Business Group Analysis

Mahindra & Mahindra and TVS Iyengar


Term Paper, 2007

46 Pages, Grade: A


Excerpt

INDEX

Overview of the Study

Parameters for Study

Mahindra & Mahindra: Business group Analysis

TVS Iyengar: Business group Analysis

Conclusion

Appendix

Overview of the Study

Topic of the Study: Business Group Analysis of Mahindra & Mahindra and TVS Iyengar

Objective

To analyze the trends in the performance of the two business groups viz. Mahindra & Mahindra and TVS Iyengar.

Period

The data for a period of ten financial years from 1995-96 to 2004-2005 will be considered for undertaking the performance analysis.

Data Source

Secondary data, for the period under study, available in the Prowess Software of CMIE is considered for performance analysis.

Limitations

§ The project is completely based on Prowess for statistical data. The companies for which data were available in Prowess were considered, company for which data were not available in Prowess was ignored.

§ The analysis solely on the basis of available data and hence might have resulted in slightly deviant results from reality or other studies.

PARAMETERS FOR THE STUDY

The different group companies were studied on the basis of following parameters;

1) GROWTH ANALYSIS

The growth of the companies in the group was analyzed on the basis of the Sales Growth Rate. Herfindahl Index was also calculated for the group to understand the concentration of economic power within the group.

a) Sales Growth Rate

Compounded annual growth rate (CAGR) was used to asses the growth of the company in terms of its net sales. CAGR is computed as:

illustration not visible in this excerpt

Sn = S0 (1 + r)n

Where,

Sn = Net Sales during Year n or the last year considered for analysis.

S0 = Net Sales during Year 0 or the starting year considered for analysis.

r = Compounded Annual Growth Rate.

n = Number of years the company is analyzed.

The CAGR has been calculated on the basis of Average Net Sales for three financial years instead of the stand alone net sales of the starting and last year so as to smoothen out unaccounted fluctuations or changes in net sales due to abnormal reasons.

The companies were ranked on the basis of their Growth Rate (CAGR).

b) Herfindahl Index

The Herfindahl Index is a measure of the size of firms in relationship to the industry or group and an indicator of the amount of competition among them. It is defined as the sum of the squares of the market shares or contribution of each individual firm to group earnings. As such, it can range from 0 to 1 moving from a very large amount of very small firms to a single monopolistic producer. The Herfindahl Index is calculated as:

illustration not visible in this excerpt

Where,

H = Herfindahl Index.

si = Contribution of each individual firm to Group earnings.

n = Number of firms.

The Herfindahl Index has been calculated on the basis of Average Net Sales for the financial years 2002-03, 2003-04 and 2004-05 and the contribution of the individual firms for the group earnings.

§ H Index below 0.1 (or 1,000) indicates an un-concentrated index.

§ H Index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate concentration.

§ H Index above 0.18 (above 1,800) indicates high concentration.

2) FINANCIAL ANALYSIS

The financial growth of the companies in the group was analyzed on the basis of the total Market Value Added (MVA) to the firm's equity and the Profitability trend of the group companies.

a) Market Value Added (MVA)

MVA is the total value added to the price of the equity share of a company due to its operations. MVA provides an idea regarding the transfer of wealth generated by a company through its operations to the shareholders. MVA for a firm is calculated as:

illustration not visible in this excerpt

MVA = Market Capitalization - Paid-up Equity Capital

The percentage of wealth transfer is calculated by dividing MVA by Net Sales. The companies were then ranked based on MVA/Net Sales.

A composite rank for the companies was calculated for the Growth Rate rank and the MVA/Net Sales rank to understand the company's efficiency to generate and transfer wealth.

illustration not visible in this excerpt

b) Profitability TrendProfitability gives us the earnings available to the investors and owners of the company after taking into account all the expenses incurred during the business operations. Profitability is calculated as:

Profitability (%) = Profit after Tax (PAT) / Net Sales

The trend in the Profit (%) for the companies is analyzed over the period of study.

3) INVESTMENT PATTERN

This is to analyze the share holding pattern of the company. One can have idea about split of promoter and non-promoter holding in a company.

4) PRODUCTIVITY

Productivity is the capability of the system (company) to convert its input into output. It provides us an insight regarding the system's efficiency to transform its inputs to the desired output.

a) Capital Productivity

Capital Productivity provides the efficiency of the company to convert its capital inputs (in the form of Net Assets) into desired output (in the form of Net Value Added or Income). Capital Productivity is calculated as:

illustration not visible in this excerpt

Capital Productivity = Net Value Added / Net Assets

The trend in the Capital productivity (%) for the companies is analyzed over the period of study.

b) Labor Productivity

Labor Productivity provides the efficiency of the company to convert its labor inputs (in the form of Wages and Salaries) into desired output (in the form of Net Value Added or Income). Labor Productivity is calculated as:

illustration not visible in this excerpt

The trend in the Labor productivity (%) for the companies is analyzed over the period of study.

