leverage as against the corporate
leverage to restore equilibrium in the market.
Proposition II: It defines the cost of equity, follows from their proposition, and
derived a formula as follows:

Ke = Ko + (Ko-Kd) D/S
The above equation states that, for any firm in a given risk class, the cost of
equity (Ke) is equal to the constant average cost of capital (Ko) plus a
premium for the financial, risk, which, is equal to debt-equity ratio times the
spread between the constant average of capita and the cost of debt, (Ko-Kd)
D/S.
The crucial part of the M-M hypothesis is that Ke will not rise even if very
excessive raise of leverage is made. This conclusion could be valid if the cost
of borrowings, Kd remains constant for any degree of leverage. But in practice
Kd increases with leverage beyond a certain acceptable, or reasonable, level
of debt.
However, M-M maintain that even if the cost of debt, Kd, is increasing, the
weighted average cost of capital, Ko, will remain constant. They argue that
when Kd increases, Ke will increase at a decreasing rate and may even turn
down eventually. This is illustrated in the following figure.

Criticism:
The shortcoming of the M-M hypothesis lies in the assumption of perfect
capital market in which arbitrage is expected to work. Due to the existence of
imperfections in the capital market/arbitrage will fail to work and will give rise
to discrepancy between the market values of levered and unlevered firms.

CAPITAL STRUCTURE

FINANCIAL PERFORMANCE: 2013-14

Indias macroeconomic situation as it entered Financial Year 2014 was

extremely weak. Growth had dropped to 4.5%, fiscal deficit and inflation were
at uncomfortably high levels and the countrys current account deficit was at
an alarming 4.8% of GDP leaving it extremely exposed to the global financial
turbulence triggered by the US Feds taper announcement, in May, 2013. As
fund managers scrambled for safe havens, portfolio flows to India, given its
macro fragility, witnessed a sharp reversal. The rupee, as a consequence,
plunged over 25% against the US dollar, stoking fears of a self-fulfilling
balance of payments crisis. Swift, defensive actions by the Government and
the RBI, however, helped turn the tide and by the year end the Indian Rupee
had stabilised, the current account deficit had halved, the fiscal deficit was
contained and inflation, while still high, had moved back to single digit levels.
Domestic economic activity, though, remained weak and uninspiring through
the year.
While a robust monsoon season provided strong support to agricultural
output and rural incomes, contra impact on demand stemming from fiscal
contraction, rising interest rates, stalling infrastructure projects and, an
increasingly uncertain business regulatory environment, weighed heavily on
the economy. Manufacturing activity, as a result, witnessed a contraction in
2013-14, its worst performance in over 20 years, and overall GDP growth
dropped below 5% for a second successive fiscal year.
Financial Performance
In the challenging times that the Indian Auto
Industry is currently passing through, with volumes shrinking, your Company
has registered a marginal growth of 0.57% in the net income at Rs. 41,226
crores in the year under review as against Rs. 40,990 crores in the previous
year on the back of a strong sales performance by its Farm Equipment
Division Consequent to this performance, the Profit for the year before
Depreciation, Finance Costs, Exceptional items and Taxation recorded an
increase of 3.44% at Rs. 5,439 crores as against Rs. 5,258 crores in the
previous year. Similarly, Profit after tax clocked an increase of 12.08% at Rs.
3,758 crores as against Rs. 3,353 crores in the previous year. Your Company
continues with its rigorous cost restructuring exercises and efficiency
improvements which have resulted in significant savings through continued
focus on cost controls, process efficiencies and product innovations that
exceed customer expectations in all areas thereby enabling the Company to
maintain profitable growth in the current economic scenario.
Dividend Your Directors are pleased to recommend a dividend of Rs. 13.50
per Ordinary (Equity) Share and also a Special Dividend of Re. 0.50 per
Ordinary (Equity) Share aggregating Rs. 14 per Ordinary (Equity) Share of the
face value of Rs. 5 each, payable to those Shareholders whose names
appear in the Register of Members as on the Book Closure Date. The Special
Dividend is recommended in view of the profit made by the Company on sale
of part of its shareholding in long term investments of the Company. The
equity dividend outgo for the Financial Year 2013-14, inclusive of tax on
distributed profits (after reducing the tax on distributed profits of Rs. 42.97
crores on the dividends receivable from the subsidiaries during the current
Financial Year) would absorb a sum of Rs. 965.81 crores [as against Rs.
894.11 crores comprising the dividend of Rs. 12.50 per Ordinary (Equity)
Share and also a Special Dividend of Re. 0.50 per Ordinary (Equity) Share

