Mahindra & Mahindra’s (M&M) FY12 annual report analysis highlights an improvement in cash flow from operations primarily due to higher acceptances. Standalone, MVML and financial services operations posted better performance even as continued investments in loss-making subsidiaries failed to bring incremental benefits.
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Superior performance driven by parent, MVML and finance arm
Combined revenues of M&M standalone and Mahindra Vehicle Manufacturers (MVML) jumped up from INR235.6bn in FY11 to INR313.8bn in FY12 with the PAT increasing from INR26.9bn to INR30.0bn; 105.4% of FY12 consolidated PAT before share of associates (FY11: 86.6%). M&M Financial Services (company’s share) also contributed a PAT of INR3.7bn in FY12 (FY11: INR2.8bn) though it was negated by other loss-making subsidiaries.
Infusion of funds in loss-making subsidiaries continues
During FY12, M&M infused an additional INR5.5bn in three loss-making subsidiaries (Ssangyong Motor Company, Mahindra Navistar Automotive and Mahindra Two Wheelers), bringing the cumulative investment in these to INR30.5bn (18.2% of FY12 networth). Aggregate net loss (ex-Ssangyong) increased from INR3.6bn in FY11 to INR5.5bn in FY12. Ssangyong (company’s share) incurred a net loss of INR5.0bn during FY12.
During FY12, the company, through one of its subsidiaries (Mahindra Engineering & Chemical Products), has invested INR2.9bn in its loss-making retail arm, Mahindra Retail.
Cash flow from operations improves largely due to acceptances
Cash flow from operations post interest (excluding loans against assets) improved from INR26.8bn in FY11 to INR48.4bn in FY12 primarily due to an increase in trade payables from INR69.2bn to INR100.4bn. Trade payables went up primarily due to a jump in acceptances to INR18.3bn in FY12 (FY11: INR4.9bn) though payable days were down from 112 to 94.
Borrowing costs on the rise
M&M’s loan book (ex-M&M Financial Services) increased from INR72.6bn in FY11 to INR85.1bn in FY12. However, D/E ratio remained flat at 0.5x (FY11: 0.5x). Interest costs (ex-M&M Financial Services) rose from INR4.7bn in FY11 to INR6.6bn in FY12 with average borrowing costs (excluding interest capitalised) going up from 6.1% to 7.7%.
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