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Mahindra & Mahindra Ltd.
 
BSE Code   500520
ISIN Demat   INE101A01026
Book Value   275.31
NSE Code M&M
Div & Yield % NA & 0.42%
Market Cap   693043.91
P/E   52.09
EPS   10.70
Face Value 5  
Year End: March 2016
 

MANAGEMENT DISCUSSION AND ANALYSIS

Mahindra & Mahindra Limited (M&M) or (Mahindra) is the flagship company of the Mahindra Group, which consists of 154 subsidiary companies with diverse business interests across the globe and aggregate revenues of around US $ 17.8 billion. The Automotive and Farm Sectors (AFS) of M&M, continue to leverage ingenuity for creating products and technology led services, which enable its customers and stakeholders to Rise. By focussing on customer centricity, frugal innovation and enhancing people's capabilities, the Company continues to consolidate its leadership position in the domestic market while driving global expansion.

For the year under review, improvement in economy and urban demand helped to drive growth in the automotive industry. The rural economy continued to be under brssure for the second consecutive year because of deficit monsoon. This had an adverse impact on the tractor industry and the rural demand for vehicles.

In the Financial Year 2015-16, your Company sold 4,94,096 vehicles (a growth of 6.3% in comparison to the brvious year) and 2,14,173 tractors (decline of 8.8% over the brvious year).

The Company's Automotive and Farm Sectors, along with their subsidiary companies and joint ventures, achieved global sales of 8,81,314 vehicles and tractors (6,40,593 vehicles and 2,40,721 tractors), a growth of 2.4% over the brvious year.

INDUSTRY STRUCTURE, OVERVIEW AND TRENDS

The Indian automotive industry comprises of a number of Indian-origin and multinational players with varying degrees of brsence in different segments. Today, nine of the top ten global automotive manufacturers have a brsence in India which clearly points to its importance as a strategic market. After more than a decade of establishing manufacturing base in India, MNC Original Equipment Manufacturers (OEMs) have garnered 85.6% share of the domestic Passenger Vehicles (PV) market. Many leading automotive MNCs have established India development centres and are developing and launching India specific products. At the same time, they are increasingly using India as an export base. Today, 21.3% of MNC production is exported from India. However, in the Commercial Vehicle (CV) space, India Origin OEMs continue to hold a large share (96.8%) of the domestic market.

Similarly, the domestic tractor market also has a mix of Indian origin and international manufacturers and is segmented by horsepower.

Global Automotive Industry

In the Calendar Year (CY) 2015, global automotive sales for Passenger and Commercial Vehicles stood at a record 89.6 million, which was a growth of 2.0% over the brvious year. This growth was primarily driven by China, USA, Germany, India and UK, which collectively account for 58.1% of the global automotive market. Source: OICA (Organisation Internationale des Constructeurs d'Automobiles).

China retained the distinction of being the world's largest automotive market for the 7th consecutive year with total sales of 24.6 million vehicles, a growth of 4.7%. However, slowdown in the Chinese economy has impacted the auto industry growth in the last two years. The US market which had hit a low in 2008, has recovered fully to attain all time high sales of 17.47 million vehicles (brvious high of 17.44 million in 2005), with a growth of 5.7% in 2015.

European auto sales continued to be positive on back of a 9.4% growth by EU15 countries. Growth was seen in key markets like Germany at 5.5%, France at 6.1%, Italy at 15.6%  and UK at 7.7%.

The automotive markets in Brazil and Russia continued to decline for the third consecutive year. In CY 2015, Brazil automotive market was down by 26.6% while the Russian automotive market posted a decline of 44.5%. For Brazil as well as Russia, the automotive sales were down by 32% and 54% respectively, from the all-time high of 2012.

Indian Automotive Industry

The Financial Year 2015-16 was a turnaround year for the Indian automotive industry, with the industry (excluding 2W) growing 7.1%. The PV industry grew 7.2% over the brvious Financial Year 2014-15 and posted an all-time high volume of 2.8 million vehicles. The CV industry posted a growth of 11.5% over the were still 15.5% from the all- grew 79% while the time high in Financial Year 2011- UV segment grew 6.3%.

12. This gap is largely due to  the prolonged slowdown in the LCV < 2T segment, that continues to suffer due to deep slowdown in the rural economy. The two wheeler industry also posted an all-time high sales of 16.5 million on back of robust demand for scooters.

The demand for automobiles was driven by the Indian economy continuing on the growth path, coupled with moderate inflation and low commodity prices. The easing of monetary policy  by RBI helped the affordability of finance. New launches by OEMs created the necessary excitement in the market. Cost of ownership of an automobile is an important factor for demand and in Financial Year 2015-16, this factor was also on the positive side due to benign price hikes and easing of vehicle finance rates. In the Financial Year 2015-16, perhaps the only pain point for the automotive industry was the deep slowdown in rural economy, which adversely impacted the demand for LCVs < 3.5T, vans and motorcycles.

In the PV segment, Cars grew 7.9% while the UV segment grew 6.3%. Multiple launches in both cars and UVs were the key drivers for PV growth. The launch of compact UVs with car like comfort, fuel economy and competitive prices have led to increased brference for UVs and also blurring of boundaries between sedan cars and UVs.

The Medium and Heavy Commercial Vehicle Goods Segment (MHCV), continued on the recovery started in the Financial Year 2014-15 and posted a robust growth of 31.9% in Financial Year 2015-16. This growth is driven by replacement demand, revival in mining and manufacturing sectors and uptick in the infrastructure sector. However, in spite of two consecutive years of good growth, the MHCV industry is 13.6% below the peak volume of Financial Year 2011-12.

The LCV Goods < 3.5T segment continued to be under brssure due to the prolonged slowdown in Rural economy and poor finance availability. The PIK-UP segment (LCV 2 to 3.5T) grew 3.5% over the brvious year but the volumes are 5% lower than the all-time high in Financial Year 2013-14. The LCV < 2T segment reported positive growth in the fourth quarter of the Financial Year 2015-16 after 14 consecutive quarters of decline.