aggregating Rs. 13.00 per Ordinary (Equity) Share of the face value of Rs. 5
each and tax thereon paid for the previous year].

SHARE CAPITAL:
Share Capital During the year under review, your Company has allotted
19,11,628 Ordinary (Equity) Shares of Rs. 5 each to the Trustees of Mahindra
& Mahindra Employees Stock Option Trust. Consequently, the issued,
subscribed and paid-up Share Capital of the Company stood at Rs. 308
crores comprising of 61,58,92,384 Ordinary (Equity) Shares of Rs. 5 each
fully paid-up.

FINANCE:
The Financial Year 201314 saw the global economy operating at differing
speeds. While amongst the developed world, the USA showed signs of
recovery leading to the tapering of Quantitative Easing, Europe witnessed
signs of stabilisation. The emerging economies which had experienced a
slowdown in the previous year, encountered new domestic and international
headwinds during the year 2013. While China embarked on a soft landing
programme by curtailing credit led growth, countries like Brazil, Russia and
South Africa faced problems in commodity led growth apart from political and
social issues.
The latest outlook published by IMF anticipates a continued recovery for
the global economy in the Calendar Year 2014, showing upward growth for
the developed world, while emerging economies as a whole are expected to
record a moderate growth, less than the high growth rates they had witnessed
until a couple of years ago. In the domestic front, tight liquidity conditions
prevailed throughout the year, while interest rates remained high, mainly to
contain inflationary pressures. During the year, to counter the inflationary
pressures, Reserve Bank of India (RBI) increased repo rate by 50 bps (net).
The year also witnessed high volatility in exchange rates, the impact of which
RBI countered by effectively using the swap window and by interest rate
management. By employing a combination of hikes in short term interest rates
and restricting access to liquidity adjustment facility (LAF), RBI kept liquidity
in the market on a tight leash. However, even in tight liquidity conditions, good
companies with strong governance did not face a dearth of liquidity and
finance was available to them at very competitive rates. Further, the current
outlook on the domestic economy is turning positive, with drags on growth
bottoming out, inflation moderating and reduction in current account deficit,
auguring well for the financial markets.
Your Company continued to focus on managing cash efficiently and
ensured that it had adequate liquidity and back up lines of credit. During the
course of the year, your Company repaid Rs. 474 crores of borrowings from
internal accruals. The Companys Bankers continue to rate your Company as
a prime customer and extend facilities/services at prime rates.

STOCK OPTIONS :
During the year under review, on the recommendation of the Governance,
Nomination and Remuneration Committee (erstwhile Governance,
Remuneration and Nomination Committee) of your Company, the Trustees of
the Mahindra & Mahindra Employees Stock Option Trust have granted
4,50,382 Stock Options to Eligible Employees under the Mahindra & Mahindra
Limited Employees Stock Option Scheme 2010. Further, no Stock Options
have been granted under the Mahindra & Mahindra Limited Employees Stock
Option Scheme 2000. Details required to be provided under the Securities
and Exchange Board of India (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 are set out in Annexure I to this
Report.

