Financial Statement Analysis - 2

1

Financial Statement Analysis

Session 5 & 6

Amerbran Company (B)

Case: 13-2Page: 392

2

2000 2001Sales revenue, net $6,577,480 $7,622,677Cost of sales $2,573,350 $2,803,623Excise taxes on goods sold $2,354,350 $2,887,616Gross margin $1,649,780 $1,931,438Selling, general, and administrative expenses $974,121 $1,328,107Income before income taxes $675,659 $603,331Provision for income taxes $296,877 $274,558Net income $378,782 $328,773

Amerbran CompanyIncome Statement for the Year Ended

Dec 31, 2000 (In Thousands)

2000 2001AssetsCash $23,952 $28,912Accounts receivable $687,325 $756,152Inventories $1,225,402 $1,244,912Prepaid expenses $77,167 $76,140Total current assets $2,013,846 $2,106,116Investments $1,058,637 $1,116,534Property, plant, and equipment, at cost $1,366,719 $1,566,268Less: Accumulated depreciation -$645,734 -$723,442Net property, plant, and equipment, at cost $720,985 $842,826Goodwill $577,606 $645,210Other assets $62,374 $115,826Total assets $4,433,448 $4,826,512Liabilities and Shareholders' EquityAccounts payable $238,377 $271,452Short-term debt $351,112 $430,776Accrued expenses payable $728,262 $922,990Total current liabilities $1,317,751 $1,625,218Long-term liabilities $932,828 $880,674Total liabilities $2,250,579 $2,505,892Convertible preferred stock $42,611 $33,828Common stock, at par $161,417 $322,834Additional paid-in capital $57,072 $53,641Treasury stock, at cost -$102,705 -$110,948Reatined earnings $2,024,474 $2,021,265Total shareholders' equity $2,182,869 $2,320,620Total liabilities and shareholders' equity $4,433,448 $4,826,512

Amerbran Company Balance Sheet as of Dec 31

3

Other DetailsInterest expense..,

Year 2000: $105,165Year 2001: $102,791

Financial RatiosReturn on assetsReturn on equityGross margin percentageReturn on salesAsset turnoverDays’ cash (2001 only)Days’ receivablesDays’ inventoriesInventory turnoverCurrent ratioAcid-test ratioDebt / Capitalization ratioTimes interest earned

4

Discussion QuestionComment on Amerbran’s treatment of excise taxes as part of the calculation of gross margin

Discussion QuestionAs an outside analyst, what questions would you want to ask Amerban’smanagement based on the ratios you have calculated?

5

Definition[Net Income +

Interest[$378,782 +

$105,165[$328,773 +

$102,791*(1-Tax Rate)] *(1-.4394)] *(1-.455l)]

Total Assets $4,433,448 $4,826,512 Net Income $378,782 $328,773

Shareholders’ Equity $2,182,869 $2,320,620 Gross Margin $1,649,780 $1,931,438

Net Sales Revenue $6,577,480 $7,622,677 Net Income $378,782 $328,773

Net Sales Revenue $6,577,480 $7,622,677 Sales Revenue $6,577,480 $7,622,677 Total Assets $4,433,448 $4,826,512

Cash $23,952 $28,912 Cash Expenses / 365 ($6,198,698 -

$101,198)/365($7,293,904 - $115,974/365

Accounts Receivable $687,325 $756,152 Sales / 365 $6,577,480/365 $7,622,677/365Inventory $1,225,402 $1,244,912

Cost of sales / 365 $2,573,350/365 $2,803,623/365Cost of Sales $2,573,350 $2,803,623

Inventory $1,225,402 $1,244,912 Current Assets $2,013,846 $2,106,116

Current Liabilities $1,317,751 $1,625,218 Monetary Current

Assets$711,277 $785,064

Current Liabilities $1,317,751 $1,625,218 Noncurrent Liabilities $932,828 $880,674

(Noncurrent Liabilities

+ Shareholder’s Equity)