The growth in the two wheeler industry was subdued at 3% (was 7% over last 5 years), with motorcycles remaining flat on account of weak rural demand. The scooter segment grew 11.8% driven by urban demand. The share of scooters in total two wheelers has grown from 13% in Financial Year 2005-06 to 31% in Financial Year 2015-16.

Indian Tractor Industry

In the Financial Year 2015-16, the Indian tractor market (the world's largest by volume), declined by 10.4 % and dropped to 4,93,497 units. This is the second successive year of decline, resulting in industry being 22.1% below its peak of Financial  Year 2013-14.

The sharp decline in tractor industry can be primarily attributed to a slowdown in the Agri Sector. Two successive years of deficient monsoon has impacted the Agri Sector both in terms of income and sentiments.

For the year under review, tractor industry in most states declined. The worst affected states being Punjab (29%), Haryana (26%), Madhya Pradesh (24%), Uttar Pradesh (21%), Chhattisgarh (16%), Maharashtra (15%) and Gujarat (14%). These states collectively accounted for about 52% of the totaldomestic sales. The states of Tamil Nadu, Assam, Andhra Pradesh and Odisha registered growth of 80%, 59%, 17% and 16% respectively. The high growth numbers in Tamil Nadu and Assam can be attributed to low base. Uttar Pradesh retained its No. 1 position in tractor sales.

Analysing the tractor industry by horsepower segments, all the HP segments declined, while > 50 HP segment remained flat. The bulk of the market which is 30 to 50 HP segments declined 11% for the year under review

Automotive Sec tor

During the year under review, your Company maintained its position as the 3rd largest Passenger Vehicle (PV) Company, the 2nd largest Commercial Vehicle (CV) Company and the largest Small Commercial Vehicle Company in India. Your Company's share of the total Indian auto industry stood at 11.4%.

For the year under review, your Company achieved overall volumes of 4,58,065 vehicles in the domestic market, a growth of 5.4% over the brvious year.

Your Company maintained its leadership position in the domestic Utility Vehicle (UV) market with a 37.9% share. In the UV2 (UV > 4,400 mm and price up to Rs. 15 lakhs) category, your Company holds a share of 48.8%, while the share in UV1 (UV < 4,400 mm and price up to Rs. 15 lakhs) category, the share  stands at 31.5%.

Bolero retained the title of India's largest selling SUV for the 10th consecutive year and was the 8th largest selling PV in India.

The XUV500 continued to grow in strength in the brmium passenger vehicle segment (price range Rs. 12 to Rs. 17 lakhs) with sales of over 36,000 vehicles in Financial Year 2015-16 and a market share of 34.0% (was 13.4% in Financial Year 2011-12).

In the year under review, your Company strengthened its UV portfolio by launching the much awaited TUV300 and KUV100 in the UV1 (Compact UV) segment. These launches were received well at the market and have helped the Company drive growth and market share. For the second half of the Financial Year 2015-16, the Company's UV volume grew by 19.7% and have taken the UV market share to 39.9% (was 35.5% in second half of the Financial Year 2014-15).

In the market segment LCV goods < 3.5T, which accounts for 50% of total CV industry, your Company has retained the No. 1 position. Your Company's market share in this segment stands at 51.0%. In the LCV<2T segment, your Company launched Jeeto, which helped double the market share from 11.6% in the Financial Year 2014-15 to 23.9% in the Financial Year 2015-16. In the PIK-UP sub-segment (LCV goods 2 to 3.5T), your Company launched the lifestyle PIK-UP Imperio and retained the market leader position with a share of 69.1%.

In the LCV > 3.5T segment, your Company sold a total of 6,425 trucks and buses which is a growth of 18.7% over the brvious year.

In the MHCV segment, your Company sold a total of 5,705 trucks which is a growth of 63.0% over the brvious year. Improvement in product quality, service and focused market approach has helped your Company to grow truck volumes from 1,000 trucks in the first quarter of the Financial Year 2015-16 to about 2,000 trucks in the fourth quarter of the Financial Year 2015-16. In February, 2016, your Company launched Blazo series of trucks which are backed by guarantee on fuel efficiency and service. The performance of the Blazo series trucks has been apbrciated by the customers

Over the past few years, your Company has worked tirelessly to improve customer satisfaction at the dealership as well as at the product level. The results of these efforts can be seen from the improvement in scores and rank received by the Mahindra brand in the JD Power SSI and CSI studies. For 2015, Mahindra was ranked No. 1 (along with Toyota) in the JD Power SSI study, while in the JD Power CSI studies, Mahindra was ranked 4th with a score improvement of 17 points. The graphs below show the consistent improvement made by your Company in the JD Power CSI and SSI scores.

In line with its philosophy of customer centricity, your Company continues to expand its network that reaches out to all corners of India.

Overseas Operations - Automotive Sector

The Automotive Sector of your Company exported a total of 36,031 vehicles during the Financial Year 2015-16, posting a growth of 19.3% over the brvious year. This is the highest ever vehicle export by your Company.

Your Company continued to grow its brsence in the neighbouring markets of Sri Lanka, Nepal, Bangladesh and Bhutan, where volumes grew by 29%. With continued efforts of building brand in key markets like South Africa and Chile, your Company reported a volume growth of 5% and 20%, respectively. For the year under review, your Company supplied over 2,500 Bolero and Scorpio vehicles to Philippines Police.

Farm Sector

For the year under review, your Company continued its focus on delivering 'Farm Tech Prosperity' to the Indian farmers. Your Company continued to develop and introduce technologically advanced tractors, agri machinery and farm solutions.

Tractor and Farm Mechanisation Business

The Financial Year 2015-16 saw the completion of 33 years of M&M leadership in the domestic tractor market, with a market share of 40.9% which was a gain of 0.9% over the brvious year.