FINANCIAL PERFORMANCE: 2012-13

The Indian economy performed poorly in the Financial Year 2012-13. Faced
with economic turbulence abroad and an unsupportive policy environment at
home, industrial activity slowed steadily through the year, critical
infrastructural projects stalled and private corporate investments lost much of
their dynamism. A weak south-west monsoon added further stress. Food
prices shot up, keeping inflation and interest rates high through most of the
year, while rural incomes lost momentum. Consumer demand, as a result,
slowed sharply, impacting business performance and profitability across the
board. The countrys current account deficit widened significantly, putting
severe pressure on the rupee. At the same time, with domestic economic
activity slowing, Government revenues lost buoyancy, worsening the already
weak state of Government finances. With the economy under severe pressure
and rating agencies threatening a downgrade, the Government finally swung
into action in the second half of the year, announcing a series of critical
reforms. These measures have, undoubtedly, improved the extant economic
environment in the country but deeper structural and administrative reforms
are needed for the economy to regain momentum and fully realise its long
term potential.
Against the backdrop of this challenging situation, the Automotive and Farm
Divisions of your Company have shown good performance during the year,
reflecting substantial growth in the net income of the Company by 26.8% from
Rs. 32,319 crores in the previous year to Rs. 40,990 crores in the year under
review. Consequent to this commendable performance, the profit for the year
before Depreciation, Finance Costs, Exceptional items and Taxation recorded
an increase of 24.1% at Rs. 5,258 crores as against Rs. 4,237 crores in the
previous year. Similarly, profit after tax clocked an increase of 16.5% at Rs.
3,353 crores as against Rs. 2,879 crores in the previous year. Your Company
continues with its rigorous cost restructuring exercises and efficiency
improvements which have resulted in significant savings through continued
focus on cost controls, process efficiencies and product innovations thereby
enabling the Company to maintain profitable growth in the current economic
scenario.
Dividend Your Directors are pleased to recommend a dividend of Rs.
12.50 per Ordinary (Equity) Share and also a Special Dividend of Re. 0.50 per
Ordinary (Equity) Share aggregating Rs. 13.00 per Ordinary (Equity) Share of
the face value of Rs. 5 each, payable to those Shareholders whose names
appear in the Register of Members as on the Book Closure Date. The Special
Dividend is recommended in view of the profit made by the Company on sale
of part of its shareholding in Mahindra Holidays & Resorts India Limited, a
subsidiary of the Company. The equity dividend outgo for the Financial Year
2012-13, inclusive of tax on distributed profits (after reducing the tax on
distributed profits of Rs. 42.67 crores on the dividends receivable from the
subsidiaries during the current Financial Year) would absorb a sum of Rs.
891.15 crores (as against Rs. 868.61 crores comprising the dividend of Rs.
12.50 per Ordinary (Equity) Share of the face value of Rs. 5 each and tax
thereon paid for the previous year).

FINANCE:
The headwinds of the previous year continued to slow global growth during
the Financial Year 2012-13. The recovery was tentative in US and Europe
continued to be under the overhang of recession, with a new banking crisis in
Cyprus adding to the Eurozone troubles. The emerging markets also slowed
down, causing concerns about a protracted low growth environment. On the
domestic front, tight liquidity conditions prevailed throughout the year. Despite
RBI cutting the Repo rate by 100 bps in several instalments, short term
interest rates remained at elevated levels in view of shortfall in liquidity Weak
exports and Current Account Deficit worsened the situation, impacting the
exchange rate scenario. As a result, the Indian Rupee continued to remain
volatile during the period. In these difficult financial conditions, your Company,
with its good credit standing and strong underlying Corporate Governance
principles, enjoyed privileged access to liquidity and competitive pricing. Your
Company continued to focus on managing cash efficiently and ensured that it
had adequate liquidity in its books at all times, along with strong back up lines
of credit.
During the course of the year, your Company repaid long term loan
instalments amounting to Rs. 380.73 crores on due dates from internal
accruals. The Consortium of Bankers continues to rate your Company as a
prime customer and extends facilities/ services at prime rates. Your Company
follows a prudent financial policy and aims to maintain optimum financial
gearing at all times. The Companys total Debt to Equity Ratio was 0.24 as at
31st March 2013. In an environment of financial stress and rating
downgrades, your Company continues to enjoy prime credit rating with
CRISIL Limited (CRISIL), ICRA Limited (ICRA) and Credit Analysis &
Research Limited (CARE). These organisations have all re-affirmed the
highest safety rating of A1+ for your Companys Short Term facilities and high
safety rating for its Long Term Banking facilities. CRISIL maintains a rating of
CRISIL AA+/Stable, ICRA maintains a rating of [ICRA] AA+ (stable) and
CARE maintains a rating of CARE AA+.

