Mahindra & Mahindra Ltd

Mahindra & Mahindra Limited ("M&M") or ("Mahindra") is theflagship brand of the Mahindra Group, which consists of 130 companies with diversebusinesses across the globe and aggregate revenues of US $ 12.5 billion.

2010-11 was an epochal year in the life of your 65 year old Company. It unveiled itsnew brand position, Rise - a simple yet powerful verb which succinctly sums up theaspirations of not only the Company’s employees but all the Company’sStakeholders. Customers across the world share a common desire to Rise, to succeed andcreate a better future for themselves, their families and their communities. TheCompany’s Core Purpose is to facilitate this by accepting no limits, thinkinginnovatively and driving positive change in the lives of all its Stakeholders.

The Automotive and Farm Equipment Sectors of your Company continued to work togetherwith distinct and strong customer focus at the front end and structured for synergy at theback end. This combined force has achieved sales of 3,77,065 vehicles and 2,14,325tractors in the domestic and export markets.

Mahindra Group Core Purpose - We will challenge conventional thinking and innovativelyuse all our resources to drive positive change in the lives of our stakeholders andcommunities across the world, to enable them to Rise.

Industry Structure

The Indian automobile industry comprises of a number of Indian-origin and multinationalplayers, with varying degree of presence in different segments.

The domestic tractor market too comprises of a large number of players and is segmentedby horsepower into the sub 30 HP segment, the 30-40 HP and 40-50 HP segments and thehigher segment of above 50 HP.

Economic overview

For the Indian economy, Financial Year 2011 was a year of robust growth, withconsumption led demand fuelling manufacturing growth, supported by a record 5.4% growth inthe agricultural sector. However, with this high growth came a sharp rise in inflation,both on the food and commodities front.

The Indian economy continued on a robust growth path despite several challenges on theglobal macroeconomic front, especially the sovereign debt crisis in Europe and asignificant increase in oil prices. Almost all Sectors of the Indian economy showedaccelerated growth until the third quarter of Financial Year 2010-11. A normal monsoonsupported a very strong rebound in agricultural growth during the year, thus providingfurther impetus to economic growth by raising rural income levels. However, there weresigns of slowing down in some Sectors, especially in manufacturing in the fourth quarter.

The Reserve Bank of India continued with its monetary policy action of rate increasesto contain inflation, which translated into significant hikes in wholesale and consumerfinancing costs, particularly for automobiles.

Indian Automotive Sector

The global automobile industry production grew by nearly 26% in 2010 (Source: OICAOrganisation Internationale des Constructeurs d’Automobiles), recovering smartly fromtwo consecutive years of decline, driven primarily by growth in emerging markets such asChina and India. A highlight of the year was the emergence of China as the largest vehiclemarket in the world, surpassing the United States of America.

Against the backdrop of the challenging macroeconomic environment both domestically andglobally, the Indian automobile industry registered a robust growth during Financial Year2010-11. The passenger vehicle segment grew by 29% with domestic sales crossing 2.5million vehicles. In 2010, according to OICA, India was the 7^th largest vehicleproducing country in the world. This growth was supported by a slew of new productintroductions by vehicle manufacturers, and growing consumer confidence.

During the year, the Government of India introduced Bharat Stage (BS) IV emission normsfor 13 major cities and BSIII norms for the rest of the country for passenger vehicles.The transition was smooth despite a phased introduction, due to the cooperative approachof both the Government and the Industry. Within the passenger vehicle segment, while thepassenger car segment grew by 30%, in line with the overall industry, the multipurposevehicle (MPV) segment grew by 42%. The Utility Vehicle (UV) segment registered a growth of19%.

The Commercial Vehicle (CV) segment grew by 27%, driven by a 32% growth in the Mediumand Heavy Commercial Vehicle (M&HCV) segment and a 23% growth in the Light CommercialVehicle (LCV) segment. The three-wheeler segment registered a 19% growth during the year,driven largely by a 23% growth in the passenger segment owing to the renewal of existingfleet permits and opening of new permits in several states.

During Financial Year 2011, the two-wheeler segment grew by 25.8%. Within two-wheelers,Motorcycles grew by 22.9% and scooters recorded an impressive growth of 41.8%. Mopeds grewat 23.5%.

* Classification of A1, A2 etc as per SIAM

Indian Tractor Industry

The Indian tractor market, comprising of a number of players, continued on its highgrowth path to touch 4,80,377 tractors, a growth of 20% over the previous year. This wason the back of a 31.7% growth in the corresponding period last year. This growth has beenfuelled by increasing rural liquidity, better crop realisations through higher minimumsupport prices and increasing cost and scarcity of farm labour, all of which were furtherstrengthened by a normal monsoon and continued government support for agriculture and forrural India.