Pretax Operating Profit

+ InterestInterest $105,165 $102,791

6.87 times

2000 2001

Times Interest Earned $675,659 + $105,165

7.42 times $603,331 + $102,791

1.3

Debt/Capitalization 0.2994 0.2751

162.1 days

Inventory turnover 2.1 times 2.25 times

0.48Acid-Test Ratio 0.54

Days’ inventories 173.8 days

Return on Assets 0.0987 0.0797

0.1735Return on Equity 0.142

0.2508 0.2534

Return on Sales

$932,828 + $2,182,869

$880,674 + $2,320,620

0.0576 0.0431

1.48 times 1.58 times

1.43 days

Gross Margin Percentage

Asset Turnover

Days’ cash

Days’ receivables

Current ratio 1.53

1.47 days

38.1 days 36.2 days

Ratio AnalysisLiquidity Ratios

Measures of short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cashProfitability Ratios

Measures of the income or operating success of an enterprise for a given period of time

Solvency Ratios

Measures of the ability of the enterprise to survive over a long period of time

Revenues Expenses- = Net Income

XYZ Co.

6

Liquidity RatiosMeasures Enterprise‘s

Short-term ability to pay its maturing obligationsAbility to meet unexpected needs for cash

UsersBankersSuppliersOther short-term creditors

Liquidity RatiosMeans of Expressio

n

StandardUsageFormulaRatios

ProportionIndustry specific

WideLA ÷ CL1Acid-test ratio


RealisticNCPOA ÷ Avg. CL2Current cash debt coverage ratio

Rate (times)

Coll. Period < Cr. period

WideNCS ÷ ANR3Receivables turnover

Rate (times)

Industry specific

WideCGS ÷ Avg. Inv.4Inventory turnover


WideCA ÷ CLCurrent ratio

1LA = CA – Inventory – Prepaid expenses2NCPOA = Net Cash Provided by Operating Activities3NCS÷ANR = Net Credit Sales ÷ Average Net Receivables4CGS ÷Avg. Inv. = Cost of Goods Sold ÷ Average Inventory

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Profitability RatiosAffects the company’s

ability to obtain debt and equity financingliquidity positionability to grow

Ultimate test of management’s operating effectiveness

Profitability RatiosMeans of

ExpressionStandardUsageFormulaRatios

PercentageCompare with profit margin

RealisticNCPOA ÷ NS1Cash Return on Sales

Rate (times)Industry specific

WideNS ÷ Avg. AssetsAsset Turnover

PercentageIndustry specific

WideNI ÷ Avg. AssetsReturn on Assets

PercentageDOFWide(NI – PD) ÷ ACSE2Return on Common Stockholder’s Equity


WideNI ÷ NSProfit Margin

1NCPOA = Net Cash Provided by Operating Activities2(NI-PD) ÷ ACSE = (Net Income-Preferred Dividend) ÷ Average common stockholders’ equity

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Profitability RatiosMeans of Expressio

n

StandardUsageFormulaRatios

ProportionCompare Peer & Industry

widePrice ÷ EPSPrice-Earnings Ratio

PercentageWideDPS/EPSPayout Ratio

AmountIntra comparison

WideNI ÷ WACSO1Earnings Per Share

1NI ÷ WACSO = Net Income ÷ Weighted Average Common Shares Outstanding

Solvency RatiosAffects the company’s

Ability of the company to survive over a long period of timeAbility to repay the face value of debt at maturity

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Solvency RatiosMeans of

ExpressionStandardUsageFormulaRatios


WideIBIT ÷ Interest Expenses

Times Interest Earned


WideNCPOA ÷ ATL1Cash Debt Coverage Ratio


WideTD ÷ TADebt to Total Assets Ratio

1NCPOA ÷ ATL = Net Cash Provided by Operating Activities ÷ Average Total Liabilities

