38. Employee Benefits
(a) General description of defined benefit plans:
(i) Gratuity
The Company operates a gratuity plan covering qualifying employees. The benefit payable is the greater of the amount calculated as per the Payment of Gratuity Act or the Company scheme applicable to the employee. The benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in service, the gratuity is payable irrespective of vesting. The Company makes annual contribution to the group gratuity scheme administered by the Life Insurance Corporation of India through its Gratuity Trust Fund.
(ii) Post - retirement medical
The Company provides post retirement medical cover to select grade of employees to cover the retiring employee and their spouse upto a specified age through mediclaim policy on which the premiums are paid by the Company. The eligibility of the employee for the benefit as well as the amount of medical cover purchased is determined by the grade of the employee at the time of retirement.
(iii) Post - retirement housing allowance
The Company operates a post retirement benefit scheme for a certain grade of employees in which a monthly allowance determined on the basis of the last drawn basic salary at the time of retirement, is paid to the retiring employee in lieu of housing.
(b) Risk exposure
Though its defined benefit plans the Company is exposed to a number of risks, the most significant of which are detailed below:
(i) Asset volatility
The plan liabilities are calculated using a discount rate set with references to government bond yields; if plan assets underperform compared to this yield, this will create or increase a deficit. The defined benefit plans may hold equity type assets, which may carry volatility and associated risk.
(ii) Changes in bond yields
A decrease in government bond yields will increase plan liabilities, although this is expected to be partially offset by an increase in the value of the plan’s investment in debt instruments.
(iii) Inflation risk
The present value of some of the defined benefit plan obligations are calculated with reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability. The post retirement medical benefit obligation is sensitive to medical inflation and accordingly, an increase in medical inflation rate would increase the plan’s liability.
(iv) Life expectancy
The present value of defined benefit plan obligation is calculated by reference to the best estimate of the mortality of plan participants, both during and after the employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
The Company has recognised an obligation of Rs. Nil (2023: Rs. 165.62 crores) on account of interest rate guarantee through OCI.
The plan assets have been primarily invested in government securities and corporate bonds.
The Company’s contribution to Provident fund and Superannuation fund aggregating Rs. 207.44 crores (2023: Rs. 180.93 crores) has been recognised in profit or loss under 'Employee benefits expense’.
The weighted average duration of the defined benefit obligation is 8.39 years (2023: 8.62 years).
The expected contribution payable to the plan next year is Rs. 119.40 crores.
39. Employee Stock Option Plan
The Company has setup Mahindra & Mahindra Employees Stock Option Trust (M&M ESOP Trust) and allotted certain ordinary shares which it holds for the benefit of the employees and issues them to the eligible employees as per the recommendations of the Nomination and Remuneration Committee (NRC).
Mahindra and Mahindra Limited Employees Stock Option Scheme - 2010 ("2010 Scheme"):
The Company has granted options at an exercise price of Rs 5.00 which vests in 2 to 5 instalments ranging from 12 to 84 months from the date of grant. The exercise period of the options ranges from 1 year to 6 years from the date of vesting. Number of vested options exercisable is subject to a minimum of 50 or number of options vested, whichever is lower.
40. Capital Management
The Company’s capital management strategy is to effectively determine, raise and deploy capital so as to create value for its shareholders. The same is done through a mix of either equity and / or preference and / or convertible and / or combination of short term / long term debt as may be appropriate.
The Company determines the amount of capital required on the basis of its product, capital expenditure, operations and strategic investment plans. The same is funded through a combination of capital sources be it either equity and / or preference and / or convertible and / or combination of short term/ long term debt as may be appropriate.
The capital structure is monitored on the basis of net debt to equity and maturity profile of overall debt portfolio of the Company.
41. Financial instruments
Financial Risk Management Framework
In the course of its business, the Company is exposed to certain financial risks namely credit risk, interest risk, currency risk & liquidity risk. The Company's primary focus is to achieve better predictability of financial markets and seek to minimize potential adverse effects on its financial performance.