Automotive Sector – Accept No Limits

During the year under review, your Company’s Automotive Sector exemplified theRise tenet of ‘Accepting no limits’. It achieved many milestones and landmarkson its journey to becoming a globally recognised automotive brand. New products werelaunched along with refreshes. The Sector won many awards and much recognition.

The Sector achieved overall volumes, including those of major subsidiaries, of 3,58,021vehicles in the domestic market, a significant growth of 25% during the Financial Year2011. This growth was contributed largely by its entry into newer segments and the growthof its existing product range. The Maxximo, launched in the last quarter of Financial Year2010, gained a significant market share in its segment, taking on incumbent competitionsuccessfully. As a result, in the less than 3.5T LCV segment, your Company gained a 2percentage points market share to reach 38%.

* Through JV with Mahindra Automobile Distributor Private Limited.

** Through JV with Mahindra Navistar Automotives Limited.

*** NM: Not meaningful.

Leading the industry

• Your Company's domestic Utility Vehicles sales volumes increased by 12.3% to1,69,205 units, as against a growth of 18.8% for industry Utility Vehicles sales. Due tosignificant supplier capacity constraints faced by your Company, its market share in thesegment dropped 3 percentage points to 52.2% (Source: SIAM and internal analysis).

The Scorpio, Bolero and Xylo continued to lead the Indian market with robust growthduring the year.

• The Bolero continued to occupy its number one position for the fifth consecutiveyear in the domestic utility vehicle market with record sales of more than 83,000 vehiclesduring the year.

• lntheFinancialYear2011,yourCompany'sLightCommercial Vehicles sales, includingthose of its subsidiaries, were 1,10,071 units, registering a growth of 35.6% as comparedto a growth of 22.9% for the industry. Your Company is the second largest player in theLight Commercial Vehicles segment with a market share of nearly 32.5%. (Source: SIAM Dataand Internal analysis)

During the year, your Company bought out the shareholding of its Joint Venture partnerin Mahindra Automobile Distributor Private Limited. Post this development, sales of theLogan recovered sharply, with a growth of nearly 88% to 10,009, compared with the segmentgrowth of 32.6%. The Logan has been relaunched under the Mahindra badge as the Verito.

New products - Creating customer delight

At Mahindra, the customers are at the core of everything the Company does. In 2011, theCompany launched a slew of products to cater to the diverse needs of its varied customers.The excellent response received by all these products proves that your Company is on theright track.

• The Maxximo, launched in the last quarter of the previous financial year, wasrolled out nationwide to an excellent reception in the market.

• The Mahindra Thar, a niche 4x4 SUV, which sports a retro-look, was launched inthe Indian market to a resounding cheer by off-roading and adventure enthusiasts.

In January, 2011, your Company launched the Mahindra Genio, a new generation pick-uptruck to cater to the transportation needs of small and medium businesses.

• During the year, Mahindra Navistar Automotives Limited (a 51% Joint Venturesubsidiary of your Company) commenced the sale of its MN25 and MN31 range of Medium &Heavy Commercial

Vehicles, which received an enthusiastic response in the market. With the gradualrollout of the network and the launch of a complete range of M&HCVs, this segment isset to be a promising growth driver for your Company.

Overseas operations - Unbridled growth

• With the recovery in global automotive markets, the Company's overseasautomotive operations registered an impressive growth of 65%.

The Automotive Sector exported a total of 19,044 vehicles during the Financial Year2011. This included exports of 1,904 Logan cars through its 100% subsidiary MahindraAutomobile Distributor Private Limited (MADPL).

Inorganic Growth - Seizing Opportunities

During the year, the Automotive Sector of your Company took two significant steps onits journey towards becoming a globally recognised automotive manufacturer.

In May, 2010, it acquired a majority shareholding in Reva Electric Car Company PrivateLimited (since rechristened as Mahindra Reva Electric Vehicle Private Limited). Thisacquisition puts your Company at the

forefront of the changes sweeping the global automotive industry in terms of the growthof alternate energy vehicles.

In March, 2011, your Company completed the acquisition of a majority shareholding andmanagement control in SsangYong Motor Company Limited (SYMC) in South

Korea. This acquisition provides both the companies with opportunities for significantsynergy benefits in the areas of global distribution, joint product development, sourcingand best practices. This acquisition is a significant step towards realising yourCompany's global ambitions.