For the period under review, the Company sold 2,14,173 tractors (domestic plus export), under the Mahindra and Swaraj brands, as against 2,34,766 tractors sold in the brvious year, registering a decline of 8.8%. This was a result of the steep decline of the Indian tractor industry. Your Company performed exceptionally well in the fourth quarter with a growth of 19%, the highest growth for fourth quarter in last 5 years.

In April 2016, your Company launched the Mahindra YUVO in the 30 to 45 HP tractor segment. The YUVO range comes in five models - 265 DI (32HP), 275 DI (35HP), 415 DI (40HP), 475 DI (42HP) and 575 DI (45HP). Built on a completely new platform with a unique and Industry first 12 Forward+3 Reverse Full constant-mesh gearbox in the category, Mahindra YUVO is extremely versatile and can be used across more than 30 different farming applications. The advanced technology of the Yuvo range helps to serve the diverse needs of farmers -from land brparation to harvesting as well as post-harvesting requirements, helps them do more, faster and better.

Global Footprint

For the year under review, your Company exported 11,545 tractors, a decline of 16.0%. The decline can be attributed to weakness in economy of the African countries which are an important export market. However, your Company strengthened its brsence in neighbouring markets of Sri Lanka and Bangladesh with a growth of 46%.

Your Company continued to strengthen its global footprint with a focus on the key markets of USA and China, amongst other regions. Total tractor volumes outside India stood at 36,987 tractors.

USA

Mahindra USA, a subsidiary of your Company, sold over 19,000 tractors, and had its  highest ever billings, retails and gained market share of 0.7% in the relevant  market segment in the North American market. Mahindra

USA continues to expand its reach by making significant efforts to strengthen the Mahindra brand in this market, and connecting with the consumer through various mediums

China

China, the second largest tractor market in the world, continued to face challenging times and decline for the 4th consecutive year. China volumes from the Mahindra Yueda Yancheng Tractor Company Limited (MYYTCL), a subsidiary of your Company, saw a decline to 10,220 units in the domestic market, as compared to 11,711 units sold in the same period last year. At the same time, exports from China declined 58% to 849 units.

Towards Farm Tech Prosperity

Agriculture in India faces multiple challenges. Key amongst them being (i) Low productivity as compared to developed countries (ii) Increasing labour scarcity coupled with high labour costs (iii) Limited application of modern farming techniques

(iv) Improper post-harvest supply chain infrastructure

(v) Difficulty in accessing the markets.

To address these challenges, your Company offers a whole range of mechanisation solutions, micro-irrigation systems, agricultural inputs and modern agronomy advisory services. In addition, your Company works with farmers through the entire crop cycle, to enable them to grow the best quality produce and provides them access to domestic as well as international markets.

Farm Mechanisation

Farm mechanisation is a key enabler to address the concerns of farm productivity and labour shortage. Your Company has brsence in the mechanisation space through Mahindra AppliTrac (AppliTrac). Mahindra AppliTrac offers efficient and affordable mechanisation solutions across the spectrum of farming operations. AppliTrac continued to grow the market for mechanisation in the country, playing its part in boosting agricultural productivity. AppliTrac growth was led by rotary tillers with a significant contribution from harvesters. AppliTrac also offers a wide range of farm machinery including rice transplanters, sprayers, mulchers and balers to fulfill the needs of farm mechanisation.

To strengthen the global footprint and bring modern technologies in farm mechanisation into India, your Company has entered into strategic partnership with Mitsubishi Agricultural Machinery (Japan) and Sampo Rosenlew (Finland). With the introduction of new products, your Company will have a significant brsence in Rice value chain and Harvesters.

Agri Inputs

Your Company in an endeavour to deliver Farm Tech prosperity has been continuously upgrading its product portfolio of agricultural inputs to provide end to end solutions to the farmers. Through the wide range of crop care products of herbicides, pesticides, fungicides and plant growth regulators, your Company helps to mitigate the risk of crop loss. Your Company offers hybrid seeds for field and vegetable crops, which help the farmer obtain high quality produce and superior yields. This business is growing rapidly and is poised for a more meaningful contribution to Indian agriculture in the coming years. The business has grown 10% over the brvious year.

Micro-irrigation

Micro irrigation (MI) can help in significantly reducing water consumption and optimising input costs. Your Company through EPC Industrie Ltd. (Mahindra Group Company) provides modern scientific water management solutions to farmers through customized micro irrigation systems, thus helping farmers to produce more crop per drop of water. In Financial Year 2015-16, MI business posted a strong growth of 21%.

Mahindra Samriddhi

Mahindra Samriddhi is a 'one-stop-solution' which acts as an umbrella interface between the organization and the farmers by offering Mahindra branded seeds, crop care, micro irrigation products and advisory services under one roof. Today there are around 250 Mahindra Samriddhi touch points which delivered services to more than 1.5 lakh farmers in the Financial Year 2015-16. Mahindra Samriddhi India Agri Awards, the brmier event in the field of Indian

agriculture was graced by leading luminaries from the Agri fraternity and honoured the torch bearers of farm prosperity across the nation. Over the last six years since its inception, it has grown in  stature and has attracted close to 2 lakh nominations from farmers across the country.

Fruits and Vegetables

Your Company is actively engaged in working with grape farmers to help them grow international quality grapes. Further, your Company helps the farmers to achieve high price realisation by connecting them to end customers in India and in international markets. Other crops of interest are banana, apples and potato.

ALLIED BUSINESSES

Mahindra Powerol

In the Financial Year 2015-16, Mahindra Powerol showed good growth with a revenue growth of 16.2%.

The business is exploring further growth opportunities through entry to higher kVA segments and through offering Energy Management Solutions. The business is also exploring export opportunities to Africa and other markets.