FINANCIAL PERFORMANCE: 2011-12

Indias economic performance in the Financial Year 2011 had both positive
and negative elements to it. The economy grew a very creditable 8.5%
backed by strong growth in all three Sectors - Agriculture, Industry and
Services. However, despite significant monetary tightening by the Reserve
Bank of India, inflationary pressures persisted throughout the year, drawing
attention to the factors and policies that continue to constrain productive
capacities in the economy.
Yields in the Agricultural Sector in India, for instance, are significantly
lower than those in other countries, for a wide range of crops. Recognising the
criticality of ensuring food security, at affordable prices for all, the Government
of India has taken a series of initiatives focused on enhancing the productive
capacities of both farms and farmers. Mahindra Sam riddhi, an initiative of the
Farm Division of your Company, is making a small but significant contribution
in this regard.
In these challenging times, the Automotive and Farm Divisions of your
Company have secured their best performance for the second year in arrow
reflecting in substantial growth in the net income of the Company by 26.60%
to Rs. 23,803 crores in the year under review from Rs.18,801 crores in the
previous year.
Consequent to this remarkable performance, the Profit for the year before
Depreciation, Interest, Exceptional items and Taxation recorded an increase
of 19.37% at Rs. 3,766 crores as against Rs. 3,155 crores in the previous
year. Similarly, Profit after tax clocked an increase of 27.51% at Rs. 2,662
crores as against Rs. 2,088 crores in the previous year.
Your Company continues with its rigorous cost restructuring exercises and
efficiency improvements which have resulted in significant savings through
continued focus on cost controls, process efficiencies and product innovations
that exceed customer expectations in all areas thereby enabling the Company
to maintain profitable growth in the current economic scenario.

DIVIDEND:
Your Directors are pleased to recommend a dividend of Rs.14 per Equity
Share of the face value of Rs. 10 each, payable to those Members whose
names appear in the Register of Members as on the Book Closure date. The
dividend including dividend tax will absorb a sum of Rs. 168.2 Crores (as
against Rs. 121.3 Crores on account of dividend of Rs. 10 per Equity Share,
paid for the previous year).

OPERATIONS:
The overall disbursement registered a growth of 35.3 per cent at Rs.
19,504.3 Crores as compared to Rs. 14,419.9 Crores in the previous year.
Your Company during the year under review, continued to provide a wide
range of financial products and services to its customers through
diversification of its product portfolio within its vehicle financing business as
well as through the introduction and growth of other financial

FINANCE :
During the year under review, RBI continued its stance against inflation and
adopted a calibrated approach by hiking the Repo Rate five times totalling to
175 basis points to contain the inflationary pressure, which resulted in
medium/long term interest rates moving up approximately by 150 basis points.
Liquidity conditions remained in a deficit mode throughout the year resulting in
the increase of short term money market rate by 200 basis points. In order to
mitigate the liquidity tightness, RBI conducted OMOs and reduced CRR by
125 basis points during the last quarter of the year. However, your Company
was able to reduce the impact of increase in the interest rates by ensuring
that prudent Asset Liability Management Guidelines are adhered to. In its
Monetary Policy for the Financial Year 2011-12, RBI discontinued the priority
sector status for bank loans to Non-Banking Financial Companies (NBFCs),
thereby placing additional pressure on NBFCs in raising funds. During the
year under review, your Company continued with its diverse methods of
sourcing funds in addition to regular borrowings like Secured and Unsecured
Debentures, Term Loans, Commercial Paper, etc., and maintained prudential
Asset/Liability match through out the year. Your Company sourced long term
loans from banks at attractive rates. Your Company also issued Subordinated
Debt amounting to Rs. 100.5 Crores and successfully assigned receivables to
the tune of Rs. 1,487.4 Crores. During the year, your Company actively
participated in a number of investor meets both in India and abroad organised
by reputed Global and Domestic Broking Houses. Your Company also
periodically conducted analysts meets and conference calls to communicate
details of performance, important developments and exchange of information.
SHARE CAPITAL The shareholders have by a Special Resolution passed
by means of a Postal Ballot Voting process on 1st March, 2012, approved the
issue of Redeemable NonConvertible Preference Shares of an aggregate
nominal amount not exceeding Rs. 50 Crores, in the course of domestic
offering.

