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Mahindra & Mahindra
Direct debit to reserves and exceptional income boosts profitability
Mahindra & Mahindra (M&M) adjusted provision for diminution in investments of INR 0.7
bn against investment fluctuation reserve; otherwise, PBT would have been lower by INR
0.7 bn (~1.9%). The investment fluctuation reserve stood at INR 6.2 bn as at FY10 end.
The company has FCCBs outstanding of USD 189.5 mn convertible at INR 461.0/share
on or before March 7, 2011. M&M adjusts the redemption premium payable on bonds
against the securities premium account in the year of issue. Had the same been charged
through P&L on YTM basis, FY10 PBT would have been lower by INR 533 mn (1.3%).
ESOPs have been accounted on the intrinsic value basis. Had the company accounted
the same on fair value basis, PAT would have been lower by INR 264.4 mn (~1.1%).
Net exceptional gains for FY10 stood at INR 2.5 bn [FY09: INR (0.8) bn], of which, INR
1.8 bn pertains to the profit realised on sale of investments; and INR 0.8 bn, ~2% of
PBT, is deemed divestiture gain on account of effective dilution of its investments (refer
table on page 2 for details).
The company accounts deemed divesture gain as exceptional income instead of the
conventional practice of adjusting it against reserves.