Farm Equipment Sector - Global tractor leadership

For the Farm Equipment Sector, this was a year of transformation where numerousmilestones were achieved.

Tractor and Farm Mechanisation Business - Creating milestones

In this period, the Company sold 2,14,325 tractors under the Mahindra and Swarajbrands, against 1,75,196 tractors sold in the previous year, an increase of 22%.

The above volume included the sale of 2,02,513 tractors in the domestic tractor marketin a single financial year, a significant milestone for a tractor manufacturer anywhere inthe world.

Its market share increased to 42% from 41.4% last year and marked the completion of 28years of leadership of the Farm Equipment Sector in the Indian tractor market.

Tractors - In the Indian heartland

The Farm Equipment Sector's tractor product range extends from15HPto125HP.

This year saw the launch of Arjun MAT, the first truly multi-application tractorfrom the Mahindra stable, equally at ease in agricultural, combine harvester and otherapplications.

Product refreshes: Updated versions of the Mahindra Arjun, Sarpanch, Bhoomiputra rangeand the XM series from Swaraj resulted in superior performance and an improvedvalue proposition for the existing product range.

Global Footprint

Sustaining the Company's global leadership necessitates a growing global footprint,which was achieved through focus on the key global markets of US and China among otherregions.

Exportsfromlndiagrew34%thisyeartotouch 11,812tractors, as compared to 8,837 tractorsexported last year.

China

China is the second largest tractor market in the world, fuelled by increasedgovernment subsidies focused on agricultural mechanisation. This year, however, subsidydisbursements were delayed, missing the major season, which affected tractor retails,resulting in just 4% domestic tractor market growth. In this scenario, the Company'sdomestic volumes from the two Joint Ventures Mahindra (China) Tractor Company Limited andMahindra Yueda (Yancheng) Tractor Company Limited remained steady, with the Companyretaining its 5^th position in the domestic market.

Exports from China, which had slumped last year, posted a smart recovery, propellingMahindra China export volumes to grow by 31%, thus achieving the 3^rd positionin Chinese tractor exports.

In recognition of its outstanding performance in sales, customer satisfaction and brandbuilding for the Huanghai Jinma brand, Mahindra Yueda (Yancheng) Tractor Company Limited(MYYTCL) was awarded the "Agriculture Machinery National Customer SatisfactionBrand" by the "China Agriculture Machinery Association" in the Category of"25-50 HP Tractors."

USA

Mahindra USA Inc. posted a strong 54% growth, significantly higher than theparticipating industry, gaining market share. Among other contributors to this success,have been the Compact and Cabin tractor models launched last year in this market.

ROW

In the SAARC region, Nepal and Bangladesh have been key markets for the Company'soperations. Lately, a fast growing Sri Lankan economy has also resulted in good tractorsales, and over 20% market share for the Company in this market.

Mechanisation (Mahindra AppliTrac) - Growing the market

AppliTrac continued to grow the market for agri mechanisation in the country, playingits part in boosting agri productivity. In view of the increasing scarcity and cost offarm labour, there is an increasing demand in the country and beyond for mechanisationsolutions for labour intensive farm operations.

Rotavator - For AppliTrac, Financial Year 2011 was the year of the 'Rotavator'.Sales of this equipment increased three fold. Trailed behind a tractor and using thetractor's rotary drive, the rotavator ensures a more efficient form of land preparation,compared to traditional drawn implements. In order to offer to the Indian customer thebest of rotavation technology, AppliTrac completed an exclusive tie-up with

Maschio, Italy, the world leader in rotavation equipment. These products will beoffered under the'Mahindra'brand.

New products - Applitrac has ensured a steady stream of new products including Agriconstruction equipment (CE) attachments, baler, G2 13ft loader, sugarcane lifter, strawreaper for wheat and more.

Mechanisation solutions - Another key area of focus has been developingmechanisation solutions for the labour intensive rice crop. This includes the ricetransplanter and the tracked paddy harvester. Both these products will go a long waytowards transforming the way rice is grown and harvested in the country.

Agriculture - sowing the seeds for the future

This part of the Agri business will be key to delivering prosperity to the Indianfarmer. While containing elements of the erstwhile business of Mahindra Shubhlabh ServicesLimited (MSSL), several new areas in the agri value chain are being developed.

Agri Inputs

During the year, MSSL's Agri inputs business was demerged into the Company, with MSSLcontinuing to exclusively focus on its fruits business. After demerger with the Company,the Agri inputs arm is being shaped to increase its offerings to the Indian farmer.