CAPITAL ADEQUACY:
As on 31st March, 2012, the Capital to Risk Assets Ratio (CRAR) of your
Company was 18.0 per cent as against the minimum requirement of 15.0 per
cent prescribed by RBI.

STOCK OPTIONS:
During the year under review, on the recommendation of the
Remuneration/Compensation Committee of your Company, the Trustees of
the Mahindra & Mahindra Financial Services Limited Employees Stock Option
Trust have granted 42,426 Stock Options to Eligible Employees under the
Mahindra & Mahindra Financial Services Limited Employees Stock Option
Scheme2010. No new Options have been granted under the Mahindra &
Mahindra Financial Services Limited Employees Stock Option Scheme
2005. Details required to be provided under the Securities and Exchange
Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999 are set out in Annexure I to this Report.

FINANCIAL PERFORMANCE: 2010-11

The global economy continued to recover from the meltdown of 2008. The
excess liquidity that arose due to programs such as Quantitative Easing II of
US and similar programs followed by most other Central Banks was the
primary contributor to this recovery. However, towards the end of the year
most Central Banks initiated steps to remove the excess liquidity and this is
expected to drive up interest rates and might also affect capital flows to
emerging markets. The Indian economy continued to maintain its high level of
growth and in the Financial Year 2010-11 the Gross Domestic Product grew
by 8.5 per cent.
The growth was broad-based across the various sectors of the economy
and was driven by both domestic investment and consumption. The high
growth of the Auto Sector (29 per cent) and increasing agricultural incomes
were of importance to the Company. Liquidity became tight from June 2010 as
a huge amount of over Rs. 1,00,000 crores was removed on account of
auction of 3G and Wimax licenses. During the year, the inflation continued to
be a big area of concern and was close to 10 per cent for the majority of the
year, substantially above the Reserve Bank of Indias (RBI) initial inflation
target rate of 5.5 per cent. This led the RBI to increase the interest rate in a
bid to tame inflation. The high interest rate scenario is expected to continue in
the Financial Year 2011-12.
The semi-urban and rural markets, the focus areas of the Company,
continued to witness rapid growth. The various infrastructure projects
executed across the country along with job guarantee schemes (such as
MGNREGA) led to increased job creation and enhanced demand for
equipment and vehicles. While the high food prices were a concern in the
urban areas, they led to a significant increase in farmer earnings. The
combination of increased disposable incomes along with favourable
demographics led to a robust demand for various products and services in
these markets. During the year under review, RBI followed a policy of
calibrated tightening. This was justified by the trend of moderating inflation
and consolidating growth in the second and third quarters of the Financial
Year 2010-11. Liquidity conditions remained abnormally tight for much of the
year owing to a combination of structural and frictional factors. The Liquidity
Adjustment Facility (LAF) corridor stayed almost entirely in the injection mode
during the year under review. The RBI instituted a number of measures to
ease the excessive tightness in the system.
There are signs that in recent months economic growth in India has
become more broad-based with industrial growth displaying less volatility
across sectors; agriculture has picked up due to good rabi season and service
sector growth remained robust.