Financial Statement Analysis of MMFSL

10

Financial Statement Analysis

Long-term creditorStockholders

Long-term creditorStockholders

Short-term creditor

Evaluating Solvency

EvaluatingProfitability

Evaluating Liquidity

Tools of Financial Statement Analysis

Horizontal analysis / Trend analysis

Vertical analysis / Common size analysis

Vertical analysis / Common size analysis

Ratio analysisRatio analysis

Ratio analysis

Inter company basis

Industry Average

basis

Intra company basis

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Rs. Crore (Non-Annualised) Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008Total income 199.88 257.83 310.61 418.76 596.43 844.62 1226.8 Income from financial services 190.84 246.46 300.5 415.5 593.1 840.18 1214.72 Interest 3.67 90.59 211.4 347.69 519.61 770.88 1109.18 Dividends 0.51 0 0.29 1.44 7.61 5.38 2.18 Treasury operations 0.54 1.38 0.85 0.04 0.05 0.01 0.02 Other income 0.24 2.78 0.47 0.37 0.77 1.67 5.17 Prior period income & extra-ordinary income 8.8 8.59 9.64 2.89 2.56 2.77 6.91Total expenses 170.75 213.48 242.99 336.47 488.16 711.74 1049.78 Power, fuel & water charges 0.17 0.26 0.49 0.94 1.59 2.4 3.12 Compensation to employees 9.07 12.62 18.27 27.46 40.96 65.13 96.3 Indirect taxes 1.31 3.25 2.9 2.31 2.3 5.52 3.33 Lease rent & other rents 1.33 1.64 2.69 3.1 4.72 6.46 8.93 Repairs & maintenance 0.08 0.09 1.05 0.4 1.91 0.57 2.37 Insurance premium paid 0.23 0.66 0.85 0.83 1.13 1.68 3.1 Outsourced professional jobs 0.94 1.33 1.89 2.21 14.55 34.36 29.63 Director's fees 0.01 0.01 0.01 0.02 0.02 0.03 0.35 Selling & distribution expenses 0 10.33 13.95 18.28 23.26 29.19 30.23 Miscellaneous expenses 6.29 9.66 14.2 23.24 37.52 42.53 66.44 Lease equalisation adjustment 6.2 4.08 1.26 0.25 0.01 0 0 Fee-based financial service expenses 13.84 2.6 3.94 4.65 5.8 6.97 9.18 Total provisions 21.85 23.71 10.11 27.6 25.19 57.1 120.25 Write-offs 8.06 19.88 31.38 41.96 56.42 65.17 126.04 Prior period & extra-ordinary expenses 0.13 0.07 0.15 0.45 0.09 0.19 0 Interest paid 72.56 83.25 92.93 128.38 213.64 317.16 446.81 Depreciation 5.67 4.38 5 3.85 5.17 7.43 8.73 Amortisation 0.32 0.33 0 0 0 0 0 Provision for direct taxes 22.69 35.33 41.92 50.54 53.88 69.85 94.97PAT 29.13 44.35 67.62 82.29 108.27 132.88 177.02PBDITA 130.37 167.64 207.47 265.06 380.96 527.32 727.53PBDTA 57.81 84.39 114.54 136.68 167.32 210.16 280.72PBT 51.82 79.68 109.54 132.83 162.15 202.73 271.99

Income and Expenditures

Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008Total income 100 129 155 210 298 423 614 Income from financial services 100 129 157 218 311 440 637 Interest 100 2468 5760 9474 14158 21005 30223 Dividends 100 0 57 282 1492 1055 427 Treasury operations 100 256 157 7 9 2 4 Other income 100 1158 196 154 321 696 2154 Prior period income & extra-ordinary income 100 98 110 33 29 31 79Total expenses 100 125 142 197 286 417 615 Power, fuel & water charges 100 153 288 553 935 1412 1835 Compensation to employees 100 139 201 303 452 718 1062 Indirect taxes 100 248 221 176 176 421 254 Lease rent & other rents 100 123 202 233 355 486 671 Repairs & maintenance 100 113 1313 500 2388 713 2963 Insurance premium paid 100 287 370 361 491 730 1348 Outsourced professional jobs 100 141 201 235 1548 3655 3152 Director's fees 100 100 100 200 200 300 3500 Selling & distribution expenses Miscellaneous expenses 100 154 226 369 597 676 1056 Lease equalisation adjustment 100 66 20 4 0 0 0 Fee-based financial service expens 100 19 28 34 42 50 66 Total provisions 100 109 46 126 115 261 550 Write-offs 100 247 389 521 700 809 1564 Prior period & extra-ordinary exp 100 54 115 346 69 146 0 Interest paid 100 115 128 177 294 437 616 Depreciation 100 77 88 68 91 131 154 Amortisation 100 103 0 0 0 0 0 Provision for direct taxes 100 156 185 223 237 308 419PAT 100 152 232 282 372 456 608PBDITA 100 129 159 203 292 404 558PBDTA 100 146 198 236 289 364 486PBT 100 154 211 256 313 391 525