Construction Equipment — Mahindra EarthMaster

With a uptick in infrastructure spending, the Indian backhoe loader market grew by 5.5% over the brvious year. For Mahindra EarthMaster, key focus has been to improve sales channel performance and build consumer brference for EarthMaster. In Financial Year 2015-16, the business expanded its product portfolio with the launch of lift and carry crane.

OPPORTUNITIES AND THREATS

Automotive Sector

Given the importance of the automobile industry in the economy, its potential for employment and its backward and forward linkages with several sectors, the Government is keen to support its development under the Make in India initiative.

Going forward, the Auto Industry is expected to show positive growth across all segments on back of healthy economic outlook, finance penetration, investment in roads, infrastructure and new launches by OEMs.

Growing concerns over air pollution, road safety, sustainability and urban congestion, among consumers and society at large will have an impact on regulations and policies for motor vehicles and urban development. These will also impact ownership patterns and will have a significant impact on the future of the automotive industr y.

Farm Sector

Strong Government support for improvement in agriculture productivity, rural development and greater adoption of improved agricultural practices is expected to drive sustainable growth in the agriculture sector.  India, with its large base of small and marginal farmers, has several regions with low penetration of farm mechanisation. With increasing labour cost and scarcity, greater adoption of various forms of mechanisation is the way forward. In this scenario, the market for tractors and other farm equipment is  expected to grow in the long term.

Going forward, the competitive intensity in the farm mechanisation space is expected to increase, leading to new product launches and product offerings at high value points. Also, the customer expectations of performance, quality and technology are increasing with time. Staying ahead of competition by offering products with modern technology and features is likely to put brssure on costs.

The rising demand for power and infrastructure development will create opportunities in the power generation and infrastructure equipment space. This is an opportunity for the Company to grow its offerings in power solutions and construction equipment.

RISKS AND CONCERNS

Automotive and Farm Sectors

The Company’s business is exposed to many internal and external risks and it has consequently put in place robust systems and processes, along with appropriate review mechanisms to actively monitor, manage and mitigate these risks.

Competitive Intensity

Keeping in mind the high growth potential of the Indian automotive market, all Original Equipment Manufacturers (OEMs) are actively investing in India specific new product development and product technology upgrades. Today, multinational OEMs are deeply entrenched in the Indian market with local development centres, a strong local supplier base and a good channel penetration. As a result, their cost structures have become competitive and their response to market time has improved. They are launching products developed in India at very competitive price points. MNC OEMs are competing across all product sub-segments in Cars and UVs.

With growth in economy, improvement in infrastructure, likely implementation of GST and strengthening of the hub and spoke transportation model, the demand for commercial vehicles across product categories is expected to get a boost. The medium and heavy commercial vehicle segment features two dominant domestic players and in the recent past, it has also witnessed new entrants including MNC brands. However, the new entrants have seen limited success owing to the strong on ground brsence of current market leaders and deep rooted brand bonding. The LCV < 3.5T commercial vehicle segment is likely to see entry of MNC brands leading to increased competition in this segment.

Your Company is the market leader in the UV and LCV < 3.5T commercial vehicle segments and continues to invest in new product development as well as in technological upgradation. Your Company will continue its focus on delivering customer centric products and build brand.

India is the world’s largest tractor market by volume and the Tractor industry has brsence of strong Domestic as well as MNC OEMs. There is intense competition in the market with each OEM trying to offer its unique value proposition to the customer.

Your Company intends to remain ahead of the competition by offering continuous product upgrades, introducing superior technology and by offering a complete range of farming solutions to boost farm productivity.

Tax and Excise Duty Regulations

India, has traditionally seen differential tax rate between small and large passenger vehicles. This differential is on the basis of definition based on length of vehicle, engine size, fuel type and more recently, ground clearance. Also, there is an additional environmental and infrastructure cess levied on vehicles, again differentiated between small and large vehicles. Over the past four years the tax rate gap between small and large vehicles has widened. This is a deterrent to the customer from buying large vehicles.

Beyond the above, certain large passenger vehicles of key competitors have the benefit of lower tax rates through the Government policies to boost demand for Hybrid and Electric vehicles.

Your Company already has brsence in the Electric Vehicle (EV) space through the Mahindra e2o and the recently launched Verito Electric. Further, the Company is continuously working on strengthening the portfolio of vehicles that fall under the lower tax rates.

Increased Preference for Petrol as a fuel

The Government of India announced policy for partial deregulation of diesel prices in January 2013 and complete deregulation in October 2014. As a result of this, the gap between Petrol and Diesel fuel prices has narrowed and the operating cost advantage that diesel vehicles had over petrol vehicles in the past couple of years is now reduced. This has resulted in brference for Petrol vehicles, especially in the passenger car and van segments. To add to above, the Hon’ble Subrme Court ruling in December, 2015, of banning sale of Diesel vehicles with engines larger than 2000 cc in NCR and the discussion of a proposal for imposing an additional cess on all diesel vehicles has resulted into low consumer buying confidence for diesel vehicles across the country.

As a combination of the reduced operating benefit and the low consumer confidence on Diesel fuelled vehicles, the share of Diesel vehicle sales in total passenger vehicles has dropped from 58% in the Financial Year 2012-13 to 44% in the Financial Year 2015-16.

Your Company is actively pursuing a strategy to introduce Petrol engines across the product range. The KUV100 which was launched in January, 2016 was launched with the mFalcon Petrol engine.

New Regulation for Safety and Emission

Concerns over safety and environment protection are driving legislation and regulatory reforms. The Government of India is in the process of introducing the next level of safety and emission regulations for India. Announcement has already been made that all new vehicles will need to meet BS VI emission norms by 2020. Conforming to the next stage of regulations, both for safety and emission will call for use of advanced technologies and will have an impact on costs. Your Company is geared up and is confident of meeting these regulations.

New Products

In order to meet customer needs and be competitive at the marketplace, your Company is investing in an aggressive new product development and technology development programme. The success of new product launches will have an important bearing on your Company’s future growth and profitability.