FINANCE:
During the year under review, the Reserve Bank of India adopted a
calibrated approach by hiking the Repo Rate seven times by 25 basis points
each to contain the inflationary pressure and also introduced the Base Rate
system from July 2010 which resulted in medium/long term interest rate
moving up by approximately 175 basis points. Tight liquidity conditions

persisted throughout the year resulting in the short term money market rate
increasing upward of 200 basis points.
However, your Company was able to reduce the impact of increase in
interest rate by continuously monitoring Asset Liability Management and
following prudent Asset Liability Management Guidelines. During the year
under review, your Company continued its innovative methods of sourcing
funds in addition to regular borrowings like Secured and Unsecured
Debentures, Term loans, Commercial Paper, etc., and maintained prudential
Asset/Liability match through out the year. Your Company sourced long term
loans from consortium banks at attractive rates and a proportion of the same
was eligible for priority sector lending for banks. Your Company also issued
subordinated debt amounting to Rs. 200 crores and successfully assigned
receivables to the tune of Rs. 1,228 crores. During the year, your Company
has actively participated in a number of international and domestic investor
meets organised by reputed International Banks and Financial Services
Companies. Your Company also periodically conducted analysts meets to
communicate details of performance, important developments and exchange
information

FINACIAL PERFORMANCE: 2009-10

ECONOMY:
The global economy is set to recover from the recession of 2008-2009 at a
faster and stronger rate than earlier expected. The macro-economic scenario
is now returning to normalcy with private demand and credit off-take picking
up. During the year under review, the Reserve Bank of India (RBI) chose to
slowly normalize the policy rates. The financial markets functioned normally
and as the overall liquidity remained comfortable, overnight interest rates
generally stayed close to the lower bound of the Liquidity Adjustment Facility
(LAF) rate corridor. The increase in bank credit was also supplemented by
higher flow of financial resources from other sources. A sharp recovery of
growth during 2009-10 despite the worst south-west monsoon attests to the
resilience of the Indian economy. The monetary and fiscal stimulus measures
initiated in the wake of the global financial crisis played an important role, first
in mitigating the adverse impact from contagion and then in ensuring that the
economy recovered quickly. The Indian economy is firmly on the recovery
path. Exports have been expanding since October 2009, a trend that is
expected to continue. There are signs that in recent months economic growth
in India has become more broad-based with industrial growth displaying less
volatility across sectors; agriculture has picked up due to good rabi season
and service sector growth remained robust.

FINANCE:
During the year under review, your Company continued its innovative
methods of sourcing funds in addition to regular borrowings like Secured and
Unsecured Debentures, Term loans, etc., and maintained prudential
Asset/Liability match through out the year. Your Company sourced long term
loans from consortium banks at attractive rates and a significant proportion of
the same was eligible for priority sector lending for banks. Your Company also
issued subordinated debt amounting to Rs.100.0 crores and successfully
assigned receivables to the tune of Rs. 1044.6 crores at very attractive rates.
During the year, your Company has actively participated in a number of
international and domestic investor meets organized by reputed International
Banks and Financial Services Companies. Your Company also periodically
conducted analysts' meets to communicate details of performance, important
developments and exchange information.

CAPITAL ADEQUACY:
As a result of the increased net worth, your Company was able to enhance
the Capital to Risk Assets Ratio (CRAR) to 18.5 per cent as on 31st March,
2010, which is well above 12.0 per cent CRAR prescribed by the Reserve
Bank of India.

DIVIDEND:
Your Directors are pleased to recommend a dividend of Rs.7.50 per Equity
Share, payable to those members whose names appear in the Register of
Members as on the Book Closure date. The dividend including dividend tax
will absorb a sum of Rs. 85.0 crores (as against Rs. 62.3 crores on account of
dividend of Rs. 5.50 per Equity Share, paid for the previous year).

OPERATIONS:
Your Company continues to be the preferred provider of retail financing
services for Mahindra range of vehicles and tractors in addition to financing
other new and pre-used vehicles. During the year under review, your
Company continued to maintain its market position in rural and semi-urban
automobile financing and expanded its lending to non Mahindra range of
vehicles. Your Company also provides finance for Commercial Vehicles and
Construction Equipment. Your Company has one of the largest network of
branches amongst Non-Banking Financial Companies (NBFCs) operating in
rural and semi-urban areas. Your Companys nationwide network of branches
and locally recruited employees have facilitated in developing and
strengthening relationship with its customers. Income grew by 13.3 per cent to
Rs.1568.8 crores for the year ended 31st March, 2010 as compared to
Rs.1384.7 crores for the previous year. Profit Before Tax was 59.9 per cent
higher at Rs.520.6 crores as compared to Rs.325.6 crores for the previous
year. Profit After Tax grew at a healthy rate of 59.8 per cent to Rs.342.7 crores
as compared to Rs.214.5 crores in 2008-09. Your Company has achieved a
very important milestone of cumulatively financing over one million customers
since its inception. The number of contracts entered into by the Company
during the year was 2,16,355 as against 1,57,828 in the previous year. The
overall disbursement registered a growth of 41.9 per cent at Rs.8915.4 crores
as compared to Rs.6281.2 crores in the previous year. During the year under
review, the Assets Under Management have crossed Rs.10,000 crores and
stood at Rs.10,329.0 crores as at 31st March, 2010.

