Mahindra & Mahindra Group

Coming by the end of the week shocking interesting news came out by the announcement made by MAHINDRA&MAHINDRA Group (M&M).

SEBI was informed by the group regarding the “ISSUE OF NON-CONVERTIBLE DEBENTURES AGGREGATING 500 CRORES”.

Such news regarding the increase of debt had quite an impact on its share price, yet a more important question that arises is whether what type is debenture is mentioned in the reference letter by the group to SEBI.

So shown below is the annexure reference letter given by the group to SEBI

(THE FULL REFERENCE LETTER SHALL BE ATTACHED AT THE END OF THE ARTICLE FOR VERIFICATION)

To start with we first have to understand the meaning of a few terms:-

1. what are “Debentures”?

Answer: - A medium/long-term security yielding a fixed rate of interest, issued by the companies and corporates either secured by aseet of the company or might be unsecured.

 

2. Listed “Debenture”?

Answer: - debentures which are going to be listed on the stock exchange, are know as listed debentures in our chance the debentures shall be listed on “BSE” (BOMBAY STOCK EXCHANGE).

 

3.Unsecured Debenture?

Answer: - Usually Debentures are secured against some underlying asset of the company which are pledged against such issue of Debentures, but there are times Debentures are issued which are unsecured i.e. they are not secured or not supported by an underlying asset of the company.

 

4. Redeemable Debentures?

Answer:-Redeemable debentures are those debentures that will be repaid by the company either in a lump sum at the end of a specified period or are repaid in installments by the company over a period of time.

Restriction levied by SEBI limits the issuance of debenture which is redeemable after 20 years.

 

5.Non-Convertible Debentures?

Answer: - there are basically 2 types of debenture falling under this category which are:-

·Convertible: - which are converted into equity share on non-repayment of debentures.

·Non-convertible:-which cannot be converted into equity share on non-repayment of debentures.

 

6. Private placement?

Answer: -A private placement is sale of stock, shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise funds.

                                                                       

v  COMING UP TO CHARACTERISTICS OF THE ISSUE:-

 

· The Non-Convertible Debenture shall be issued with a rate of interest of 6.19%.

· The interest shall be payable annually and the principal shall be payable on maturity.

·500 Non-convertible Debentures (NCD), shall be issued at rupees 10, 00,000 each, which means in total 500 crore worth funds shall be raised by the company by the means of debt.

· And the issue shall be by the way of private placement and,

· The tenure of the debenture shall be for a period of 5 years which means they shall redeem on 8^th June 2025.

·The date of “Deemed Allotment “shall be 8^th June 2020 for getting the security.

·The debentures shall be “Unsecured”.

 

  BENEFITS OF ISSUANCE OF “NCD” FOR THE COMPANY:-

 

· So the issue of Non-Convertible Debentures shall effect and not dilute their promoters holding.

· Such debentures holder shall not affect the working of the group it shall act just as loan and which shall be repaid soon because the tenure of the loan is very low.

· Raising funds through the banking sector would have come up with high rate of interest repayment, which means 6.19% interest on issue of debentures is very nominal in comparison to interest rates levied by the banks.

· The debenture is “Unsecured” i.e. “NO” collateral shall be needed to raise funds for the group (“no assets shall be pledged”).

 

 DISADVANTAGES OF ISSUANCE OF “NCD” FOR THE COMPANY:-

· The interest is overall low but still it shall raise the debt factor and repayment of interest for the company.

· The debt structure of the company shall increase for the financial year.

· There shall be a negative impact on the cash flow statement of the company at the time of repayment of interest and principal by the end of 5^th year (maturity of debentures).

Overall the group is pretty strong and the fundamental of the group from their core business activity has shown a positive cash flow this year and talking about there over debt structure till date “MAHINDRA GROUP” has total of 64,170 crore worth debt.

Coming up to their “Quarter 3 results” for the financial year 2019-20:-

Companies overall performance before the pandemic where quite good their sales of 3^rd Quarter as visible where strong, the companies operating profit percentage is 14% which is good enough in comparison to its peers, to say it in short the company has shown slow growth towards the end of this financial year but there has been a growth during the financial year.

Talking about the “Fundamental of the Company”, “MAHINDRA GROUPS major earning are from fulfilling automobile government contracts (such as tractors/ buses tenders), providing tech facilities in domestic as well as abroad (cyber security/ cloud-based solutions) which is under their division “M&M TECHNOLOGIES” and providing financial services under their other division “M&M FINANCIALS” overall the fundamentals are good and impressive.

 Coming up to the stock price of “MAHINDRA&MAHINDRA” its last traded price as per 5^th June 2020 was 484.20 rupees, its book value is 331.11 rupees and their P/E ratio is 26.36%.

Since the news of raising debt has impacted the share price in a very different manner, the share price as per last analysis showed that the share price jumped from trading on 470 rupees on Thursday to 484.20 rupees in a single day. Talking about our opinion such volatile jump has definitely benefited us, talking about whether I personally bought the share at 470 rupees? The answer is “YES”.

 But looking in long terms this shift in share price was not permanent it was due to an immediate impact of news of raising debt.

 REASON FOR THE JUMP IN SHARE PRICE:-

·  Some experts have predicted that the second wave of fall in the stock market due to pandemic is yet to affect us. But since the lock-down got over the last visible trading days there has been an overall rise in the market, even “NIFTY” had landed near to 10,000 points, maybe it might be the reason for the jump in the share price of the company since market in general moved up.

· And the other reason might be the news of funds being raised by the way of Non-convertible Debentures.

"So this is our analysis on M&M Group there might be scope for the share price to show positive signs on Monday when market opens up, 

There are chances to make potential gains from the Market in case of M&M group, if timing of buying and selling is appropriate during the trade.

Since tomorrow is 8th June 2020 the end of Phase 1 of unlock 1 therefore we believe performance of market due to news might show a positive sign.