The financial risks are managed in accordance with the Company's risk management policy which has been approved by its Board of Directors.
(a) Market Risk Management
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates etc. could affect the Company's income or the value of its holdings of financial instruments including cash flow. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while maximising the return.
(i) Currency Risk
The Company's exposure to currency risk relates primarily to the Company's operating activities including anticipated sales, purchases and borrowings where the transactions are denominated in a currency other than the Company's functional currency.
The Company's foreign currency exposures are managed in accordance with its Foreign Exchange Risk Management Policy which has been approved by its Board of Directors. The Company hedges its foreign currency risk mainly by way of forward covers. Other derivative instruments may be used if deemed appropriate.
The sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Interest rate sensitivity
The sensitivity analyses below have been determined based on exposure to interest rate for both derivative and non-derivative instruments at the end of reporting period. For floating rate liabilities, analysis is prepared assuming the amount of liability outstanding at the end of the reporting period, was outstanding for the whole year.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings, as follows:
41. Financial instruments (contd.)
(b) Credit risk management
Credit Risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure are continuously monitored.
(i) Financial Guarantees
I n addition, the Company is exposed to credit risk in relation to financial guarantees given to banks. The Company’s maximum exposure in this respect is the maximum amount, the Company would have to pay, if the guarantee is called on. The amount recognised in Balance Sheet as other financial liabilities and maximum exposure details are as given below:
(ii) Trade Receivables
The Company applies the simplified approach to provide for expected credit losses prescribed by Ind AS 109, which permits the use of the lifetime expected loss provision for all trade receivables. The Company has computed expected credit losses based on a provision matrix which uses historical credit loss experience of the Company. The Company has taken dealer deposits, bank guarantees etc. which are considered as collateral and these are considered in determination of expected credit losses, where applicable.
There were no transfers between Level 1 and Level 2 during the year.
Valuation methodologies of financial instruments not measured at fair value
Below are the methodologies and assumptions used to determine fair values for the above financial instruments which are not recorded and measured at fair value in the company’s financial statements. These fair values were calculated for disclosure purposes only.
Non-Current Borrowings
The fair value of borrowings which have a quoted market price in an active market is based on its market price and for other borrowings the fair value is estimated by discounting expected future cash flows, using a discount rate equivalent to the risk- free rate of return, adjusted for the credit spread considered by the lenders for instruments of similar maturity and credit quality.
Except for the above, carrying value of financial assets / liabilities measured at amortised cost represent reasonable estimate of fair value.
45. Segment information Operating Segments
The Company is both an operating company, primarily having operations in the Automotive and Farm Equipment segments and a holding company with a portfolio of investments in subsidiaries, associates and joint ventures.
As part of the group strategy and vision, the Company is focused on operational efficiencies and synergies and driving value creation through partnerships, mergers and acquisitions in order to generate periodic returns from these portfolio of investments / businesses. The CODM (Chief Operating Decision Maker) of the Company therefore manages investments / businesses, allocates capital and measures performance under three key verticals, namely Automotive, Farm Equipment and Services.
The Company from current financial year has updated its segment disclosures and in its standalone results has reported five segments, namely Automotive, Farm Equipment, Auto Investments, Farm Investments and Investments in Industrial Businesses and Consumer Services. The segment related disclosures for comparative periods have been reclassified to conform with the presentation and reporting in the current period.
Further, in accordance with the above change, the Company has reported the dividend, interest and other investment related income pertaining to the aforesaid investment segments as 'Income from Investments related to subsidiaries, associates and joint ventures' as applicable. Similarly, loss pertaining to the aforesaid investment segments is reported as 'Loss from Investments related to subsidiaries, associates and joint ventures'. Such incomes (net) which were reported as 'Other income' in comparative periods have been reclassified to conform to current period presentation.