FINANCIAL PERFORMANCE: 2008-09

DIVIDEND:
Your Directors have recommended a dividend of Rs.2.50 per equity share of
the Company for the year 2008-09. The Directors have also recommended a
dividend on 1,000,000 10.50 per cent Non-Cumulative Redeemable
Preference shares of Rs.100 each. The total dividend payment (including tax
on distributed profits) amounts to Rs.1,316 lakh, (previous year Rs. 1,316
lakh) and shall be paid out of profits for the current year.

OPERATIONS:
The global economic situation witnessed significant adverse changes during
the year. By the middle of the financial year 2008-09, the major advanced
economies, led by the US, were already in or nearing recession. Overall
growth in world output came down from over 4.5 per cent in the last few years
to around 3 per cent during the year. With contraction in world output, the
situation is expected to be worse during the current year. Emerging markets,
which are now much more linked to the fortunes of the global economy, too,
felt the impact. Even in this environment, the Indian economy has shown
tremendous resilience. According to the latest estimates, Indias GDP grew at
6.7 per cent during 2008-09. The performance of the construction sector also
witnessed a marked correction, with growth coming down to 7.2 per cent as
compared to over 13 per cent during the last few years. The sector has also
been hit by a major liquidity crunch with the virtual drying-up of enormous
inflows of risk capital by way of IPOs, FDI and Private Equity, and easy
availability of credit, which was an important driver of the boom in the sector.
However, the fundamentals of the Indian economy are still strong and the
domestic growth story is largely unaffected. Although the growth is expected
to decelerate to around 6 per cent during 2009-10, it would still be much
better than many important emerging markets. With swift action from the RBI,
the liquidity situation has eased considerably and interest rates have already
started to come down. The Indian economy is expected to start its recovery
sooner than the advanced economies, hopefully in the second half of 200910.

CAPITAL:
Capital During the year, the Company allotted 800 equity shares of Rs. 10
each out of 46,151 equity shares of Rs. 10 each which were held in
abeyance, pursuant to the Order of the Special Court (Trial of Offences
relating to transactions in Securities) Act, 1992. Accordingly, the paid up
capital of the Company has increased from 40,808,350 equity shares to
40,809,150 equity shares of Rs.10 each aggregating to Rs.408,091,500. The
allotment of 45,351 equity shares of the Company have been kept in
abeyance in accordance with Section 206A of the Companies Act, 1956, till
such time as the title of the bonafide owner of the shares is certified by the
concerned Stock Exchange or The Special Court (Trial of offenses relating to
transactions in Securities). The proceeds from the QIP issue and conversion

of Warrants issued to promoters have been fully utilised. In line with its
objectives, they were used inter-alia for re-payment of working capital
facilities, pre-payment/re-payment of debt, QIP issue expenses, land
purchases, real estate projects and investment in subsidiary companies for
development of SEZs, and industrial townships.
However, your Company was able to reduce the impact of increase in
interest rate by continuously monitoring Asset Liability Management and
following prudent Asset Liability Management Guidelines. During the year
under review, your Company continued its innovative methods of sourcing
funds in addition to regular borrowings like Secured and Unsecured
Debentures, Term loans, Commercial Paper, etc., and maintained prudential
Asset/Liability match through out the year. Your Company sourced long term
loans from consortium banks at attractive rates and a proportion of the same
was eligible for priority sector lending for banks. Your Company also issued
subordinated debt amounting to Rs. 200 crores and successfully assigned
receivables to the tune of Rs. 1,228 crores. During the year, your Company
has actively participated in a number of international and domestic investor
meets organised by reputed International Banks and Financial Services
Companies. Your Company also periodically conducted analysts meets to
communicate details of performance, important developments and exchange
information.