Environment and Alternate fuels

With greater awareness on air quality and the need to reduce dependence on fossil fuels, there is a growing trend towards adopting greener and more sustainable fuels for automobiles. Your Company has been a pioneer for Electric Vehicles in India and is focussing on development of the Electric Vehicle (EV) market and upgrade EV technology capabilities. Your Company’s Electric Vehicle portfolio comprises of the e2o electric car, Verito EV car and the Maxximo EV van. Subsidies through the FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) India scheme, should give the necessary push to make EV technology more affordable.

Monsoon

A normal monsoon is important for both agriculture as well as the rural economy. The tractor business in particular and the automotive business to some degree, run the risk of a drop in demand in case of a significant variation in the monsoon. In addition, an untimely monsoon and uneven sbrad have the potential of adversely impacting the business as observed in the Financial Year 2014-15 and Financial Year 2015-16.

Commodity Prices

For the period 2015-16, commodity prices remained benign. However going forward, keeping the possibility of the commodity prices firming up, your Company continues to watch the market situation closely and continues to focus on cost re-engineering and value engineering to remain cost competitive.

Capacity

The Company has built adequate manufacturing capacity for the immediate future and is planning to invest in additional capacity in brparation for the mid to long term.

On the supplier end, the Company is working closely with its key suppliers to minimise any supply constraints through capacity planning and longer term contracts. At the same time, opportunities for global sourcing are also being actively pursued.

OUTLOOK – AUTOMOTIVE & FARM SECTORS

Both the Automotive and Farm Sectors strive to maintain their leadership position in the domestic market and at the same time explore global opportunities. Simultaneously, your Company continues its focus on achieving cost leadership through focused cost optimisation, productivity improvements, value engineering, supply chain management and exploiting synergies between its Sectors.

The mid-term outlook for the Indian auto industry is very positive. Society of Indian Automobile Manufacturers (SIAM) forecasts the potential size of the Indian vehicle market (PV + CV) by the Financial Year 2019-20 to be as large as around 5.7 million vehicles (current size 3.2 million). This is a growth rate of 12% CAGR. In the Financial Year 2016-17, automotive industry growth is likely to be driven by economic growth, increased investment in infrastructure, a normal monsoon driving positive sentiment in rural economy, and an overall improvement in consumer confidence.

The cost of ownership of vehicle may see marginal increase due to an increase in fuel prices and the movement in commodity prices reflecting in an increase in price. The interest rates may soften marginally from current levels.

For the Financial Year 2016- 17, SIAM forecasts a double digit growth for the Indian Auto Industry. PV is expected to grow at 11-13%, LCV goods at 12-14%, MHCV Goods at 12-14%, 3W at 6-8% and 2W at 7-9%.

On the export front, new product launches, complimented by brand building efforts will help drive growth. This growth is expected to be aided by the industry turning positive in key markets.

On the tractor front, the industry growth is expected to be driven by a normal monsoon which will revive the sentiments in the Indian Agri sector. However, the impact of this is likely to come only in later part of the Financial Year 2016-17. On the international front, your Company will focus on strengthening its brsence in existing markets of USA, South & Central America, China, Africa and South East Asia, while exploring to expand to newer geographies.

STRATEGY

Automotive Sector

With an objective to sustain growth, your Company is pursuing several strategic initiatives in all key areas of business. The key elements of strategy include strengthening the product portfolio, refresh and update existing products and strengthen Research & Development and technological capabilities. In addition, your Company is pursuing expansion in overseas markets. Establishing the channel and building the brand in key focus markets remain the priorities for your Company. With increasing concerns over global warming and the need for sustainable mobility, your Company continues to focus and invest in development of alternate fuel technologies and solutions especially electric vehicles.

Farm Sector

The Farm Sector’s strategy is aligned to delivering Farm Tech Prosperity to the farmers. In its endeavour to grow and serve farmers better, the Company will continue to launch technologically superior tractors and farm machinery. Going forward, farm mechanisation is a focus area for your Company. Keeping this in mind, your Company has entered into strategic partnerships with Mitsubishi Agricultural Machinery (Japan) and Sampo Rosenlew (Finland).

On 1st October, 2015, your Company completed the transaction with Mitsubishi Agricultural Machinery. Starting from October, 2015, the name of the company has been changed to ‘Mitsubishi Mahindra Agricultural Machinery Co., Ltd.’. With these developments, Mitsubishi Mahindra Agricultural Machinery is in a position to execute business strategies for global expansion, along with a continued focus in the market in Japan.

In March 2016, your Company signed a definitive agreement to acquire a 35% equity stake in Finland based Sampo Rosenlew. This new alliance will help both companies to jointly develop products to address global opportunities in the harvester space.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AND EMPLOYEE RELATIONS

The strategic purpose of Human Resources is to be a catalyst and change agent for creating the Human Capital transformation required to ensure sustained business outperformance, while simultaneously addressing the needs of its multiple stakeholders (starting with customers and employees) and strengthening the core values of the Group. In the long run, the ultimate metric for success is continuous improvement in the total factor productivity, while addressing the business imperatives of cash, cost, competence and confidence.

The emphasis has been on aligning all the HR levers towards achieving these goals. In line with the above, the Group’s Human Resources Philosophy is guided by the three Rise Pillars of Accepting No Limits, Alternative Thinking and Driving Positive Change, and the Group’s aspiration of being among the top 50 most admired global brands by 2021, by enabling people everywhere to Rise. Your Company aims to support this aspiration by creating Mahindra Leaders who will lead Tomorrow’s Company by focusing on a culture of outperformance, collaboration and partnership built on cutting-edge practices in Talent Management and Leadership Development. In order to ensure internalisation of this culture, the Mahindra Leadership Competency Framework has been integrated with the HR levers of Recruitment, Performance Management System, Talent Management, Reward & Recognition and Leadership Development.