Income and Expenditures (Horizontal Common Size)

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Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008Total income 100 100 100 100 100 100 100 Income from financial services 95 96 97 99 99 99 99 Interest 2 35 68 83 87 91 90 Dividends 0 0 0 0 1 1 0 Treasury operations 0 1 0 0 0 0 0 Other income 0 1 0 0 0 0 0 Prior period income & extra-ordinary income 4 3 3 1 0 0 1Total expenses 85 83 78 80 82 84 86 Power, fuel & water charges 0 0 0 0 0 0 0 Compensation to employees 5 5 6 7 7 8 8 Indirect taxes 1 1 1 1 0 1 0 Lease rent & other rents 1 1 1 1 1 1 1 Repairs & maintenance 0 0 0 0 0 0 0 Insurance premium paid 0 0 0 0 0 0 0 Outsourced professional jobs 0 1 1 1 2 4 2 Director's fees 0 0 0 0 0 0 0 Selling & distribution expenses 0 4 4 4 4 3 2 Miscellaneous expenses 3 4 5 6 6 5 5 Lease equalisation adjustment 3 2 0 0 0 0 0 Fee-based financial service expenses 7 1 1 1 1 1 1 Total provisions 11 9 3 7 4 7 10 Write-offs 4 8 10 10 9 8 10 Prior period & extra-ordinary expenses 0 0 0 0 0 0 0 Interest paid 36 32 30 31 36 38 36 Depreciation 3 2 2 1 1 1 1 Amortisation 0 0 0 0 0 0 0 Provision for direct taxes 11 14 13 12 9 8 8PAT 15 17 22 20 18 16 14PBDITA 65 65 67 63 64 62 59PBDTA 29 33 37 33 28 25 23PBT 26 31 35 32 27 24 22

Income and Expenditures (Vertical Common Size)

Over 10 yr Over 7 yr Over 5 yr Over 3 yr Over 1 yrTotal income 33 36 37 43 45 Income from financial services 32 36 38 43 46 Interest 123 168 65 47 43 Dividends -1 11 15 -59 Treasury operations -4 -57 -21 100 Other income 67 13 141 210 Prior period income & extra-ordinary income 50 -4 34 -30Total expenses 31 35 38 46 47 Power, fuel & water charges 64 49 30 Compensation to employees 53 47 50 52 48 Indirect taxes 129 0 13 -40 Lease rent & other rents 8 38 40 42 38 Repairs & maintenance 44 62 92 81 316 Insurance premium paid 66 41 36 55 85 Outsourced professional jobs 56 86 138 -14 Director's fees 104 160 30 Selling & distribution expenses 25 34 24 18 4 Miscellaneous expenses 38 42 47 42 56 Fee-based financial service expenses 40 27 29 25 32 Total provisions 58 60 38 63 111 Write-offs 61 45 44 93 Interest paid 28 32 40 52 41 Depreciation -4 -10 15 31 18PBT 39 45 28 27 34 Provision for direct taxes 34 36 22 23 36PAT 44 52 32 29 33

Compounded Average Growth Rate (Percenatge)

