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MARKET DATA
52-week range (INR) 970 / 587
Share in issue (mn) 1,243.2
Market cap (INR bn/USD mn) 1,097 / 14,673
Avg. Daily Vo. BSE/NSE (‘000) 5,065.8
Shareholding Pattern (%)
Promoters * 18.9
MFs,FIs &Banks 26.3
FIIs 37.8
Others 17.0
*Promoters pledged shares 1.34 (% of share in issue)
Auditor
BSR & Co LLP
Explore:
Analysis Beyond Consensus (ABC) is an initiative to provide a differentiated perspective on various non-routine and intricate Accounting and Corporate Governance issues. This research unit works independent of sector research teams and the views expressed in this report may vary with that of respective sector/stock analyst.
M&M’s domestic volumes fell 8% YoY in FY21; however, EBITDA grew in double digits as EBITDA margin expanded. Net losses at some loss-making subsidiaries widened to ~INR54bn in FY21 (from ~INR39bn in FY20) – led mainly by SSangYong Motor, which is now discontinued operations. On the other hand, some profit making subs improved in FY21. Group RoCE remained in single digit due to low standalone RoCE (automotive segment hit by covid-19) and losses in some large subsidiaries. Consolidated RoCE (ex-MMFS) was also low at ~6%.
Other highlights: i) Standalone OCF improved, from negative INR13bn to positive INR35bn due to a significant swing in working capital. ii) During FY17–21, it capitalised ~62% of R&D spend versus ~68% at Ashok Leyland and ~80% at TAMO. iii) During FY17–21, M&M invested ~32% (INR123bn) of its generated capital into subsidiaries/JV.
Losses from loss-making subsidiaries widen in FY21
Overall, M&M has 167 subsidiaries, 31 joint ventures and 28 associates. Net losses
at some of the key/large subsidiaries widened in FY21 to ~INR54bn, from ~INR39bn
in FY20. Excluding Ssangyong Motors, which was classified under discontinued
operations, these aggregate net losses stood at INR20bn vs INR18bn last year. Apart
from SSangYong Motors, net loss for Automobili Pininfarina surged to INR8.2bn
(from net loss of INR1.3bn in FY20); and Holiday Club Resorts slid into a net loss of
INR1bn from net profits in earlier years. On the other hand, net losses reduced at
Mahindra USA to INR2bn, from INR5bn+ in net loss in FY20. Among profit-making
subs, aggregate profit surged to INR20.7bn from INR8.5bn in FY20, mainly due to
Mahindra Vehicle Manufacturers reverting to profits. Capital infusion in some select
loss making subs have continued in FY21.
RoCE lower due to covid-19 and subsidiary losses
Group RoCE remained in single digit due to lower standalone RoCE and loss in some
large subsidiaries. Consolidated RoCE (ex-MMFS), though better YoY at 6.1%,
remains low. The automotive segment’s RoCE fell to 6% in FY21 owing to the hit
from covid-19. During FY17–21, M&M invested ~32% or INR123bn of its aggregate
generated capital into subsidiaries/JV.
Cash flows improve on better profitability and working capital
M&M’s standalone OCF improved from negative INR13bn to INR35bn in green, led
by higher cash profit after tax as well as a significant swing in working capital. While
inventories went up despite flat sales, receivables fell sharply and payables shot up.
At the consolidated level, OCF rose significantly to INR185bn and free cash flow
came in at INR104bn (up from negative INR67bn in FY20). Due to a large favourable
WC swing, M&M’s standalone cash conversion cycle for FY21 improved
meaningfully to 22–23 days in negative, which is similar to Ashok Leyland’s.
India Equity Research October 29, 2021
ANNUAL REPORT ANALYSIS Mahindra & Mahindra Limited
Alok Deshpande +91 (22) 6620 3163 [email protected]
Podcast Financial model
Video Corporate access
ANNUAL REPORT ANALYSIS
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R&D capitalisation – In line with domestic peers
R&D cost capitalised (net of amortisation) stood negative, mainly due to other
adjustments, primarily SsangYong’s impairment. Adjusted for this, M&M capitalised
53% of R&D spend. This is much lower than earlier years. During FY18–20, M&M
capitalised 72% of R&D spend on average. Over the past five years, M&M
cumulatively capitalised ~62% of R&D spend. This is slightly lower than Ashok
Leyland’s ~68%. Tata Motors capitalised ~80% of R&D spend during FY17–21.
Other highlights
FY21 revenue for Mahindra Electric Mobility fell 25% YoY to INR2bn and net
losses widened from INR552mn to INR1.1bn.
Key movements in ESG metrics: Total 11% reduction in in FY21 (versus FY20) in
total scope 1 and scope 2 GHG emissions; 43% share of water recycled & reused
(versus 40% in FY20; share of renewable energy in total energy consumed was
5% in FY21 (versus 4% in FY20).
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Subsidiaries’ analysis
Overall, M&M has 167 subsidiaries, 31 Joint ventures and 28 associate companies,
which operate in over 100 countries, and 68 manufacturing facilities around the
globe. We look at two main buckets for analysis of subsidiaries (see tables below): i)
key subsidiaries split into loss-making and profit-making buckets; ii) key subsidiaries
and associates that Street generally incorporates in M&M’s SoTP valuation.
