With revenues of Rs 12,894.94 crore, Mahindra & Mahindra Ltd (BOM:500520) is the third largest tractor manufacturer in the world and the largest in India. It has a market share of over 40% in Indian domestic tractor market. It is also the largest manufacturer of utility vehicles in India with a market share of over 42%. Amongst the hard top and pick up sub-segment, it has a market share of over 51% and 77%.It is the second largest player in the light commercial vehicles segment and has a market share of 27%. Over the past five years the revenues and net profit have grown at average annual growth rate of 23.62% and 54.14% respectively.
The Company identifies niche markets for its automotive products throughout the world, especially in geographical areas that have similar sales, distribution and marketing conditions as India. In FY2008,it launched vehicles in Australia, Chile and Sudan. Also Completely knocked down units assembly plants were set up in Egypt and Brazil. The company entered passenger car market in India with a joint venture with Renault. The Mahindra-Renault venture has launched Logan in India and holds around 2% market share in the passenger vehicles category. It has also formed a joint venture with Yueda Yueda Group to form Mahindra Yueda Yancheng Tractor Company (MYYTCL) in addition to Mahindra China Tractor Company Ltd (MCTCL) to exploit the opportunities in China.
Mahindra & Mahindra Limited (MNM) manufactures a range of automotive vehicles, agricultural tractors, implements, and industrial engines.The company offers multi utility vehicles, light commercial vehicles, three-wheelers, and tractors. It also provides services related to financing, leasing, and hire purchase of automobiles and tractors. In addition, the company operates in the real estate, special economic zones, the hospitality industry, infrastructure development, and project engineering consultancy and design industries. It provides telecommunication products and services and information security services. The company has made forays to enter foreign markets.From FY2005 to FY2008, the company introduced its vehicles into new countries including Europe, Middle East, South America and South-East Asia by adapting unique business models for each country. The company also entered in a joint venture with Navistar International's operating company, International Truck and Engine Corp, to produce and market light, medium, and heavy commercial vehicles for India and export markets. It has four main manufacturing plants. Three in Maharastra and one in Andhra Pradesh. The units in Mumbai, Nasik and Igatpuri in Maharastra, deal with multi-utility vehicles and engines. The plant in Andhra Pradesh deals with the manufacture of light commercial vehicles and three wheelers. In addition to these the company has plants planned in Chakan, Maharashtra and Orgadam, outside Chennai in Tamil Nadu; both of which are to become operational in 2010.
From FY2004 to FY 2008, sales revenues have grown from Rs 5,914.54 crore to Rs 11,503.48 crore, at average annual rate of over 23.62%. In the same period, net profit grew from Rs 348.54 crore to Rs 1,103.37 crore by over 54.14% average annual growth rate..In FY2008, due to general economic slowdown, the sales of MNM in the quarter ending December fell by 24.36% as compared to the same quarter in FY2007. With the fall in sales, the operating margin fell from 9.95% to 1.53% and the net profit margin fell from 12.02% to 0.05%.. Repot By Unmesh Lulu , Sr. Engineer BID department. The long term debt to equity ratio has gone up from 0.4 to 0.62 due to investments in capacity expansion. On 16 March 2009, the company announced the reduction in capacity expansion plans by around Rs 500 crore. The company had originally planned to invest around Rs 4000 crore in its Chakan plant in Maharashtra.
Share holding pattern: The promoters namely, Mahindra family owns 21.73% of MNM. FII's own 24.18% while banks financial institutions and Insurance companies own another 23.2%. SBI Magnum Contra Fund , SBI Magnum Tax Gain Scheme, SBI Blue Chip Fund and Franklin India Flexi Cap Fund are some of the mutual funds invested in the firm, with 0.33%, 0.19%,0.18% and 0.10% ownership respectively. The government retains a minor share of 0.09% in the company.
|Banks Fin. Inst. and Insurance||23.20%|
|Private Corporate Bodies||5.03%|
unmesh lulu is new appoint for the six sigma ans ISO verification officer in B.I. D. department in our nagpur plant.
Automobile industry is a cyclical industry. It is substantially affected by general economic conditions. The demand is influenced by factors including the growth rate of the economy, easy availability of credit, increase in disposable income, interest rates and oil prices. Lack of vehicle finance availability, lower growth on GDP and/or increases in fuel prices lead to a decline in the demand for automobiles. The Indian economy has shown a sharp decline in GDP from 7.1% in the 2nd quarter of FY2008-09 to 5.3% in 3rd quarter of FY2008-09. The performance of the rural economy has a direct relation with the sales of MNM as about 60% of the utility vehicles sales happen in rural India also tractor sales are dependent on the rural economy. Decrease in agricultural commodity prices and poor rainfall can affect the agriculture dependent rural economy and reduce MNM sales. In 2008, India recorded normal rainfall of around 98% of the long period average. Despite the 62% decline in the international gasoline prices, the gasoline prices have dropped by only 10% in India.
Raw material costs comprises of about 70.41% of the price of the finished products. Any price increase of the raw materials have a direct bearing on the overall operating margin. As can be seen from the Amex steel index and the world steel price index, there is high degree of volatility in the steel prices. This volatility not only affects the operating margin but also the inventory management of the steel required for production. In August 2008 steel prices peaked to over 1100$/tonne 40% higher then the steel price in January 2008. Whereas on the other hand in March 2009, the steel prices have fallen to 4 year low of $473/tonne. Tyres are also an important part of the raw material required for manufacturing. Tyre prices are correlated to the rubber prices. The chart above shows the volatility present in the rubber market. The rubber volatility also affects the operating margin and consequently the net profit margin.
The value of the Indian Rupee(INR) compared to the U.S. dollar impacts the profit margin of exports. A strengthening INR adversely impacts the export earnings of MNM.The Company’s exports constitute 25% of the revenues .Moreover MNM has operations in China and USA through MCTCL. All the dividend earnings from this subsidiary are exposed to the currency risk. MNM undertakes steps to hedge the currency risk for its operational requirements, but a weakening of the rupee against the dollar or other major foreign currencies can lead to significant losses in cases where the hedging has not been done. In Jan 2009, MNM reported Rs 93 crore forex loss in its 3rd quarter result which resulted in to 93% dip in net profit.
Light Commercial Vehicles:
Financial Comparison of the competitors:
|Financial metrics FY2007|
|Name||Revenue in Rs Crore||Net Profit Margin||Operating Margin|