13

Business GrowthGaining market share

Rising rural auto finance demandAggressive branch expansion policyUnique business propositionConsistent growth in recent years

Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 PBT 79.68 109.54 132.83 162.15 202.73 271.99 Provision for direct tax 35.33 41.92 50.54 53.88 69.85 94.97 Corporate tax 35.32 41.9 55.83 62.97 94.2 143.24 Deferred tax 0 0 0 0 0 0 Less: Deferred tax assets / credit 0 0 5.3 10.39 25.83 50.97 Other direct taxes 0.01 0.02 0.01 1.3 1.48 2.7 Fringe benefits tax 0 0 0 1.29 1.46 2.68PAT 44.35 67.62 82.29 108.27 132.88 177.02Prior period and extra-ordinary income 8.59 9.64 2.89 2.56 9.87 6.91Prior period and extra-ordinary expenses 0.07 0.15 0.45 0.09 0.19 0Net prior period and extra-ordinary items -8.52 -9.49 -2.44 -2.47 -9.68 -6.91PBPDTA net of P&E 99.58 115.16 161.84 190.04 257.58 394.06PBPT net of P&E 94.87 110.16 157.99 184.87 250.15 385.33PBT net of P&E 71.16 100.05 130.39 159.68 193.05 265.08PAT net of P&E 35.83 58.13 79.85 105.8 123.2 170.11Distribution of profits PBPDTA 100 100 100 100 100 100 Provision 21.93 8.11 16.8 13.09 21.36 29.99 Depreciation & Amortisation 4.36 4.01 2.34 2.69 2.78 2.18 Tax 32.68 33.63 30.76 27.99 26.14 23.69 PAT 41.03 54.25 50.09 56.24 49.72 44.15

Distribution of Profits

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Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Profit/loss after tax 100 100 100 100 100 100 Dividend paid 29 28 32 32 31 29 Equity dividend 27 25 26 25 26 25 Preference dividend 0 0 2 3 1 0 Dividend tax 2 3 4 4 4 4Retained profits 71 72 68 68 69 71Transfer from reserves 0 0 0 0 0 0Balance brought forward 52 62 85 94 107 110Transfer to reserves 28 30 30 30 30 30Profit ratiosEquity dividend / Profit after tax 27% 25% 26% 25% 26% 25%Pref. dividend / Profit after tax 0% 0% 2% 3% 1% 0%Dividend tax / Profit after tax 2% 3% 4% 4% 4% 4%Retained profit / Profit after tax 71% 72% 68% 68% 69% 71%

Profit Appropriation (Vertical Common Size)

Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 PBDITA/Total Income 65 67 63 64 62 59PBDTA/Total Income 33 37 33 28 25 23PBIT/Total Income 63 65 62 63 62 59PBT/Total Income 31 35 32 27 24 22PAT/Total Income 17 22 20 18 16 14Cash profit/Total Income 24 31 29 27 20 21PBDITA Net of P&E/Total Income Net of P&E 64 66 63 64 62 59PBDTA Net of P&E/Total Income Net of P&E 30 35 32 28 24 22PBIT Net of P&E/Total Income Net of P&E 62 64 62 63 61 58PBT Net of P&E/Total Income Net of P&E 29 33 31 27 23 22PAT Net of P&E/Total Income Net of P&E 14 19 19 18 15 14Cash profit Net of P&E/Total Income Net of P&E 24 31 29 26 20 21

Profitability Ratios (Percenatge)