Our analysis shows aggregate net losses at some of the key/large subsidiaries
widened in FY21 to ~INR54bn, from ~INR39bn in FY20. Excluding Ssangyong Motors,
which was classified under discontinued operations, aggregate net losses at some of
the key/large subsidiaries stood at INR20bn vs INR18bn last year. These losses was
especially due to three reasons: SSangYong Motor, whose net loss widened to
INR34bn from INR21bn last year; Automobili Pininfarina, whose net loss surged to
INR8.2bn (from net loss of INR1.3bn in FY20); and Holiday Club Resorts, which slid
into a net loss of INR1bn from net profits in earlier years. On the other hand, net
losses reduced at Mahindra USA to INR2bn, from INR5bn+ of net losses in FY20.
(Refer to table 2 for this.)
Among profit-making companies, aggregate profit improved to INR20.7bn from
INR8.5bn, mainly due to Mahindra Vehicle Manufacturers reverting to a net profit
of INR6.5bn from a net loss of INR4bn in FY20.
Exhibit 1: Performance of M&M’s large subsidiaries and associates, generally considered for M&M’s S0TP value (INR bn)
Source: Annual reports, company filings, Edelweiss Research; ** SsangYong Motor filed for bankruptcy in FY21
Revenue PAT Revenue PAT Revenue PAT Revenue PAT Revenue PAT
Tech Mahindra 28.8 252.4 291.4 28.5 307.7 37.9 347.0 42.9 368.7 40.3 378.6 44.3
M&M Financial Services 52.3 157.8 71.9 5.1 79.1 11.9 104.3 18.3 120.0 10.8 123.8 7.7
Mahindra Vehicle Manufacturers Ltd 100.0 50.3 101.3 0.3 100.3 3.5 114.2 7.2 76.6 -4.2 57.6 6.5
Mahindra Lifespace Developers Ltd 51.5 14.5 7.6 1.0 5.7 1.0 5.9 1.2 6.1 -1.9 1.7 -0.7
Mahindra Holidays & Resorts India 67.6 0.5 22.7 1.5 23.2 1.3 22.3 0.6 23.7 -1.3 17.3 -0.1
Mahindra CIE* 11.4 50.3 53.2 1.7 64.3 3.6 80.3 5.0 79.1 3.5 60.5 1.1
Swaraj Engines 34.7 2.8 7.5 0.7 8.0 0.8 8.7 0.8 7.7 0.7 9.9 0.9
Mahindra Logistics 58.3 5.7 26.7 0.5 34.2 0.6 38.5 0.9 34.7 0.6 32.6 0.3
Ssangyong Motor Company Ltd** 74.7 -5.7 209.7 2.3 213.2 -5.5 226.0 -3.8 226.0 -21.1 206.6 -33.9
Total (including Ssangyong Motors) 792.0 41.5 835.6 55.1 947.2 73.0 942.5 27.4 888.5 26.1
Total (excluding Ssangyong Motors) 582.2 39.2 622.4 60.6 721.2 76.8 716.6 48.4 681.9 60.0
** Ssangyong Motors is discontinued operations
M&M 's economic share in
profits/losses % stake
Tech Mahindra 28.8 11.6 12.8
M&M Financial Services 52.3 5.6 4.0
Mahindra Vehicle Manufacturers Ltd 100.0 -4.2 6.5
Mahindra Lifespace Developers Ltd 51.5 -1.0 -0.4
Mahindra Holidays & Resorts India Ltd 67.6 -0.9 -0.1
Mahindra CIE* 11.4 0.4 0.1
Swaraj Engines 34.7 0.2 0.3
Mahindra Logistics 58.3 0.3 0.2
Ssangyong Motor Company Ltd** 74.7 -15.7 -25.3
Total (including Ssangyong Motors) -3.6 -1.8
Total (excluding Ssangyong Motors) 12.1 23.5
FY20 M&M
economic share
of PAT
FY21 M&M
economic share
of PAT
Net worthFY17 FY18 FY19 FY20 FY21
INR bn % stake
ANNUAL REPORT ANALYSIS
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Exhibit 2: Performance snapshot of key subsidiaries (several not considered by Street for M&M’s SoTP valuation) (INR mn)
@ Mahindra First choice services 100% stake sold in FY21
Note: Assuming constant M&M stake for comparison and analysis purpose. Actual stake in FY17-20 may differ.