In this overall architecture, a key strategic initiative that needs mentioning is Employer Branding, coupled with the Employee Value Proposition of delivering a uniform One Mahindra experience to all employees. The template for creating

Tomorrow’s Leaders and harnessing the power of diversity (across its many dimensions including gender, age, nationality and culture) is also being put in place. Driving diversity in various lines of business and creating an inclusive workforce was identified as a key focus area in the Financial Year 2015-16 and accordingly the Group Diversity Council identified its key priorities for the year. Based on the recommendations of the Group Diversity Council, the Sector Level Councils created roadmaps which would help them determine their strategy and measure progress in managing diversity and fostering inclusion. A major initiative was the organization-wide awareness and sensitisation program on Diversity and Inclusion which would help harness the productive potential of the multiple aspects of Diversity. Prevention of Sexual Harassment at Workplace related awareness and training of Internal Complaints Committee (ICC) members through classroom program and e-learning courses was also done. Mahindra World of

Women (MWoW) which is a platform for peer learning to solve work life challenges and derive inspiration from role models internally and externally, was launched successfully in major locations.

Focus continued on the Talent Management and Leadership Development processes which included Development Centres, Individual Development Planning, e-learning, up-skilling programs, Leadership Lifecycle programs and Action-Learning Projects. The Talent Management process is powered by a network of Sector Councils, with the Apex Talent Council playing a pivotal role in Succession Planning, Career Planning, Job Rotation, Hi-potential Identification and the talent pipeline development process. A robust Talent Scorecard process seeks to ensure succession planning and leadership development for both the immediate as well as the longer term, while the Performance Management System helps in the integration of the Balanced Score Card with business and individual goals through the annual goal setting process. This rigour in implementation has helped to create a shared understanding and to focus the efforts of employees in building a culture of outperformance. All the above processes of Talent Management, Learning Management System and Performance Management system have been digitised with the help of Success Factors and Sum Total. In order to ensure that the pulse of the workforce is captured, customised engagement constructs viz.

a) MCARES for officers; and

b) Workmen engagement construct for Workmen, and sensitisation program on Diversity and Inclusion which would help harness the productive potential of the multiple aspects of Diversity. Prevention of Sexual Harassment at Workplace related awareness and training of Internal Complaints Committee (ICC) members through classroom program and e-learning courses was also done. Mahindra World of Women (MWoW) which is a platform for peer learning to solve work life challenges and derive inspiration from role models internally and externally, was launched successfully in major locations.

Focus continued on the Talent Management and Leadership Development processes which included Development Centres, Individual Development Planning, e-learning, up-skilling programs, Leadership Lifecycle programs and Action-Learning Projects. The Talent Management process is powered by a network of Sector Councils, with the Apex Talent Council playing a pivotal role in Succession Planning, Career Planning, Job Rotation, Hi-potential Identification and the talent pipeline development process. A robust Talent Scorecard process seeks to ensure succession planning and leadership development for both the immediate as well as the longer term, while the Performance Management System helps in the integration of the Balanced Score Card with business and individual goals through the annual goal setting process. This rigour in implementation has helped to create a shared understanding and to focus the efforts of employees in building a culture of outperformance.

All the above processes of Talent Management, Learning Management System and Performance Management system have been digitised with the help of Success Factors and Sum Total. In order to ensure that the pulse of the workforce is captured, customised engagement constructs viz.

a) MCARES for officers; and

b) Workmen engagement

construct for Workmen, have been designed in-house and administered. Based on the findings of the survey, various strategic interventions are rolled out and impact of these interventions is measured. The constructs are periodically revalidated and benchmarked with other constructs.

The Rise internalisation programs not only cover Officers but also Workmen on the shop-floor, with whole-hearted participation by the latter in each manufacturing plant. Rise Awards were institutionalised for workmen across the Group, through competitions at the Plant, Sector and Group Level. To ensure that industrial relations is treated as a critical business process, the process of including it for assessment in The Mahindra Way model has started and several plants have been included in the next assessment cycle.

HR processes that have been re-engineered to drive the Rise culture are working well. An in-house Multi-rater feedback instrument has been designed to provide feedback to senior leadership on the behaviours manifested under the 3 Rise pillars viz. Accepting No Limits, Alternative Thinking and Driving Positive Change and the

5 Leadership characteristics viz. Mindfulness, Manage fear and Leveraging failure, Whole Brain Thinking, Multiplier and Trust. The manifestation of the 3 pillars of Rise coupled with the 5 characteristics of a Mahindra leader will go a long way in building admiration for the employer brand.

A formal Leadership Development process has been put in place with a three-tier approach which addresses entry, middle and senior management levels. The Mahindra Leadership University (MLU), supports the process of building capacity and capability in the leadership pipeline by leveraging a common virtual platform which delivers Learning and Development across the Group. MLU uses the 3E approach (Experience, Exposure and Education) towards capability building and this has been integrated in all the programs. Experience is delivered by providing people with meaningful roles/projects, Exposure takes place through coaching and mentoring by leaders, and Education by building mental acumen through development programs and classroom training.

Working through its 9 Academies, MLU conceptualised, designed and delivered more than 343 offerings during the past one year using the framework of a ‘Laddered Approach’ for the design and roll out of programs. This framework recognizes and addresses the need for varying inputs tailored to the different levels of leadership in the Mahindra system. A total coverage of 6,524 people was achieved during the year for the programs rolled out by all 9 academies which included 1,395 employees of the Company’s suppliers. Tie-ups with the Harvard Business School (HBS), the Wharton School of Management, the Ross School of Management – Michigan, the Centre for Creative Leadership (CCL) – USA, the Indian Institutes of Management and other leading management institutions in the country have helped enrich the Company’s leadership offerings. The Company has also initiated collaboration with the Singapore Management University (SMU) and the Yonsei Business School in Korea.