FINANCIAL PERFORMANCE: 2007-08

DIVIDEND:
Your Directors are pleased to recommend a dividend @ 45 per cent (Rs.4.50
per Equity Share), payable to those members whose names appear in the
Register of Members as on the Book Closure date. The dividend including
dividend distribution tax, surcharge and education cess will absorb a sum of
Rs. 51.0 crores, (as against Rs. 39.7 crores comprising an Interim Dividend of
20% and a Final Dividend of 20% paid for the previous year).

OPERATION:
Disbursements for the year 2007-08 registered a growth of 8 per cent at
Rs. 5877 crores as compared to Rs. 5441 crores in the previous year. The
moderate growth in disbursement was also partially due to curtailment of
business from certain locations as a measure to improve upon the quality of
the assets in those locations.
Your Company continued to be the predominant financier for Mahindra
range of vehicles and Tractors in addition to financing of cars and pre-used
vehicles. During the year under review, your Company started financing of
Commercial Vehicles and Construction Equipment making it one of the first
NBFC to finance the complete range of automobiles. During the year your
Company also embarked on disbursement of Personal Loans in addition to
financing of vehicles and tractors. During the year under review, your
Company widened its coverage by adding 33 outlets taking the total network
to 436 offices as on 31st March, 2008.
The number of contracts entered by the Company during the year were
1,75,113 as against 1,73,110 in the previous year. Income rose by 46 per cent
to Rs.1226.8 crores for the year ended 31st March, 2008 as compared to
Rs.841.8 crores during the previous year. Profit before tax was also 34 per
cent higher at Rs.271.9 crores as compared to Rs.202.7 crores during the
previous year. Profit after tax also grew at a healthy rate of 33 per cent to
Rs.177.0 crores as compared to Rs.132.8 crores in 2006-07.

FINANCE:
During the year under review, the interest rate remained volatile and
Corporate Bond rates went up by more than 100 basis points. However, your
Company was able to mitigate the increase in interest rate by pro-active fund
management and timely raising of resources. During the year, your Company
continued its innovative method of sourcing funds in the form of Assignment,
Commercial Paper, MIBOR linked Debentures in addition to regular
borrowings like secured and unsecured debentures, term loans etc., and
maintained prudential asset/liability match throughout the year. Your Company
sourced long term loans from consortium banks at attractive rates to the
extent of Rs.230 crores against loan portfolio considered as priority sector
lending for Banks. Your Company also issued Sub-ordinated debt amounting
to Rs.99.8 crores at a very attractive rate. During the year, your Company
successfully assigned receivables to the extent of Rs. 809.9 crores. Your
Directors are pleased to inform you that your Company is one of the very few
NBFCs to get 10 years Subordinated debt at reasonable rate of interest.
The Cash Management Services (CMS) / Core Banking Solution (CBS) was

extended to cover 156 more branches taking the total coverage of branches
under CMS / CBS to 387 thereby saving substantial transfer and interest cost.
With this, 75% of the fund collection has been brought under CMS / CBS in
the fiscal 2007-08 as against 65% in the previous fiscal. As the members are
aware, with a view to inter alia, augment the Tier I capital base and provide
funding for loans to its customers, your Company had made a Preferential
Allotment of 1,09,00,000 Equity Shares of Rs.10 each at a price of Rs.380 per
Equity Share aggregating 11.2 % of the Post Issue Equity Share Capital.
During the year, your Company has actively participated in a number of
international and domestic investor meets organized by reputed International
Banks and Financial Services Companies. The Company also periodically
conducted analysts' meets to communicate performance, exchange
information and important developments.

FINANCIAL PERFORMANCE: 2006-07