Source: Annual reports, company filings, Edelweiss Research
Note: @ Mahindra First Choice Services – 100% stake sold in FY21
INR mn % stake FY17 FY18 FY19 FY20 FY21
Loss making subsidiaries
Peugeot Motocycles S.A.S. 100.0 (1,608) (1,723) (2,820) (2,444) (456)
Mahindra Yueda (Yancheng) Tractor Company 51.0 (1,544) - - - -
Mahindra Tractor Assembly Inc. 100.0 (1,124) (1,345) (2,430) (2,216) (565)
Mahindra Reva Electric Vehicles Pvt Ltd 93.7 - - 0 0 0
Mahindra First Choice Services Ltd @ - (455) (404) (355) (311) -
Mahindra Aerospace Pvt Ltd. 91.6 (55) (1,331) (1,798) (3,194) (2,403)
Mahindra Sanyo Special Steel Pvt Ltd 22.8 (461) (280) - - (157)
Mahindra Electric Mobility 99.4 (1,132) (1,290) (530) (552) (1,071)
Mahindra Vehicle sales and services 100.0 - - - (2,476) (2,297)
Automobili Pininfarina Gmbh 100.0 - - - (1,296) (8,197)
Mahindra USA 100.0 311 224 (5,493) (5,071) (1,954)
Erkunt Tractor 100.0 - (732) (468) (401) (704)
Holiday Club Resort Oy 67.6 54 300 157 17 (986)
Classic Legends Private Limited 60.0 (15) (12) (188) (61) (880)
Mahindra Agri Solutions Limited 98.8 (506) (633) (639) (192) (567)
Aggregate losses (excluding Ssangyong losses) (6,534) (7,225) (14,563) (18,196) (20,237)
Discontinued operations- Ssangyong Motors 74.7 2,312 (5,484) (3,797) (21,082) (33,920)
Aggregate losses (include Ssangyong losses) (a) (4,222) (12,709) (18,360) (39,278) (54,157)
M&M's economic interest in above losses (b) (3,688) (11,070) (17,212) (33,651) (44,567)
Profitable subsidiaries
Mahindra & Mahindra Financial Services Ltd 52.3 5,120 11,850 18,270 10,750 7,730
Mahindra Vehicle Manufacturers Ltd. 100.0 250 3,487 7,206 (4,183) 6,548
Mahindra Rural housing finance Limited 52.0 830 1,455 2,505 1,486 1,510
Mahindra Two Wheelers Ltd 100.0 (4,716) 22 8 7 247
Mahindra Holidays and Resorts Limited 67.6 1,490 1,320 600 (1,320) (130)
Mahindra Heavy Engines Pvt Ltd 100.0 273 130 526 391 2,573
Mahindra Retail Pvt Limited 100.0 1,751 (395) (228) (215) 600
Bristlecone group (consolidated) 74.9 197 1,249 420 396 571
Mahindra & Mahindra South Africa (Pty) Ltd 100.0 56 (17) (218) (107) 118
Mahindra Susten Private Limited # 100.0 419 470 630 418 61
Mahindra Intertrade Ltd 100.0 597 623 773 365 599
Mahindra Logistics Ltd 58.3 460 640 860 551 300
Aggregate profits (c) 6,727 20,834 31,352 8,539 20,728
M&M economic interest in above profits (d) 3,163 13,477 20,779 2,798 16,090
Aggregate (net) (a+c) 2,505 8,125 12,993 (30,739) (33,429)
Aggregate (net) (a+c) (Excluding Ssangyong) 193 13,609 16,789 (9,657) 491
M&M economic interest in losses (net) (b+d) (524) 2,407 3,567 (30,854) (28,477)
% of Standalone PAT (1.3) 5.5 7.4 (231.9) (1,060.0)
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Exhibit 3: Investment in key loss making subsidiaries in the past five years
Source: Annual reports, company filings, Subsidiary financials; Edelweiss Research
Exhibit 4: Dividend income received from subsidiaries
Ssangyong Motor Company (“Ssangyong”) – Extract from the Annual report for FY21
During the year, the Board of your Company decided not to make any further equity investment in Ssangyong Motor Company, a subsidiary in South Korea. Pursuant to the decision, Ssangyong management initiated a search for a potential investor to invest equity. During the year under review, the Members of the Company have, by way of a Postal Ballot, approved the proposal of Transfer/Dilution of stake in Ssangyong and/or cessation of control of the Company over Ssangyong. Following a global search, one North America based investor expressed an interest to invest and acquire a majority stake in Ssangyong. However, a term sheet could not be concluded due to regulatory constraints. Following Ssangyong’s inability to pay bank loans which were due in December, 2020, Ssangyong applied to Korean Courts for commencement of rehabilitation procedure. The Court allowed three months to Ssangyong to arrive at a private investment agreement with the said investor. Since that could not be concluded within the stipulated time, the Court initiated rehabilitation process on 15th April, 2021 and appointed a Court receiver who took over the day-to-day management of Ssangyong. An examiner appointed by the Court will determine whether Ssangyong should be sold as a going concern or liquidated. If the examiner recommends a sale, the receiver will oversee the preparation of a rehabilitation plan which may include a combination of capital reduction, debt waiver, debt-to-equity conversion and other similar actions. The rehabilitation plan is expected to be submitted to the Court by July, 2021. Pursuant to the admission in the Autonomous Restructuring Support (ARS) program and following the guidance under Ind AS 110 – Consolidated Financial Statements, the Company has ceased consolidating Ssangyong as a subsidiary from 28th December, 2020 and has classified the investment to be measured at fair value as per Ind AS 109 – Financial instruments. Accordingly, the losses from operations, resultant gain on deconsolidation of Ssangyong and impairments/ provisions for the exposures of the Company to Ssangyong have been recognised and presented under ‘Profit/(loss) before tax from discontinued operation’ in the Consolidated Statement of Profit and Loss. However, Ssangyong continues to be a subsidiary of the Company under the Companies Act, 2013.