The Company is designing and rolling-out the Future Leaders Program (FLP), a strategic Leadership development and Talent management journey for the Group. FLP is being designed and implemented as an 18 month journey through a 3-way collaboration between IMD, Lausanne, Yale School of Management and Mahindra Leadership University. FLP is the ultimate program in the Company’s laddered approach to leadership development and would go a long way in strengthening the Company’s leadership pipeline. In order to facilitate the design and implementation of FLP, a Troika consisting of Dr. Pawan Goenka, Mr. Rajeev Dubey and Mr. Rakesh Soni, have committed to provide strategic direction and support to the internal design team.

A cohort of 34 participants is there in the inaugural Batch of FLP, which is scheduled to be launched on 21st July, 2016. The participants will not only experience intensive classroom modules across the globe at Switzerland, India and USA, but also make several discovery visits to leading global companies and interact with global leaders in these organisations.

Participants will also be engaged in project teams to address a Leadership Stretch Challenge (LSC) which can potentially shape the future of the Group. In addition, they will have access to leadership coaches, and executive mentors, who they can leverage to make their learning journey as personal and as effective as possible. At the end of the program, participants will also be the alumni of these brstigious institutions – IMD, Lausanne and Yale School of Management.

The journey of Reflective Conversations continues with the aim to make Mahindra a Reflective Organization thereby enabling the Company to grow towards the Group’s aspiration. The proliferation, which began with Mr. Anand Mahindra and the Group Executive Board in July, 2013, has cascaded down to

Department Heads and a few Managers, now covering around 1,000 people across multiple Businesses of the Group. To ensure cultural transformation and sustenance, the ecosystem for the practice of Reflective Conversations is being strengthened with more focus on building an internal trainer pool, focused reinforcement, role-modeling by leaders and partnership with stakeholders across Sectors to fully harness the power of Reflective Conversations in HR and Business levers for higher engagement, better connect with stakeholders and breakthrough Innovation.

This year Mahindra & Mahindra Limited emerged as the winner in the “Engineering & Automotive Sector” category at the annual Business Today’s Best Companies to Work for Awards 2016. The web based perception survey, organized in partnership with People Strong and Naukri.com was open to all consisting of Dr. Pawan Goenka, Mr. Rajeev Dubey and Mr. Rakesh Soni, have committed to provide strategic direction and support to the internal design team.

A cohort of 34 participants is there in the inaugural Batch of FLP, which is scheduled to be launched on 21st July, 2016. The participants will not only experience intensive classroom modules across the globe at Switzerland, India and USA, but also make several discovery visits to leading global companies and interact with global leaders in these organisations.

Participants will also be engaged in project teams to address a Leadership Stretch Challenge (LSC) which can potentially shape the future of the Group. In addition, they will have access to leadership coaches, and executive mentors, who they can leverage to make their learning journey as personal and as effective as possible. At the end of the program, participants will also be the alumni of these brstigious institutions – IMD, Lausanne and Yale School of Management.

The journey of Reflective Conversations continues with the aim to make Mahindra a Reflective Organization thereby enabling the Company to grow towards the Group’s aspiration. The proliferation, which began with Mr. Anand Mahindra and the Group Executive Board in July, 2013, has cascaded down to Department Heads and a few Managers, now covering around 1,000 people across multiple Businesses of the Group. To ensure cultural transformation and sustenance, the ecosystem for the practice of Reflective Conversations is being strengthened with more focus on building an internal trainer pool, focused reinforcement, role-modeling by leaders and partnership with stakeholders across Sectors to fully harness the power of Reflective Conversations in HR and Business levers for higher engagement, better connect with stakeholders and breakthrough Innovation.

This year Mahindra & Mahindra Limited emerged as the winner in the “Engineering & Automotive Sector” category at the annual Business Today’s Best Companies to Work for Awards 2016. The web based perception survey, organized in partnership with People Strong and Naukri.com was open to all Mahindra & Mahindra Limited had a total of 20,122 employees on its rolls as on 31st March, 2016. Significant emphasis has also been put on creating awareness about health and wellness of employees through annual medical check-ups, medical software, health awareness activities, introduction of diet food, etc.

Proactive and employee-centric shop floor practices, a focus on transparent communication of business goals through monthly Plant Head communication, an effective concern resolution mechanism, and the firm belief that employees are the most valuable assets of the Company, are the cornerstone of the Company’s employee relations approach. An ‘open door policy’ and constant dialogue to create win-win situations, have helped the Company to build trust and harmony. All this resulted in zero production loss in the Financial Year 2015-16 and helped create a peaceful, healthy and collaborative work environment.

Internal Control Systems

Your Company maintains adequate internal control systems commensurate with the nature of its business and size and complexity of its operations. These are regularly tested for their effectiveness by Statutory as well as Internal Auditors. Further, the internal control systems have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information. In the highly networked IT environment of the Company, validation of IT Security receives focused attention from IT specialists and Statutory Auditors. Your Company has a strong and independent internal audit function consisting of professionally qualified accountants and engineers. The Chief Internal Auditor reports directly to the Chairman of the Board. Significant observations made by the internal audit team and the follow up actions thereon are reported to the Audit Committee. The Audit Committee reviews the adequacy and effectiveness of the Company’s internal control environment and monitors the implementation of audit recommendations. During the year, the Company has taken steps to review and document the adequacy and operating effectiveness of internal controls.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE Overview

The financial statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP) and comply with the Accounting Standards (“AS”) specified under section 133 of the Companies Act, 2013. The Group’s consolidated financial statements have been brpared in compliance with the standard AS 21 on Consolidation of Accounts and brsented in a separate section.

FINANCIAL INFORMATION [STANDALONE] Fixed Assets

As at 31st March, 2016, the Fixed Assets stood at Rs. 9518 crores as compared to Rs. 8,108 crores as at 31st March, 2015. During the year, the Company incurred capital expenditure of Rs. 2,172 crores (brvious year Rs. 2,035 crores). The major items of capital expenditure were on new product development and capacity enhancement.