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Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 On Networth PBIT Net of P&E/Avg Networth 82.34 84.83 78.74 65.59 67.53 68.04 PAT Net of P&E/Avg Networth 19.11 25.55 24.3 18.59 16.31 16.26 PAT/Avg Networth 23.65 29.72 25.04 19.02 17.59 16.92 Cash profit/Avg Networth 32.53 42.34 37.36 28.02 22.84 24.28On Capital Employed PBIT Net of P&E/Avg Capital Employed 17.11 13.82 11.66 10.56 10.63 12.56 PBIT/Avg Capital Employed 18.06 14.5 11.77 10.63 10.83 12.69 PAT Net of P&E/Avg Capital Employed 3.97 4.16 3.6 2.99 2.57 3 PAT/Avg Capital Employed 4.92 4.84 3.71 3.06 2.77 3.12On Total Assets PBIT Net of P&E/Avg Total Assets 10.98 10.76 10 9.16 9.01 10.69 PBIT/Avg Total Assets 11.59 11.29 10.1 9.22 9.18 10.79 PAT Net of P&E/Avg Total Assets 2.55 3.24 3.09 2.6 2.18 2.55 PAT/Avg Total Assets 3.15 3.77 3.18 2.66 2.35 2.66On GFA PBIT Net of P&E/Avg GFA (excl. reval. & WIP) 447.31 757.68 1022.81 1154.18 1189.58 1325.56 PBIT/Avg GFA (excl. reval. & WIP) 471.99 794.94 1032.45 1161.82 1212.15 1338.42 PAT Net of P&E/Avg GFA (excl. reval. & WIP) 103.79 228.23 315.61 327.1 287.25 316.75 PAT/Avg GFA (excl. reval. & WIP) 128.48 265.49 325.26 334.73 309.82 329.62

Return Ratios (Percentage)

ROE Driven BusinessMMFSL

ROEFY03: 23.2%FY07: 18.2%FY08: 16.9%

ROAFY03: 3.5%FY07: 2.4%FY08: 2.7%

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Over 10 yr Over 7 yr Over 5 yr Over 3 yr Over 1 yrAssetsGross fixed assets -5 0 17 31 23Less: Cumulative depreciation 4 19 28 42 33Net fixed assets -9 -4 17 23 15Investments -19 -15 -36 -56 -89 Market value of quoted investments -38 -74 -61Deferred tax assets 38 51 68Current assets 3 -13 -8 13 -11Loans & advances 216 51 34 15Total assets 32 30 36 31 12LiabilitiesNet Worth 38 38 45 48 69 Authorised capital 16 6 8 14 22 Issued equity capital 17 7 10 11 13 Paid up equity capital (net of forfeited capital) 17 7 9 11 13 Reserves & surplus 48 48 54 62 76Total borrowings 35 33 35 27 3 Secured borrowings 45 38 46 28 1 Unsecured borrowings 12 11 2 22 26Current liabilities & provisions 19 12 24 37 13 Sundry creditors 61 23 24 47 -18 Interest accrued 31 36 45 41 44 Other current liabilities 7 -5 3 15 2 Provisions 29 21 72 47 73Total liabilities 32 30 36 31 12

Compounded Average Growth Rate of Assets and Liabilities (Percentage)

Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Net Worth 13 12 13 15 12 19 Authorised capital 5 4 2 2 1 2 Issued equity capital 4 3 2 2 1 1 Paid up equity capital (net of forfeited capital) 4 3 2 2 1 1 Reserves & surplus 9 9 9 12 11 17 Free Reserves 8 8 8 10 9 15 Security premium reserves (Net of deductions) 4 3 3 7 6 11 Other free reserves 4 4 4 4 3 4 Specific reserves 1 2 2 1 2 3Total borrowings 72 77 79 77 79 72 Bank borrowings 21 16 14 16 24 17 Short term bank borrowings 10 5 3 4 7 4 Long term bank borrowings 12 11 11 12 16 13 Financial institutional borrowings 3 2 1 0 0 0 Debentures / bonds 20 46 54 52 49 48 Non-convertible 20 46 54 52 49 48 Fixed deposits 3 2 1 0 0 0 Foreign borrowings 0 0 2 2 1 0 Borrowings from corporate bodies 2 0 0 0 0 0 Group / associate cos. 0 0 0 0 0 0 Commercial paper 5 0 2 2 0 0 Other borrowings 18 10 5 6 6 6 Secured borrowings 45 64 71 70 73 66 Unsecured borrowings 27 12 8 8 6 6 Current portion of long term debt 30 18 3 7 32 37Current liabilities & provisions 14 11 8 8 9 9 Sundry creditors 4 4 2 3 4 3 Acceptances 0 0 0 0 0 0 Deposits & advances from customers and employees 1 0 0 0 0 0 Interest accrued 2 2 2 2 2 2 Other current liabilities 7 3 2 2 2 2 Provisions 1 2 2 1 1 2Deferred tax liability 0 0 0 0 0 0Total liabilities 100 100 100 100 100 100