INR mn FY17 FY18 FY19 FY20 FY21
Mahindra First Choice Services Ltd 297 - 320 340 -
Mahindra Tractor Assembly Inc. 1,790 727 301 2,616 492
Peugeot Motocycles S.A.S. - - - -
Ssangyong Motor Company - - 3 -
Mahindra Aerospace Pvt Ltd. 1,267 2,088 1,162 552 1,562
Mahindra Electric Mobility 1,666 1,348 937 403 912
Mahindra Vehicle sales and services - 110 2,204 2,236 1,558
Automobili Pininfarina Gmbh - - 2,534 5,432 4,729
Erkunt Tractor - - - - -
Classic Legends Private Limited 60 547 235 302 183
Mahindra Agri Solutions Limited 2,653 - - 493 400
Total 7,732 4,820 7,695 12,374 9,836
INR mn FY17 FY18 FY19 FY20 FY21
Divdend 796 706 857 635 54
M&M’s capital infusion in some of the
selective losses subsidiaries has continued
at the steady during the past five years
ANNUAL REPORT ANALYSIS
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Profitability & Capital allocation analysis
Exhibit 5: Standalone – Profitability and Capital allocation (INR bn)
Source: Annual reports, company filings, Edelweiss Research
Note: * Adjusted for income from subsidiaries, JVs & Associate
# adjusted for investment in subsidiaries, JVs & associates & loans & advances to subsidiaries, JVs
& associates and acceptances
*# Calculated using adjusted PBIT & Adjusted capital employed
Exhibit 6: Consolidated RoCE (ex M&M Financial Services)
Source: Annual reports, company filings, Edelweiss Research
Particulars FY17 FY18 FY19 FY20 FY21
Sales 440.5 486.9 536.1 454.9 450.4
EBITDA 59.0 73.5 84.2 75.6 79.6
Adjusted PBIT* 37.2 53.3 56.1 43.0 51.8
Gross margin (%) 52.0 52.2 57.3 49.7 44.4
EBITDA margin (%) 13.4 15.1 15.7 16.6 17.7
ROCE (%) 16.0 18.4 18.5 14.1 13.9
Adjusted ROCE (%)*# 25.6 36.5 33.5 24.5 32.5
Net fixed assets (Ex CWIP) 76.3 78.6 100.8 103.9 101.8
CWIP 4.1 10.8 7.1 12.0 17.1
Devlopment expenditure (inc under development) 16.3 20.5 17.1 28.1 31.2
Fixed asset turnover 6.1 6.3 6.0 4.4 4.4
Net current assets 5.4 (3.8) 11.6 (11.0) (16.7)
Equity shareholders' funds (A) 267.9 302.9 342.1 344.7 345.0
Loan funds (B) 28.2 29.6 25.7 30.7 70.9
Reported capital employed (A+B) 296.0 332.5 367.8 375.4 416.0
Adjusted total capital employed (A+B)# 140.5 151.5 183.2 167.6 150.9
D/E Ratio 0.1 0.1 0.1 0.1 0.2
INR bn FY17 FY18 FY19 FY20 FY21
Capital employed
Consolidated 785 927 1,108 1,225 1,222
M&M Financial services 70 99 113 120 158
Consolidated (ex MMFS) 715 828 996 1,106 1,064
EBIT
Consolidated 96 117 137 119 126
M&M Financial services 70 53 73 70 60
EBIT (ex M&M financial) 26 63 64 49 66
Adjusted RoCE (average) (%) 1.3 8.2 7.0 4.7 6.1
Owing to subsidiaries’ low profitability,
consolidated RoCE (ex M&M Financial
Services) stood at ~6.1% versus ~14%
for standalone
Automotive segment, reeling from
covid’s fallout, reported the lowest
RoCE in FY21
Gross margin declined by more than
500bps to ~44%, even as EBITDA margins
expanded
Reported RoCE was the lowest in the past
decade
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Exhibit 7: Segment-wise performance (revenue, EBIT and RoCE) – Standalone and consolidated (INR bn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 8: Source and application of funds (INR mn)
Source: Annual reports, company filings, Edelweiss Research
INR bn FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Segment Revenue
Automotive 535.4 524.3 590.5 484.9 258.3 320.2 321.1 353.5 284.1 250.1
Farm Equipment 187.4 216.3 220.8 208.6 246.0 139.0 160.9 168.7 154.0 184.3
Financial Services 74.9 86.0 103.1 118.0 119.7
Others 92.2 106.1 132.8 140.2 118.8 18.0 16.0 17.3 16.8 15.9
889.8 932.6 1,047.2 951.8 742.8 477.3 498.0 539.5 454.9 450.4
Segment results
Automotive 21.4 20.7 21.4 (9.2) 7.4 14.1 21.5 20.3 12.6 4.9
Farm Equipment 26.1 30.5 23.8 22.8 41.6 25.6 31.5 32.7 29.3 41.9
Financial Services 9.6 18.5 27.0 14.5 5.4
Others (5.2) 3.1 1.1 1.2 1.5 (3.8) 0.6 0.5 0.7 0.3
51.9 72.8 73.3 29.3 55.9 36.0 53.6 53.4 42.6 47.0
Segment margins (%)
Automotive 4.0 3.9 3.6 (1.9) 2.8 4.4 6.7 5.7 4.4 1.9
Farm Equipment 13.9 14.1 10.8 10.9 16.9 18.4 19.5 19.3 19.0 22.7
Financial Services 12.9 21.5 26.2 12.3 4.5
Others (5.6) 2.9 0.8 0.9 1.3 (21.0) 3.9 2.9 4.3 1.6
5.8 7.8 7.0 3.1 7.5 7.5 10.8 9.9 9.4 10.4
Segment net assets
Automotive 149.3 146.5 165.5 181.0 126.6 63.5 61.2 70.4 93.5 80.4
Farm Equipment 45.0 58.2 76.6 58.3 38.6 29.8 29.4 45.5 37.6 25.1
Financial Services 60.5 95.0 96.8 81.5 71.8
Others 80.3 109.2 88.4 84.7 97.2 3.6 4.9 5.1 5.4 5.1
335.1 408.8 427.4 405.7 334.2 96.9 95.5 121.0 136.5 110.6
Return on segment net assets (%)
Automotive 14.9 14.0 13.7 (5.3) 4.8 22.3 35.1 28.8 13.5 6.0
Farm Equipment 54.9 59.2 35.3 33.7 85.8 86.0 107.1 71.8 77.7 166.9
Financial Services 16.9 23.8 28.2 16.3 7.0
Others (6.3) 3.3 1.1 1.4 1.7 (103.9) 12.8 9.9 13.4 5.1
Consolidated Standalone
Sources of Funds (FY17-21) INR mn % Application of Funds (FY17-21) INR mn %
Cash profit after tax and interest 2,40,264 63.0 Capital expenditure 1,44,836 38.0
Investment income 49,884 13.1 Investment in Subs/JV 1,23,327 32.3
Borrowings 43,675 11.4 In Investment / Cash 46,898 12.3
Release of working capital 34,140 8.9 Dividend paid 42,548 11.2
Miscelleneous 13,571 3.6 Inter Corporate Deposits (net) 23,924 6.3
Total 3,81,533 100.0 Total 3,81,533 100.0
ANNUAL REPORT ANALYSIS
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Capital allocation roadmap presented in the Annual Report
In the FY21 Annual Report, M&M has further updated about its strategy regarding
capital allocation going ahead. As described back in the FY20 annual report, the
company has created three categories to bucket the subsidiaries which either need
more assistance or complete exits. The below table captures this from the FY21
Annual Report.
Exhibit 9: Capital Allocation road map in the Annual Report
Source: Annual reports, Edelweiss Research
Exhibit 10: M&M expects the profitability from international subsidiaries to improve – the chart below is a snapshot is from
M&M FY21 Annual Report
Source: Annual reports, Edelweiss Research
The above chart is a snapshot from the FY21 Annual Report.
Category Thought process Entities Statement by M&M in the AR
Category AEntities with clear path to
profitability
Magna AG North America, Peugeot
Motorcycles, Erkunt
MAGNA (Mahindra USA Inc.), Peugeot Motocycles and
Erkunt - each of these entities has developed a business plan that
lays out a clear path to profitability.
betwee A&B
Mahindra Automotive North America and Automobili
Pininfarina, after a fair amount of restructuring, straddle Category
A and B.
Category BQuantifiable strategic
impact
Mitsubishi Mahindra Agricultural
Machinery, Sampo Rosenlew, Hisarlar AG
Machinery
Mitsubishi Mahindra Agricultural Machinery, Sampo Rosenlew
and Hisarlar - these entities were added
to Category B considering their importance to the farm equipment
business in developing a strong farm machinery portfolio for
domestic as well as international markets.
Category CUnclear path to
profitability. Exit.Ssangyong, Gippsaero, Z genZe, MFCS
Have taken quite a few tough calls, starting from Board's
decision to stop investing in SsangYong in April 2021 to exiting
GippsAero, Genze and Mahindra First Choice Services (MFCS).
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Exhibit 11: M&M has identified growth areas ‘9 Growth Gems’ that can scale up
significantly in the next 3-5 years, as per the FY21 Annual Report – the chart
below is a snapshot is from M&M FY21 Annual Report
Source: Annual reports, Edelweiss Research
The above chart is a snapshot from the FY21 Annual Report.
ANNUAL REPORT ANALYSIS
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Cash flow analysis
Exhibit 12: M&M cash flows
Source: Annual reports, company filings, Edelweiss Research
Exhibit 13: Working capital and cash conversion cycle analysis vs peers
Source: Annual reports, company filings, Edelweiss Research
Standalone
Profit before tax 51.3 51.2 (33.3) (20.8) 18.0 30.4
Non-operating expenses/ (income) (2.0) 0.5 1.2 (0.2) (0.8) 0.3
Non-cash adjustments 21.8 20.7 39.6 24.7 61.4 45.3
Direct taxes paid (10.8) (10.6) (11.7) (7.9) (22.6) (18.5)
Dividend from subsidiaries (10.4) (5.5) 10.4 5.5 (0.9) (0.1)
Cash profit after tax 49.9 56.2 6.2 1.3 55.2 57.4
(Increase)/Decrease in inventories 4.4 (5.5) 8.8 7.8 13.2 2.3
(Increase)/Decrease in trade and other
receivables20.5 2.5 (35.7) 46.5 (15.2) 49.0
Increase/(Decrease) in trade and other payables (38.0) 38.0 (29.8) 32.4 (67.8) 70.5
(Increase)/Decrease in working capital (13.1) 35.0 (56.6) 86.7 (69.7) 121.7
Net cash from operating activities 36.8 91.2 (50.5) 88.0 (14.6) 179.1
Change in acceptances 3.6 (3.3) 20.1 9.6 23.7 6.3
Adjusted operating cash flows 40.4 87.9 (30.4) 97.6 9.2 185.4
Interest expenses paid (1.6) (3.7) (4.7) (4.4) (6.2) (8.1)
Net cash from operating activities post interest 38.8 84.2 (35.1) 93.2 2.9 177.3
Capex (60.5) (70.7) (9.5) (2.8) (70.0) (73.5)
Free cash flow (21.7) 13.5 (44.5) 90.4 (67.1) 103.8
ParticularsConsolidatedSubsidiary (derived)
FY21FY20 FY20 FY21 FY20 FY21
(8)
9
5
(11)
3
(18)
(13)
(3)
(23)
(12)
(16)(18)
(23)
(14)
(22)
-30
-20
-10
0
10
20
M&M TAMO Ashok Leyland
Ad
just
ed c
ash
co
nve
rsio
n c
ylce
(d
ays)
FY17 FY18 FY19 FY20 FY21
M&M’s standalone OCF improved from
negative INR13bn to INR35bn in green,
led by higher cash profit as well as a
significant swing in working capital.
While inventories went up despite flat
sales, receivables fell sharply and
payables went up sharply.
At the consolidated level, OCF was
significantly up to INR185bn and free
cash flows were INR104bn (versus
negative INR67bn last year).
Due to a large favourable WC swing,
M&M’s standalone cash conversion
cycle for FY21 has improved significantly
to 22–23 days in negative, and is now
similar to Ashok Leyland’s
Edelweiss Securities Limited
ANNUAL REPORT ANALYSIS
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Exhibit 14: M&M - Working capital and cash conversion cycle analysis
Source: Annual reports, company filings, Edelweiss Research
Exhibit 15: Tata Motors - Working capital and cash conversion cycle analysis
Source: Annual reports, company filings, Edelweiss Research
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Trade receivables 29,388 31,730 39,463 29,990 23,429 71,993 84,898 86,779 69,283 60,078
Add: Inventories 27,580 27,017 38,393 34,009 39,555 88,860 93,356 1,22,002 1,11,119 96,154
Add: Advance to suppliers - - - - - - - - 702 959
Less: Trade Payables 68,811 86,034 96,782 67,858 99,882 1,47,969 1,82,873 2,09,922 1,49,854 1,55,058
Less: Advance from customers 2,241 3,145 - 7,118 6,471 5,155 8,442 - 19,031 19,611
Trade working capital -14,083 -30,433 -18,926 -10,977 -43,369 7,729 -13,062 -1,141 12,219 -17,478
Less: Contract l iabilities / Deferred income - - 5,381 8,498 7,555 19,249 23,884 67,263 72,533 67,270
Add: Acceptances 7,263 8,469 8,761 5,127 8,402 33,619 39,981 44,389 20,663 14,322
Adjusted Trade working capital -6,820 -21,964 -15,546 -14,348 -42,522 22,099 3,035 -24,015 -39,651 -70,426
Trade working capital to sales (%) -3.2 -6.3 -3.5 -2.4 -9.6 0.9 -1.4 -0.1 1.3 -2.0
Adjusted Trade working capital to sales (%) -1.5 -4.5 -2.9 -3.2 -9.4 2.6 0.3 -2.3 -4.2 -7.9
Trade receivable as % to sales 6.7 6.5 7.4 6.6 5.2 8.6 9.2 8.3 7.3 6.7
Cash conversion cycle
Receivable days 23 23 24 28 22 28 31 30 30 27
Add: Inventory days 23 20 22 29 30 39 36 38 45 42
Less: Payable days 56 58 62 66 68 61 66 68 69 63
Less: Advance from customer days 3 2 1 3 6 3 3 1 4 8
Add: Advance to suppliers days 0 0 0 0 0 0 0 0 0 0
Cash conversion cycle -14 -17 -17 -12 -22 3 -1 -2 2 -1
Less: Contract l iabilities / Deferred income days - - 2 6 7 8 9 16 27 29
Add: Acceptances 6 6 6 6 5 13 15 15 12 7
Adjusted Cash Conversion cycle -8 -11 -13 -12 -23 8 5 -4 -12 -23
Standalone ConsolidatedINR mn
Particulars FY17 FY18 FY19 FY20 FY17 FY17 FY18 FY19 FY20 FY21
Trade receivables 21,280 34,798 32,506 19,781 20,875 1,40,756 1,98,933 1,89,962 1,11,727 1,26,791
Inventories 55,530 56,701 46,620 38,319 45,517 3,50,853 4,21,376 3,90,137 3,74,569 3,60,886
Advance to suppliers 2,427 3,724 4,208 5,981 6,097 6,844 23,982 21,369 26,987 30,883
Trade Payables -1,14,622 -1,42,256 -1,35,021 -1,08,439 -1,59,881 -6,25,326 -7,69,398 -7,16,907 -6,63,982 -7,60,402
Advance from customers -8,504 - - -6,558 -11,469 -17,112 - - -42,566 -57,359
Trade working capital -43,889 -47,033 -51,687 -50,917 -98,861 -1,43,985 -1,25,107 -1,15,439 -1,93,266 -2,99,202
Add: Contract l iabilities / Deferred income 4,281 4,354 2,230 2,388 4,699 69,264 94,133 75,109 81,470 81,654
Acceptances 43,793 48,146 30,933 27,417 78,731 48,342 49,014 31,771 27,713 78,603
Adjusted Trade working capital -4,377 -3,242 -22,984 -25,888 -24,829 -1,64,906 -1,70,226 -1,58,776 -2,47,023 -3,02,252
Trade working capital to sales (%) -10 -8 -7 -12 -21 -5 -4 -4 -7 -12
Trade receivable as % to sales 5 6 5 5 4 5 7 6 4 5
Receivable days 17 18 18 22 16 19 21 24 21 17
Inventory days 55 44 34 43 39 65 67 67 74 76
Payable days -105 -101 -91 -122 -126 -120 -120 -123 -134 -148
Advance from customer days -7 -3 - -3 -7 -1 -1 - -3 -7
Advance to suppliers days 2 2 3 5 6 2 3 4 5 6
Cash conversion cycle -38 -39 -37 -55 -72 -35 -31 -29 -37 -55
Add: Contract l iabilities / Deferred
income days 3.52 2.72 1.74 1.92 2.75 8.48 10.23 10.23 10.95 11.92
Add: Acceptances 34 29 21 24 41 6 6 5 4 8
Adjusted Cash Conversion cycle -7 -13 -17 -33 -34 -38 -35 -34 -44 -59
Standalone Consolidated
ANNUAL REPORT ANALYSIS
Edelweiss Securities Limited
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Exhibit 16: Ashok Leyland - Working capital and cash conversion cycle analysis
Source: Annual reports, company filings, Edelweiss Research
R&D expenses and Gratuity analysis
Exhibit 17: Research & development capitalisation analysis (consolidated) (INR bn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 18: Research & development capitalisation analysis (consolidated) (INR bn)
Source: Annual reports, company filings, Edelweiss Research
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Trade receivables 10,644 9,448 25,055 11,884 28,160 12,384 11,755 27,172 15,047 30,209
Add: Inventories 26,310 17,583 26,847 12,380 21,423 29,010 22,077 30,634 15,364 24,959
Add: Advance to suppliers 1,020 670 514 259 499 1,067 887 1,134 486 1,202
Less: Trade Payables 31,170 48,879 50,189 30,373 51,647 34,501 50,535 51,790 32,766 53,462
Less: Advance from customers 2,472 9,116 7,902 6,112 4,794 2,274 9,194 8,148 5,975 4,738
Trade working capital 4,332 -30,295 -5,675 -11,963 -6,359 5,686 -25,010 -998 -7,845 -1,831
Less: Contract l iabilities / Deferred income - - - - - - - - - -
Add: Acceptances - - - - - - - - - -
Adjusted Trade working capital 4,332 -30,295 -5,675 -11,963 -6,359 5,686 -25,010 -998 -7,845 -1,831
Trade working capital to sales (%) 2.2 -11.5 -2.0 -6.8 -4.2 2.5 -8.4 -0.3 -3.6 -0.9
Adjusted Trade working capital to sales (%) 2.2 -11.5 -2.0 -6.8 -4.2 2.5 -8.4 -0.3 -3.6 -0.9
Trade receivable as % to sales 5.3 3.6 8.6 6.8 18.4 5.4 4.0 8.2 6.9 15.5
Receivable days 21 14 22 39 48 22 15 21 35 42
Add: Inventory days 39 30 28 41 40 38 31 29 38 38
Add: Advance to suppliers days 2 1 1 1 1 2 1 1 1 2
Less: Payable days 51 55 62 84 98 49 52 56 70 81
Less: Advance from customer days 5 8 11 15 13 4 7 10 12 10
Cash conversion cycle 5 -18 -23 -18 -22 9 -12 -14 -7 -9
Less: Contract l iabilities / Deferred income days - - - - - - - - - -
Add: Acceptances - - - - - - - - - -
Adjusted Cash Conversion cycle 5 -18 -23 -18 -22 9 -12 -14 -7 -9
Standalone ConsolidatedINR mn
Particulars FY17 FY18 FY19 FY20 FY21
Development expenditure capitalised:
Opening net block 18.7 17.9 26.8 42.1 33.5
Capitalised during the year 5.3 16.4 26.5 7.3 8.9
Amortised/ Impaired during the year -5.6 -7.8 -11.4 -14.0 -8.8
Other adjustments -0.4 0.2 0.2 -1.8 -12.0
Closing net block 17.9 26.8 42.1 33.5 21.6
Net expenditure capitalised (A) -0.4 8.6 15.1 -6.7 0.1
Change in intangibles under development (B) 7.7 0.6 -1.5 20.0 -9.1
Amount capitalised (C = A+B) 7.3 9.3 13.6 13.3 -9.0
PBT 54.5 92.2 75.0 6.1 18.8
Capitalised R&D as a % of PBT 13.5 10.1 18.2 216.5 -48.1
Particulars FY17 FY18 FY19 FY20 FY21
Development expenditure grouped under
intangible assets (A) 17.9 26.8 42.1 33.5 21.6
Intangible assets under development (B) 16.3 32.0 23.1 43.0 33.9
Total (A+B) 34.2 58.8 65.1 76.5 55.5
As % of net worth 11.5 16.0 16.3 19.1 13.4
R&D cost capitalised (net of amortisation)
stood negative, mainly due to other
adjustments, which primarily include
impairment of SsangYong Motor
Development expenditure (intangible
assets) declined to INR55.5bn (FY20: INR
76.5bn) in FY21
Edelweiss Securities Limited
ANNUAL REPORT ANALYSIS
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Exhibit 19: Research & development cost (P&L charge) (INR bn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 20: Share of R&D spend capitalised (%)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 21: FY17-21 cumulative share of R&D spend capitalised (%)
Source: Annual reports, company filings, Edelweiss Research
Particulars FY17 FY18 FY19 FY20 FY21 Adj FY21
Development expenditure capitalised in:
Intangible assets 5.3 16.4 26.5 7.3 8.9 8.9
Intangible assets under development 0.0 15.7 -9.0 20.0 -9.1 0.0
Total capitalised expenditure (A) 5.2 32.2 17.5 27.3 (0.2) 8.9
R&D expenditure charged to P&L (B) 13.5 14.3 8.1 6.9 7.8 7.8
Total R&D (A+B) 18.8 46.4 25.7 34.2 7.5 16.6
Adjusted R&D capitalised (%) 27.9 69.3 68.4 79.9 (3.0) 53.4
R&D as % of sales 2.2 5.0 2.5 3.6 0.8 1.9
0
20
40
60
80
100
M&M (FY21 adj forimpairment)
TAMO (FY21 adj forimpairment)
Ashok Leyland Maruti
FY17 FY18 FY19 FY20 FY21
61.9
79.7
67.8
23.7
0
18
36
54
72
90
M&M TAMO Ashok Leyland Maruti
FY17-21 Cumulative R&D capitalised (%) of the total R&D spend
M&M development cost capitalisation
stood at 0.8% of sales (lowest among
peers) followed by Maruti (1.2% of sales),
Ashok Leyland (2.1% of sales) and TAMO
(2.5% of sales)
Over the past five years, M&M
cumulatively capitalised ~62% of R&D
spend. This is slightly lower than Ashok
Leyland’s ~68%. Tata Motors capitalised
~80% of R&D spend during FY17–21.
ANNUAL REPORT ANALYSIS
Edelweiss Securities Limited
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Exhibit 22: R&D cost analysis (P&L charge) – Ashok L (INR bn) Exhibit 23: R&D ost analysis (P&L charge)–Ashok TAMO(INR bn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 24: R&D cost analysis (P&L charge) – Maruti (INR bn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 25: Gratuity liability (consolidated)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 26: KMP remuneration (INR mn)
Source: Annual reports, company filings, Edelweiss Research
Exhibit 27: Board of directors
Source: Annual reports, company filings, Edelweiss Research
Particulars FY17 FY18 FY19 FY20 FY21
Development expenditure capitalised in:
Intangible assets 3.7 5.7 0.6 7.0 3.0
Intangible assets under development 2.7 14.0 1.9 -2.5 -0.3
Total capitalised expenditure (A) 6.4 19.7 2.5 4.5 2.7
R&D expenditure charged to P&L (B) 9.1 1.3 2.0 3.2 1.3
Total R&D (A+B) 15.5 21.0 4.5 7.7 4.1
R&D capitalised (%) 41.3 93.6 55.5 58.2 67.1
R&D as % of sales 0.6 7.0 1.4 3.5 2.1
Particulars FY17 FY18 FY19 FY20 FY21
Development expenditure capitalised in:
Intangible assets 79.4 164.6 120.5 120.2 167.4
Intangible assets under development 41.4 3.8 -5.4 36.8 -144.4
Total capitalised expenditure (A) 120.9 168.4 115.1 157.0 23.0
R&D expenditure charged to P&L (B) 20.5 27.0 29.6 32.7 39.0
Total R&D (A+B) 141.4 195.5 144.7 189.7 62.0
R&D capitalised (%) 85.5 86.2 79.5 82.8 37.1
R&D as % of sales 5.1 6.6 4.7 7.2 2.5
Particulars FY17 FY18 FY19 FY20 FY21
Development expenditure capitalised in:
Intangible assets 2.9 3.2 0.4 0.6 -0.4
Intangible assets under development 0.0 0.0 0.0 0.0 2.3
Total capitalised expenditure (A) 2.9 3.2 0.4 0.6 1.9
R&D expenditure charged to P&L (B) 3.5 5.1 6.7 7.0 6.6
Total R&D (A+B) 6.4 8.3 7.1 7.6 8.5
R&D capitalised (%) 44.9 39.0 5.8 7.7 22.1
R&D as % of sales 0.8 1.0 0.8 1.0 1.2
Unfunded Funded
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Gratuity expense (in P&L)
Current service cost 2.4 2.4 2.7 2.9 2.1 0.8 0.8 0.9 1.1 1.0
Interest cost 0.5 0.5 0.6 0.6 0.4 0.2 0.2 0.2 0.1 0.0
Actuarial (gains)/loss - - - - - - - - - -
Past service cost - - - - - - - - (0.1) (0.2)
Others - - - - - (0.0) (0.0) - - -
Total expense 2.9 2.9 3.3 3.5 2.6 1.0 1.0 1.1 1.1 0.8
Gratuity liability (in BS)
Present value of Defined benefit obligation 18.4 19.8 22.9 25.7 3.1 10.0 10.7 11.7 12.1 12.4
Fair value of plan assets - - - - - 6.9 7.9 9.3 10.8 11.6
Net liability (18.4) (19.8) (22.9) (25.7) (3.1) (3.1) (2.8) (2.4) (1.3) (0.8)
Name Designation 2019 2020 2021 YoY %
Dr. Pawan Goenka MD & CEO (ceased to be MD and CEO from 2 April 21) 122 100 102 1.6%
Dr. Anish Shah
Deputy Managing Diretor and Group CFO (Appointed
as MD and CFO w.e.f 1 April 2020) - - 94 NA
Mr. Rajesh Jejurikar
Executive Director, Automotive and farm sectors
(appointed as ED w.e.f. 1 April 2020) - - 68 NA
Mr. Anand G. Mahindra Executive Chairman 87 87 89 1.6%
Independent and NED 36 36 37 5.1%
Mr. V S Parthasarathy Group CFO & CIO (ceased from 1 April 2020) 70 51 - NA
Total 315 274 390 42.3%
As % of PBT 0.4 1.7 1.2
Particulars FY17 FY18 FY19 FY20 FY21
Total directors 11 10 10 10 13
No. of Independent directors 8 7 7 7 7
Ratio 0.73 0.70 0.70 0.70 0.54
Regulatory norms 0.33 0.33 0.33 0.33 0.33
Women director 1 1 1 2 3
Regulatory norms 1 1 1 1 1
Both funded and unfunded net liability
reduced significantly
Edelweiss Securities Limited
ANNUAL REPORT ANALYSIS
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Exhibit 28: Auditor history
Source: Annual reports, company filings, Edelweiss Research
Exhibit 29: Auditor remuneration (INR mn)
Source: Annual reports, company filings, Edelweiss Research
Year Auditor
FY21
FY20
FY19
FY18
FY17 Deloitte Haskins & Sells LLP
For B S R & Co. LLP
Particulars FY17 FY18 FY19 FY20 FY21 YoY %
Payment to Auditors 57 45 50 53 56 7
ANNUAL REPORT ANALYSIS
Edelweiss Securities Limited
16 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset
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Aditya Narain
Head of Research
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