Description of each of the reportable segments for all periods presented, is as under:
a) Automotive: This segment comprises of sale of automobiles, two wheelers, spares, construction equipments and related services;
b) Farm Equipment: This segment comprises of sale of tractors, implements, spares, powerol and related services;
c) Auto Investment: This segment comprises of investments in automotive related subsidiaries, associates and joint ventures;
d) Farm Investments: This segment comprises of investments in farm equipment related subsidiaries, associates and joint ventures;
e) Industrial Businesses and Consumer Services' segment: This segment comprises of investments in other than automotive & farm related subsidiaries, associates and joint ventures;
The measurement of each segment's revenues, expenses, assets and liabilities is consistent with the accounting policies that are used in preparation of the financial statements. Segment result represents the profit before interest and tax without allocation of corporate income and expenses.
Domestic includes sales to customers located in India and service income accrued in India. Income from investment includes income from companies incorporated in India
Overseas includes sales and services rendered to customers located outside India. Income from investment includes income from companies incorporated outside India
Information about major customers
During the years ended 31st March, 2024 and 31st March, 2023 no revenues from transactions with a single external customer amount to 10% or more of the Company’s revenues from external customers.
46. Contingent Liability & Commitments:
(A) Contingent Liability:
(a) Claims against the Company not acknowledged as debts comprise of:
(i) Excise Duty, Sales Tax and Service Tax claims disputed by the Company relating to issues of applicability and classification before tax aggregating Rs. 3,069.43 crores (2023: Rs. 2,979.46 crores).
(ii) Other matters (excluding claims where amounts are not ascertainable): Rs. 393.86 crores (2023: Rs. 274.11 crores).
(b) Taxation matters:
(i) Demands against the Company not acknowledged as debts and not provided for, in respect of which the Company is in appeal and exclusive of the effect of similar matters in respect of assessments remaining to be completed:
- Income-tax: Rs. 2,691.29 crores (2023: Rs. 1,422.26 crores) net off MAT credit.
(ii) Items in respect of which the Company has succeeded in appeal, but the Income-tax Department is pursuing / likely to pursue in appeal/ reference and exclusive of the effect of similar matters in respect of assessments remaining to be completed:
- Income-tax matters: Rs. 567.66 crores (2023: Rs. 469.19 crores).
(c) In respect of (a) & (b) above, it is not practicable for the Company to estimate the closure of these issues and the consequential timings of cash flows, if any.
(d) Financial guarantee given on behalf of Subsidiaries / Associates / Joint Ventures companies [refer note 41 (b)(i)]
(B) Commitments:
(i) The estimated amount of contracts remaining to be executed on capital account and not provided is Rs. 3,469.15 crores (2023: Rs. 2,581.34 crores)
(ii) The Company has contractual obligations towards long-term material purchase commitments for Rs. 11,240.00 crores as at 31st March, 2024.
(iii) Uncalled liability on partly paid equity shares of subsidiaries as at 31st March, 2024 Rs. 735.72 crores (2023: Rs. 1,535.50 crores)
(iv) Other commitments Rs. 6.45 crores (2023: Rs. 17.78 crores)
47. Other information:
Research and Development expenditure
(a) In recognised Research and Development units:
(i) Expensed to Profit or Loss, including certain expenditure based on allocations made by the Company, aggregate Rs. 728.50 crores (2023: Rs. 705.06 crores) [excluding depreciation and amortisation of Rs. 1,456.74 crores (2023: Rs. 1,274.99 crores)].
(ii) Development expenditure incurred during the year Rs. 1,273.53 crores (2023: Rs. 1,413.09 crores).
(iii) Capitalisation of assets Rs. 363.18 crores (2023: Rs. 251.15 crores).
(b) In other units:
(i) Expensed to Profit or Loss, including certain expenditure based on allocations made by the Company, aggregate Rs. 192.19 crores (2023: Rs. 134.56 crores) [excluding depreciation and amortisation of Rs. 70.98 crores (2023: Rs. 169.85 crores)] .
(ii) Development expenditure incurred during the year Rs. 135.25 crores (2023: Rs. 137.17 crores).
(iii) Capitalisation of assets Rs. 30.99 crores (2023: Rs. 51.35 crores).