Distribution of Liabilities (Vertical Common Size)

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Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Total Income / Avg. total assets 18% 17% 16% 15% 15% 18%Total Income / Compensation to employees 20.43 17 15.25 14.56 13.02 12.74

Asset Utilization Ratios

SecuritizationEffectively used to manage..,

Fund’s requirementsFunding costsALM structure

Impact..,18% of total fundFollows securitization by assignments (bilateral sale, not tradable)

Contributor to interest incomeContributed interest income: 6.5%Margin term: 1%Key instruments in maintaining high margins

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FY08 Cost/ Income: 32.7%

Asset Quality

2.76.11,5483,582FY07

2.97.62,0535,572FY08

2.75.71,1332,472FY06

3.47.09471,992FY05

4.38.77431,556FY04

3.58.84121,090FY03

NetNPAs

Ratio (%)

Gross NPAs

Ratio (%)

Net NPAs

(Rs. Mn)

Gross NPAs

(Rs. Mn)

19

Provisioning Norms

50> 48

100> 2430> 30 & <= 48

50> 12 & <= 2420> 18 & <= 30

10> 5 & <= 1210> 5 & <= 18

MMFSL (%)

Duration (Months)

RBI Norms (%)

Duration (Months)

20

Shareholding Pattern (%)

Promoters: 62%FIIs: 24%Public and others: 13%

Risk FactorsEconomic slowdownsPolicy riskOver-dependence on M&M vehiclesCompetition from banks and NBFCsInterest rates risk Asset quality risk

Rural lendingRising interest rate – increase by 150bps

21

Major Sources of FundsNo financial aid or subvention from parentsMost funds sourced from..,

Mutual funds: 41%Banks: 52%

Instruments raised..,Bonds: 60%Bank borrowings: 21%Securitization: 18%Commercial paper: 1%

Healthy credit rating as linked to parent company

Performance Ratios

3.5%

37.6%

89.8%

12.4%

18.2%

2.4%

9.2%

8.4%

6.6%

15.1%

FY07

32.7%

16.9%

2.7%

10.4%

7.2%

8.6%

18.6%

FY08

2.7%ROA

9.2%Net income margins

8.5%Interest spread

6.3%Cost of funds

14.8%Yield on assets

3.3%Cost / Assets

35.3%Cost / Income

83.8%Loans / Assets

13.6%Equity / TA

20.9%ROE

FY06

Net Interest Margin: 11.3%

22

Margins Supported by Higher Yields

10.4% is higher compared to banksPrice-maker in rural marketPortfolio yield in FY07: 18.6%Increasing funding costs: 6.6% to 8.6%Benefits..,

Priority sector lendingSelling portfolio by assignment to other banksDeposit-taking NBFCHigh credit rating

Peer Comparison

13.415.737.610.4EPS (Rs.)

1.62.41.62.3ROA (%)

6.418.212.420.4ROE (%)

4721,3291,0451,916PAT (Rs. Mn)

7,3937,3058,4449,409Avg. Networth (Rs. Mn)

29,00756,50565,59384,523Avg. Assets (Rs. Mn)

13,08019,32013,19633,889Mkt. Cap (Mn)

35.48427.8184.2Shares (Mn)

1.32.51.53.2PBV (x)

27.714.612.617.7PER (x)

281.791.131657.9BVPS (Rs.)