Borrowings (including current maturities of long term debt and unclaimed matured deposits) have decreased from Rs. 3,729 crores in the brvious year to Rs. 2,917 crores in the current year. The decrease is primarily on account of repayment of loans during the current year

The increase in raw materials and bought out components as a percentage of cost of materials consumed and increase in finished goods and stock-in-trade as a percentage of sales of products has been mainly on account of new product launches and inventory built-up on expected better upcoming seasons.

Trade Receivable

Trade Receivable is Rs. 2,512 crores as at March 31, 2016, as compared with Rs. 2,558 crores as at March 31, 2015. Also, as a percentage of gross revenue from sales of products and services, trade receivable is lower at 5.8% for the year ended March 31, 2016, as compared to 6.4% for the brvious year on account of significant improvements in credit management process across divisions supplemented by better collection efforts

Net Sales, Income from Operations & Other Income

The net sales and income from operations of the Company increased by 6.3% as compared to the brvious year. The increase is mainly on account of new product launches in automotive and tractor business aided by significant increase in the revenue of other businesses mainly Powerol and Agri.

Expenditure

The total expenditure during the year as a percentage of net sales/Income from Operations is 91.9% as compared to 92.2 % in the brvious year.

Material Cost

The decrease in material cost as a percentage of sales is mainly due to benign commodity prices, better mix and continued cost reduction initiatives undertaken by the Company.

Personnel Cost

During the year, there has been marginal increase in personnel cost. The increase in personnel cost due to annual increments has been partly offset by gains on actuarial valuations as per AS 15 “Employee Benefits”.

Other Expenses

Other expenses as a percentage of net sales and operating income shows an increase over the brvious year. The expenses have increased mainly on account of advertisement and sales promotion expenses incurred to support and enhance sales in a challenging market.

Debrciation and Amortisation

The increase in debrciation and amortisation is mainly due to full impact of capitalisation of assets during the brvious year and the impact in the current year on account of capitalisation of assets during the year mainly for new product launches and capacity enhancements.

Finance Costs

The interest expense for the year ended is lower mainly due to repayment of loans.

Exceptional Items

Exceptional items in the current year is on account of profit (net) earned on sale of certain long term investments. In the brvious year, it was on account of profit earned on sale of certain long term investments and also due to the excess of fair value of Tech Mahindra Limited (TML) shares received over cost of investment in Mahindra Engineering Services Limited (MESL), on account of the merger of MESL with TML.

Provision for taxation

The provision for current tax and deferred tax for the year ended March 31, 2016 as a percentage to profit before tax is higher than the brvious year mainly due to reduction in tax benefits under section 80 IC (Haridwar plant tax holiday expired), reduction in accelerated deduction of R&D expenses and increase in statutory tax rates.

Consolidated Financial Position of the M&M Group

As on 31st March, 2016 the Group for the purpose of consolidation comprised of the flagship holding company Mahindra & Mahindra Limited, 154 Subsidiaries, 8 Joint Ventures and 16 Associates.

The Gross Revenue and Other Income for the year ended 31st March, 2016 of the Consolidated Mahindra Group is Rs. 83,207 crores as against Rs. 75,514 crores for the brvious year. The Group’s net revenue and other income is Rs. 78,557 crores in the current year as compared to Rs. 71,973 crores in the brvious year. The profit before exceptional items and tax for the current year is Rs. 4,234 crores as compared to Rs. 4,038 crores in the brvious year. The consolidated Group Profit for the year after exceptional items and tax and after deducting minority interest is Rs. 3,211 crores as compared to Rs. 3,137 crores in the brvious year.

Tech Mahindra Limited (TML), the Company’s flagship company in the IT Sector, has reported a consolidated revenue of Rs. 26,494 crores in the current year as compared to Rs. 22,621 crores in the brvious year, an increase of 17%. Its consolidated PAT is Rs. 3,118 crores as compared to Rs. 2,628 crores in the brvious year, an increase of 19%.

The Group’s finance company, Mahindra & Mahindra Financial Services Limited (Mahindra Finance), reported a consolidated operating income of Rs. 6,554 crores during the current year as compared to Rs. 6,021 crores in the brvious year, a growth of 9%. The consolidated profit after tax for the year is Rs. 772 crores as compared to Rs. 913 crores in the brvious year. Mahindra Finance customer base has crossed 4.1 million customers. The Company currently has a network of 1,167 offices and Total Assets under Management of Rs. 40,933 crores as on 31st March, 2016 as against Rs. 36,878 crores as on 31st March, 2015, a growth of 11%.

Mahindra Lifespace Developers Limited (MLDL), the Group’s subsidiary in the business of real estate and infrastructure registered a consolidated operating income of Rs. 826 crores as compared to Rs. 1,086 crores in the brvious year. The consolidated profit after tax for the year is Rs. 93 crores as compared to Rs. 266 crores in the brvious year. Mahindra Holidays & Resorts India Limited, the Group’s subsidiary in the business of timeshare registered a consolidated operating income of Rs. 1,599 crores as compared to Rs. 812 crores in the brvious year. The consolidated profit after tax for the year is Rs. 99 crores as compared to Rs. 81 crores in the brvious year, an increase of 22%.

Ssyangyong Motor Company (SYMC), the Korean subsidiary of the Company has reported consolidated revenues of Rs. 19,647 crores in the current fiscal year as compared to Rs. 18,466 crores in the brvious year, a growth of 6%. The consolidated loss after tax for the year is Rs. 177 crores as compared to Rs. 715 crores in the brvious year

Disclaimer

Certain statements in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations or brdictions may be “forwardlooking statements” within the meaning of applicable securities laws and regulations. Actual results could differ from those exbrssed or implied. Important factors that could make a difference to the Company’s operations include raw material availability and prices, cyclical demand and pricing in the Company’s principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors.