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Mahindra & Mahindra (MM)
Automobiles
No major impact of issue of ESOPs on earnings, in our view. Mahindra and
Mahindra has allotted 1,73,53,034 shares of Rs5 each at par to trustees of M&M
employees’ stock option trust. This is in line with the approval of the shareholders at the
annual general meeting. We believe there will be no immediate impact on earnings as
the issue of stock options to the employees will be done by a fair value valuation
method through a Black-Scholes option pricing formula.
Details of the ESOP issue
Company has issued 17.35 mn shares (3% of outstanding shares) to the trust at par value of
Rs5/share. Company will allot these shares to employees over a period of 5-10 years and
exercise price will be decided close to the issue date. Historically M&M has allotted shares to the
employees at a 5% discount to the average price (which is defined as average of daily high and
low prices on Bombay Stock Exchange during the 15 days preceding the specified date).
Company had allotted 55,24,219 stock options in March 2002 and 10,00,000 in March 2010
to the employee trust (face value of Rs10/share). As of March 2010, 98,35,030 stock options
were outstanding (face value of Rs5/share) on company’s balance sheet.
Company will amortize fair value of the option (market price of the stock – exercise price)
through the P&L when the company allots the options to employees. However, management
suggested that these ESOPs are part of the salary of the employees and a part of the variable
payment will be given to employees as stock options. Hence overall employee costs will remain
as per budgeted estimates of the company. Thus there will be no meaningful impact on
earnings, in our view.
We have added 17.35 million shares to the share capital of the company leading to the dilution
of 3%. We have not made changes to our earnings estimates as company has guided that
employee costs will remain as per budgeted estimates of the company. We reduce our target
price to Rs850 factoring in (1) 3% dilution and (2) making slight adjustment to our subsidiary
value due to decline in share prices of subsidiaries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra (MM)
Automobiles
No major impact of issue of ESOPs on earnings, in our view. Mahindra and
Mahindra has allotted 1,73,53,034 shares of Rs5 each at par to trustees of M&M
employees’ stock option trust. This is in line with the approval of the shareholders at the
annual general meeting. We believe there will be no immediate impact on earnings as
the issue of stock options to the employees will be done by a fair value valuation
method through a Black-Scholes option pricing formula.
Details of the ESOP issue
Company has issued 17.35 mn shares (3% of outstanding shares) to the trust at par value of
Rs5/share. Company will allot these shares to employees over a period of 5-10 years and
exercise price will be decided close to the issue date. Historically M&M has allotted shares to the
employees at a 5% discount to the average price (which is defined as average of daily high and
low prices on Bombay Stock Exchange during the 15 days preceding the specified date).
Company had allotted 55,24,219 stock options in March 2002 and 10,00,000 in March 2010
to the employee trust (face value of Rs10/share). As of March 2010, 98,35,030 stock options
were outstanding (face value of Rs5/share) on company’s balance sheet.
Company will amortize fair value of the option (market price of the stock – exercise price)
through the P&L when the company allots the options to employees. However, management
suggested that these ESOPs are part of the salary of the employees and a part of the variable
payment will be given to employees as stock options. Hence overall employee costs will remain
as per budgeted estimates of the company. Thus there will be no meaningful impact on
earnings, in our view.
We have added 17.35 million shares to the share capital of the company leading to the dilution
of 3%. We have not made changes to our earnings estimates as company has guided that
employee costs will remain as per budgeted estimates of the company. We reduce our target
price to Rs850 factoring in (1) 3% dilution and (2) making slight adjustment to our subsidiary
value due to decline in share prices of subsidiaries.
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