5) Technology Intensity (R&D Focus)

The analysis of the R & D expenses by the company provides an insight to the technology orientation of the company and the company's interest in developing and adopting new technology. The R & D focus is analyzed in two parts.

a) R & D Intensity

The In-house R & D analysis provides an insight into the company's interest to develop new technology. It is calculated as:

In-House R & D Focus (%) = R & D Expense / Net Sales

The R & D expense is the sum of R & D expense on Capital Account and R & D expense on the current account. The trend in the In-house R & D Focus (%) for the companies is analyzed over the period of study.

b) Licensing Intensity

The Technology Import analysis provides an insight into the company's interest to acquire and adopt new technology which it is not able to develop on its own. It is calculated as:

Licencing Intensity (%) = Forex Spending on Royalty/ Net Sales

c) Capital goods intensity

Capital Goods Intensity (%) = Net Fixed Asset/ Net Sales

The analysis of capital goods intensity provides an insight into company’s interest to acquire new technology in form of capital goods. It is calculated as:

6) MARKETING/ADVERTISING INTENSITY

The Marketing/Advertising Intensity analysis provides an insight regarding the focus of the firm on the marketing and promotion activities. The Marketing Intensity is calculated as:

Marketing/Advertising Intensity = Total Marketing Expenses / Net Sales

Total Marketing Expenses is the sum of Marketing Expenses and Advertising Expenses incurred by the firm during the period. The trend in the Marketing/Advertising Intensity for the companies is analyzed over the period of study.

7) FOREIGN EXPOSURE

Foreign exposure analysis provides an insight into the transaction of the group companies with foreign firms in the form of exports and imports.

a) Export Intensity

Export intensity provides the contribution of the foreign transactions (in the form of total forex earnings) to the total income of the firm (in the form of net sales). Export intensity is calculated as:

Export Intensity (%) = Total Forex Earnings / Net Sales

The trend in the Export Intensity (%) for the companies is analyzed over the period of study.

b) Import Intensity

Import intensity provides total foreign expenses incurred (in the form of total forex spending) to the total income of firm (in the form of net sales). Import intensity is calculated as:

Import Intensity (%) = Total Forex Spending / Net Sales

Mahindra & Mahindra: Business group Analysis

About The Mahindra Group

The US $3 billion Mahindra Group is among the top 10 industrial houses in India. Mahindra & Mahindra is the only Indian company among the top five tractor manufacturers in the world and is the market leader in multi-utility vehicles in India. It has a leading presence in key sectors of the Indian economy, including trade and financial services (Mahindra Intertrade, Mahindra & Mahindra Financial Services Ltd.), automotive components, information technology & telecom (Tech Mahindra, Bristlecone), and infrastructure development (Mahindra GESCO, Mahindra Holidays & Resorts India Ltd., Mahindra World City). With over 60 years of manufacturing experience, the Mahindra Group has built a strong base in technology, engineering, marketing and distribution. The Group employs over 30,000 people and has several state of-the-art facilities in India and overseas. The Mahindra Group has ambitious global aspirations and has a presence in five continents. Mahindra products are today available in every continent except Antarctica. M&M has made strategic acquisitions of plants in China and the United Kingdom & Europe, and has 3 tractor assembly plants in the USA. Its global subsidiaries include Mahindra Europe Srl. based in Italy, Mahindra USA Inc. and Mahindra South Africa. M&M has entered into partnerships with international companies like Renault SA, France, and International Truck and Engine Corporation, USA. (Source :www.mahindra.com)

1. Growth Analysis

(a) Sales growth Analysis

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This is observed from the analysis that the growth rate of different companies that the Tech Mahindra Ltd has maximum growth (42.41%) over the period between 1996-2005. same time this is also observed that the Mahindra Steel Service Centre Ltd. has lowest growth rate (-2.458%)

(b) Herfindahl Index (Sum of Squares of the market shares)

According to the sales data of the group companies as on March 2001 & March 2005, market share of the companies in the group is calculated. This is done to see which company is contributing more towards total sales of the group and to calculate Herfindahl Index (HI) for both the year. 10 companies have been taken into consideration as per the availability of data in Prowess.

The Herfindahl Index is a measure of the size of firms in relationship to the industry or group and an indicator of the amount of competition among them.

Herfindahl index for the year 2001 was 0.6334 and HI for the year 2005 is 0.5750.

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Table: Showing Market share within the group of different group companies in

2001 & 2005.

This indicates that one of the firms is having a lion’s share of the total sales – as evident above – Mahindra & Mahindra Limited had 78.8 % share within the group sales in 2001 and the trend was remain same in 2005 with 74.63% share among the total market of this group. Slight decrease in the market share may be due to increased competition in the market.

2. Financial Analysis

(a) Market Value Added (MVA)

MVA is the total value added to the price of the equity share of a company due to its operations. MVA provides an idea regarding the transfer of wealth generated by a company through its operations to the shareholders.

First of all the companies were ranked on the basis of their sales growth rates. Then they have been ranked on the basis of their profitability i.e. (MVA/Sales). Then a composite rank has been calculated from these ranks. This actually indicates which of the companies are having high growth as well as added high value to the market.

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Table: Showing composite rank for different group companies

Only 4 companies were considered, because only these companies have relevant information for calculating the MVA and growth rate. From the analysis this is observed that Mahindra & Mahindra is doing excellent and can be considered as group leader. Mahindra & Mahindra with its highest group share and highest in composite rank, it can be inferred that the group has main focus on Mahindra & Mahindra.

[...]

Excerpt out of 46 pages

Details

Title
Business Group Analysis
Subtitle
Mahindra & Mahindra and TVS Iyengar
College
ICFAI IBS Business School Hyderabad
Course
MTP
Grade
A
Author
Year
2007
Pages
46
Catalog Number
V187126
ISBN (eBook)
9783656103400
ISBN (Book)
9783656103080
File size
748 KB
Language
English
Tags
Performance Analysis, Mahindra & Mahindra, TVS Iyengar, Herfindahl Index, Growth Rate
Quote paper
Prof. Kunal Gaurav (Author), 2007, Business Group Analysis, Munich, GRIN Verlag, https://www.grin.com/document/187126

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