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Mahindra & Mahindra (M&M) FY11 annual report analysis highlights issue
of shares to ESOP trust which may result in higher employee cost.
Exceptional income and direct debit to reserves improves profitability.
Operating cash flows remained subdued due to higher working capital
requirement.
Employee cost may surge on issue of ESOP
During Q4FY11, M&M issued ~17.2 mn shares to the ESOP trust at par. On issue of
shares by the trust to employees, difference between the market price and exercise
price will be amortised through P&L (over the period of grant), impacting P&L.
As at FY11 end, the percentage of shares under the promoter group category was
24.9% (Q3FY11: 22.8%) of which economic interest to the company was 13.3% (10.8%).
Direct debit to reserve and exceptional income lift profitability
M&M has adjusted provision for diminution of assets related to a product development
project worth INR 2.0 bn, ~4.6% of PBT (FY10: INR 0.7 bn) against the investment
fluctuation reserve. At FY11 end, the investment fluctuation reserve was INR 2.2 bn.
During FY11, the company recognised deemed divestiture gain of INR 2.0 bn (FY10: INR
2.5 bn); 4.7% of PBT (FY10: 6.6%) as exceptional income. As per conventional practice
deemed divesture gain are adjusted through reserves.
Higher working capital requirement subdues operating cash flows
On consolidated basis, M&M’s operating cash flows were negative at INR 23.3 bn vis‐àvis
PBT (before exceptional items) of INR 43.1 bn primarily due to increase in loans
against assets of INR 37.5 bn. Trade & other receivables increased by INR 17.5 bn and
inventories jumped by INR 9.5 bn.
Acquisition of subsidiaries bloats balance sheet
Capital reserve on consolidation jumped from INR 1.4 bn in FY10 to INR 12.8 bn in FY11.
Also, goodwill on consolidation surged from INR 14.8 bn in FY10 to INR 19.5 bn in FY11.
During FY11, M&M acquired Ssangyong Motor Company (Ssangyong) on which the
company is likely to have recognised capital reserve of INR 3.7 bn.
Auditor concerns on associate Satyam Computer Services
The auditors of Tech Mahindra (TML; 48.2% stake in JV) have qualified the financial
statements expressing their inability to ascertain the impact of the qualifications in
Satyam Computer Services (SCSL).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra (M&M) FY11 annual report analysis highlights issue
of shares to ESOP trust which may result in higher employee cost.
Exceptional income and direct debit to reserves improves profitability.
Operating cash flows remained subdued due to higher working capital
requirement.
Employee cost may surge on issue of ESOP
During Q4FY11, M&M issued ~17.2 mn shares to the ESOP trust at par. On issue of
shares by the trust to employees, difference between the market price and exercise
price will be amortised through P&L (over the period of grant), impacting P&L.
As at FY11 end, the percentage of shares under the promoter group category was
24.9% (Q3FY11: 22.8%) of which economic interest to the company was 13.3% (10.8%).
Direct debit to reserve and exceptional income lift profitability
M&M has adjusted provision for diminution of assets related to a product development
project worth INR 2.0 bn, ~4.6% of PBT (FY10: INR 0.7 bn) against the investment
fluctuation reserve. At FY11 end, the investment fluctuation reserve was INR 2.2 bn.
During FY11, the company recognised deemed divestiture gain of INR 2.0 bn (FY10: INR
2.5 bn); 4.7% of PBT (FY10: 6.6%) as exceptional income. As per conventional practice
deemed divesture gain are adjusted through reserves.
Higher working capital requirement subdues operating cash flows
On consolidated basis, M&M’s operating cash flows were negative at INR 23.3 bn vis‐àvis
PBT (before exceptional items) of INR 43.1 bn primarily due to increase in loans
against assets of INR 37.5 bn. Trade & other receivables increased by INR 17.5 bn and
inventories jumped by INR 9.5 bn.
Acquisition of subsidiaries bloats balance sheet
Capital reserve on consolidation jumped from INR 1.4 bn in FY10 to INR 12.8 bn in FY11.
Also, goodwill on consolidation surged from INR 14.8 bn in FY10 to INR 19.5 bn in FY11.
During FY11, M&M acquired Ssangyong Motor Company (Ssangyong) on which the
company is likely to have recognised capital reserve of INR 3.7 bn.
Auditor concerns on associate Satyam Computer Services
The auditors of Tech Mahindra (TML; 48.2% stake in JV) have qualified the financial
statements expressing their inability to ascertain the impact of the qualifications in
Satyam Computer Services (SCSL).
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