BAFMMFSLSfSTFC

Sept 2007 BAF and Sf have undergone significant equity dilution in past two years

23

Peer Comparison

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008Growth (%) Total Income 17 9 50 163 57 75 42 66 25 42 42 45 Total expenses -1 28 40 159 61 71 94 60 36 45 46 47 PBDTA 45 -28 98 173 34 113 -41 86 -53 22 26 34 PBT 71 -31 111 178 34 109 -42 87 -58 22 25 34 PAT 124 -41 112 187 34 105 -62 126 -57 32 23 33 Net Worth 19 8 19 269 32 66 75 106 7 81 6 69 Total assets 17 23 11 202 79 69 56 59 9 61 25 12Profitability ratios (%) PAT/Avg Networth 23 12 22 27 20 27 6 6 2 19 18 17 PAT/Avg Total Assets 3 2 3 4 2 3 1 2 1 3 2 3Efficiency ratios Total Income / Avg. total assets 0.12 0.11 0.14 0.23 0.17 0.17 0.13 0.14 0.14 0.15 0.15 0.18 Total Income / Compensation to employees 12 11 12 19 20 20 12 12 10 15 13 13

Sundaram Finance

Ltd

Shriram Transport

Finance Co. LtdBajaj Auto

Finance Ltd MMFSL

FY06 FY07 Weight Growth (%)Net external revenues (Rs. Mn) 131,578 182,949 100% 39.04%Automotive 53,441 64,904 35% 21.45%Farm equipment 34,711 43,602 24% 25.61%IT services 14,067 31,426 17% 123.40%Financial services (MMFL) 5,890 8,467 5% 43.75%Steel processing & trading 7,265 7,877 4% 8.42%Infrastructure 1,798 1,338 1% -25.58%Hospitality 1,527 2,347 1% 53.70%Systech 6,126 16,991 9% 177.36%Others 6,753 5,997 3% -11.20%

MMFSL in the Group

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FY06 FY07 Weight Growth (%)PBIT (Rs. Mn) 15,945 23,730 100% 48.82%Automotive 5,410 6,560 28% 21.26%Farm equipment 3,140 5,031 21% 60.22%IT services 2,617 6,862 29% 162.21%Financial services (MMFL) 1,642 2,076 9% 26.43%Steel processing & trading 480 493 2% 2.71%Infrastructure 187 96 0% -48.66%Hospitality 320 639 3% 99.69%Systech 988 1,667 7% 68.72%Others 1,161 306 1% -73.64%

MMFSL in the Group

FY06 FY07 Growth (%)PBIT margin 12% 13% 7.04%Automotive 10% 10% -0.16%Farm equipment 9% 12% 27.55%IT services 19% 22% 17.37%Financial services (MMFL) 28% 25% -12.05%Steel processing & trading 7% 6% -5.27%Infrastructure 10% 7% -31.01%Hospitality 21% 27% 29.92%Systech 16% 10% -39.17%Others 17% 5% -70.32%

MMFSL in the Group

25

Looking Beyond the NumbersAre the company’s revenues tied to one key customer?To what extent are the company’s revenues tied to one key product?To what extent does the company rely on a single supplier?What percentage of the company’s business is generated overseas?What is the competition?Does the company invest heavily in R&D?What is the legal and regulatory environment in which it operates?

ROI

Net Income as % of Sales

Investment Turnover

Net Income Sales Sales Investment÷

Shareowners’ Equity

Borrowings

Total liabilitiesNon borrowed

liabilities

÷

X

+

-

26

Dupont Analysis

Investment Total Assets Sales Net IncomeROE = Shareholders's Equity Investments Total Assets Sales

× × ×

Leverage Turnover Net Income

Return on Total Assets

Net Profit as % of Sales

Turnover

Net Profit Sales

SalesCOGS,

Other taxes, and Expenses

Sales Total Assets

Long-term Assets

Current Assets

InventoryAccounts

Receivable

Cash and Market

Securities+

+

÷÷

+

-

x

27

Oracle Dupont Analysis…

Total Assets Sales Net IncomeROE = Shareholders's Equity Total Assets Sales

× ×

ROE = 1.934 0.4954 0.2351× ×

Documents

Financial Statement Analysis - 2