48. Compulsory Convertible Preference Shares (CCPS) issued by Mahindra Electric Automobile Limited (MEAL)
During the year ended 31 March 2023, the Company formed a wholly owned subsidiary, Mahindra Electric Automobile Limited ('MEAL') to undertake the four-wheel passenger electric business and transferred certain existing assets to MEAL for cash consideration of Rs 796.42 crores.
Further, in accordance with and subject to the terms and conditions stipulated in the Securities Subscription Agreement and Shareholders' Agreement entered with British International Investment Plc (BII), wherein the Company and BII each agreed to invest Rs 1925.00 crores in MEAL in tranches, both the Company and BII have invested Rs. 1,200.00 crores each till 31st March 2024. The investment by the Company is in equity shares of MEAL whereas investment by BII is in Compulsory Convertible Preference Shares (CCPS) of MEAL. The total investment by the Company in MEAL amounted to Rs. 3,199.49 crores as at 31st March 2024 (2023: Rs 1469.49 crores).
Further, during the year ended 31st March 2024, in accordance with and subject to the terms and conditions stipulated in the amended and restated Securities Subscription Agreement and Shareholders' Agreement entered with British International Investment Plc (BII) and Jongsong Investments Pte Ltd (“Temasek") wherein the Temasek agreed to invest Rs. 1,200.00 crores in Compulsory Convertible Preference Shares (CCPS) of MEAL in one or more tranches, Temasek has invested Rs. 300.00 crores till 31st March 2024.
Unless agreed to, in writing, for an early conversion, each CCPS is compulsorily and automatically convertible into such number of equity shares as determined as per a pre-determined formula at the conversion date, as per terms and conditions of the agreement (s) entered between the Company, BII and Temasek. Further, in accordance with the shareholders' agreement, the Company shall take best efforts to provide BII and Temasek with a complete exit between 1st November 2027 and 1st November 2030 through certain exit options (or a combination thereof), as may be determined by the Company in its sole discretion.
In case exit has not been provided to BII prior to 1st November 2030, BII shall have the right upto 31st October 2031 to require full exit to be provided by the Company or by its affiliates and / or a third party at the higher of fair market value and the amount invested by BII.
In case exit has not been provided to Temasek prior to 1st November 2030, Temasek shall have the right up to 31st October 2031 to require full exit to be provided by the Company by way of share swap if the fair market value of the Temasek interest is higher than the amount invested by it. However, the Company shall have the right, at its sole discretion, to provide cash exit to Temasek at the higher of fair market value of the Temasek interest and the amount invested by it. Further, if the Fair market value of the Temasek interest is lower than its investment amount, neither the Company nor Temasek shall be obligated to undertake their respective obligations with respect to the share swap.
Explanatory notes:
(i) Cost of materials consumed for the purpose of Inventory turnover ratio includes Purchases of stock-in-trade and Changes in inventories of finished goods, stock-in-trade and work-in-progress.
(ii) Investments includes current and non-current investments including Fixed deposits, Mutual funds, Corporate deposits, Inter corporate deposits excluding investments in Equity instruments.
Explanation for change in the ratios by more than 25%:
(i) Debt Equity Ratio (times): The debt equity ratio is at 0.03 in current year as against 0.11 in previous year primarily due to repayment of borrowings during the year.
(ii) Debt Service Coverage Ratio (times): The debt service coverage ratio is at 47.87 in current year as against 4.69 in previous year primarily due to repayment of borrowings during the year.
(iii) Return on Equity (%): Ratio has improved on account of increase in profit after tax in current year.
(iv) Net profit margin (%): Ratio has improved on account of increase in profit for the year.
(v) Return on Capital Employed (%): Ratio has improved on account of increase in profit after tax in current year and repayment of borrowing
(vi) Return on Investment (%): The return on investment is at 7.45% in current year as against 5.75% in previous year due to higher mark to
market gain on invested surplus and higher yields on investments during the year.
>. Quarterly returns / statements filed by the Company with banks are in agreement with the books of accounts.
50. Previous year’s figures have been regrouped wherever necessary (refer note 45).
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