Mahindra & Mahindra Ltd. (500520) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Kapil Singh – Nomura Securities: Sir, just wanted you to give some more color on the rationale behind this merger of truck business and also what kind of impact should we expect on P&L because of this, because last year there was a loss of INR3.6 billion, so given that we are not expecting any major growth to come, should we expect similar kind of losses to continue?
Pawan Goenka – President – Automotive & Farm Equipment Sectors: So first of all, it’s a demerger not a merger. The MTBL Company continues and it will have the spares business of the truck and bus (Technical Difficulty). I will start again, so first of all it was not a merger but a demerger where the truck and bus business is coming into Mahindra & Mahindra and the spares business of MTBL resides in MTBL. The primary reason for rationale for the demerger, obviously is the fact that, now it’s 100% owned subsidiary. The reason we had it as a separate company was because it was joint venture with Navistar, now it’s a big 100% subsidiary. It makes a lot of sense for it to be part of Mahindra & Mahindra because it is a main line of business for us. Clearly, it will bring some operational efficiencies by being part of M&M Limited and some of the transactional losses that we have because of various companies transacting business with MTBL within the Group. Those will get eliminated as a result of merger and there will be some manpower efficiencies also that will come. There also is a tax benefit that will happen because there is a fairly large accumulated losses in MTBL which we’ll be able to send off, so that’s a rationale for it.
Kapil Singh – Nomura Securities: Why the spares business is being kept separate?
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: Let me just back off a little bit more and add color to what Pawan said. There will be a tax benefit which will be because of the accumulated losses and the effective date of this transaction will be 1st April but this effect, all of them will come once the High Court actually approves this merger. Therefore, in terms of timing, it will depend on when that happens. You know, whether it happens in this financial year or next. We’d assume normally it should happen by April, May, June kind of timeframes. So it is – it depends on which financial year it will come also. So that’s one input. Second about spare parts, the base – if you remember, Kapil, even when we did MADPL, we left the spare part business and bought in the other manufacturing unit. So, we believe that manufacturing has a lot of synergy and operational efficiency. Spare parts is a separate business, and at some point we can look at spare part as a profit center in a much broader way for the Group. So when we are – therefore we are leaving the spare part businesses out where it happened to be already out, as in the case of MADPL and similarly we are doing the same in current transaction…
Kapil Singh – Nomura Securities: Sir, what kind of impact should we expect on the P&L whenever this happens, because this year I understand there will be tax benefits, but next year those will not be available, so it could result in some earnings dilution for the M&M plus MVML entity?
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: On the theoretical basis, yes, Kapil. I mean its very simple equation that if you add loss which gets added, but life is not like that, right. You’ve seen the Renault come in and what is the impact you’re seeing is also something you have noticed, yeah. Also, we have a product, we have everything in the market, and I would let the – in terms of the operations we talked about, its ongoing (covenant) sheer financial point of view, what we can clearly say is that next year, the business will decide what we do out of this. There is – we have lot of history and time we have come through, from the time we started on this project.
Pawan Goenka – President – Automotive & Farm Equipment Sectors: Let me also add that even if its independent company, while in terms of reporting, that loss is outside the M&M Limited, but being 100% subsidiary, that loss really becomes in a way responsibility of M&M Limited. So it really is just a – more of a – the image that is created, but basically there is no benefit of it being outside M&M Limited.
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: Next year is a totally different ball game with the market paradigms and M&M paradigms being quite different, so…
Kapil Singh – Nomura Securities: Sir, just one more thing, there were some changes in Companies Act regarding treasury swap, do you expect any changes to M&M’s treasury stock over the course of the year because of this?
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: Yeah. So, no I mean I don’t expect any change, Kapil, to be very simple. Okay?
Sahil Kedia – Barclays Capital: Sir, one related question about the merger, just to clarify, this merger is happening with Mahindra & Mahindra and not MVML and we will continue to have the manufacturing of trucks within MVML, is that correct?
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: That is correct.
Sahil Kedia – Barclays Capital: So, Sir, would this – just wanting to understand what was the rationale of merging it within Mahindra & Mahindra and not MVML, because under the current – as I understand, under the current arrangement you would still have to pay a manufacturing cost or usage of facilities to MVML and again consolidate it back into M&M…?
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: Currently the company is owned by M&M Limited and not by MVML. That M&M Limited is the main group, MVML as you know is a manufacturing company, so we couldn’t have merged a selling and marketing company into a manufacturing company, MVML’s charter is manufacturing.
Sahil Kedia – Barclays Capital: So, Sir, Mahindra trucks would continue to have some cost that it would have to bear towards MVML – usage of MVML’s facilities, which will…
Pawan Goenka – President – Automotive & Farm Equipment Sectors: But as you know that we always talk about M&M plus MVML result. In fact, if you ask me today what is M&M result I won’t even know because we only talk about M&M plus MVML and for all types of purposes, M&M plus MVML is one company…
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: So, I think that is the fundamental change that we need to look at. Over a period of time, we should not look at – we will keep it as a separate unit, till it is necessary from a fiscal point of view. But we have suggested that for all practical purposes, please look M&M plus MVML. I must also point out that I am very thankful that 11 out of – the 11 analysts have now started giving us M&M plus MVML figure. So, thank you for that and I think that is a part to move. There is also another thing, please remember, you know MHCV has LCV on one side and then MHCV on the other side and LCV’s are manufactured at Zahirabad in M&M. So that is also another point to take into account. But what Pawan said is the most important point. M&M plus MVML, please treat it for all purposes as a single entity.
Sahil Kedia – Barclays Capital: One housekeeping question, there is other income number which in the standalone number is higher than Mahindra plus MVML. So, is this some money that Mahindra has got from MVML in the quarter, which has been netted off on consolidation?
Pawan Goenka – President – Automotive & Farm Equipment Sectors: First and foremost, yeah, there is other income, and that’s very good news because our subsidiary companies, have started paying dividend. MVML paid a first maiden dividend of INR70 crores to M&M, so that’s first. Then we have some other companies subsidiary companies which have paid and majorly auto companies which have paid dividend, which is why you see that figure of INR81 crores, right. INR81 crores is the dividend figure. So when you do M&M plus MVML, obviously MVML dividend will not be counted and that’s why it comes down. Yeah, that INR70 crores is the difference you will see.
Sahil Kedia – Barclays Capital: Alright. Sir, thank you. I will come back end of queue.
V.S. Parthasarathy – Group CIO, EVP – Group M&A, Finance and Accounts: Thank you. That’s very nice, because we thought enforcing a one question rule, you’ve done that. Thank you.