Entry into the Micro-irrigation business

One of the biggest developments this year has been the acquisition of a 38% stake inEPC Industrie Limited, one of the leading micro-irrigation companies in India.Micro-irrigation offers tremendous benefits to farmers - over 25% water savings, reducedexpenditure on labour & fertiliser, and higher productivity. By virtue of thisdevelopment, the Company will be able to contribute to the farmer's ability to betterutilise scarce water resources and to overall water conservation in the country.

Mahindra Samriddhi

By the end of this year, over 133 Mahindra Samriddhi Centres have been madeoperational. Each Samriddhi Centre offers innovative farming technologies that transformthe lives of farmers by helping them improve productivity.

Mahindra Powerol – leadership in challenging times

For Mahindra Powerol, Financial Year 2011 was a very challenging year. The market forengines and DGs (Diesel Gensets) for the Telecom Sector suffered a sharp downturn of over60%. This being Mahindra Powerol’s core business, it significantly impacted plans forthe year. However, Mahindra Powerol weathered this adversity by maintaining focus on thecustomer while simultaneously looking at other growth avenues. Some of the actions forgrowth included expanding the offering to 500kVA, opening up new international markets inSAARC and Africa and growing the Home UPS (HUPS) volume to 47,217 units. This was rewardedby significant improvement in the Customer Satisfaction Index (CSI) and Customer asPromoter Score (CaPS), recognition by key customers and industry-wide recognition in theform of two ‘Voice of Customer’ Awards by Frost & Sullivan. Despite such asharp telecom industry demand de-growth, Powerol strengthened its leadership in the marketfor power solutions for telecom.

The Quality Way – Inspiring success

Strict adherence to quality is the abiding culture across the Mahindra Group. Afterwinning the Deming Prize and the Japan Quality Medal, the Farm Equipment Sector, one ofthe Group’s leading practitioners of the TQM way is pursuing the path of TotalProductive Maintenance (TPM) under the guidance of the Japan Institute of PlantMaintenance. This year, three FES plants - Nagpur, Rudrapur and Kandivali - were the proudrecipients of the TPM Excellence Awards 2010. Similarly in the Automotive Sector, theMahindra Quality System (MQS) is the way of managing business process integration ofglobally competitive practices for sustained growth and customer satisfaction. TheMahindra Institute of Quality (MIQ) has helped take this focus on Quality across theMahindra Group through Mahindra Quality Way, a rigorous process of internal company-wideaudits and improvements.

Automotive Sector

With the robust growth in the Indian economy and the resulting increase in the incomelevels and lifestyle aspirations of the population, the potential size of the Indianpassenger vehicle market in the next five years is likely to be as large as 4-5 millionvehicles with a conservative growth rate of 10-12% per year. The currently low vehiclepenetration of 15 vehicles per 1,000 population, compared to an average of 120 vehiclesper 1,000 population for the world also suggests that there are significant growthopportunities for the industry. According to experts, the automobile market growth gets ona high trajectory when a country’s per capita income on a Purchasing Power Parity(PPP) basis crosses about $ 4,500. At present, the PPP per capita income for India isalready at approximately $ 3,500 and is estimated to reach this threshold in the next 4-5years. As a result, the Indian automobile industry is expected to remain one of thefastest growing markets in the world over several years.

Giventheimportanceoftheautomobileindustrytotheeconomy and its potential for employmentand due to its backward and forward linkages with many Sectors, the Government is keen tosupport the development of the industry. On the other hand, there is continuous pressureglobally to reduce environmental emissions from automobiles, leading to the need foron-going investments in technology upgradation and alternate energy across the automotivevalue chain. Growing environmental consciousness among consumers, government regulationsto manage traffic congestion, as well as improvement in public transport infrastructureare trends that will have significant impact on the future of the automobile industry.Automobile manufacturers such as your Company have to monitor such trends carefully andadapt to them quickly.

Similarly, for Commercial Vehicles, the growth in agriculture and industrialproduction, the spread of organised retailing and the growing prevalence of thehub-and-spoke model for transportation of goods will lead to a significant expansion ofthe overall market size. Further, the expected introduction in the medium to long term ofmore stringent norms related to overloading of goods vehicles and roadworthiness andvehicle age will also lead to significant expansion in the market for commercial vehicles.

Farm Equipment Sector

The continued Government support to agri and rural development, broad basing of therural economy and the greater adoption of improved agricultural practices (mechanisation,micro-irrigation, hybrid seeds, nutrient based fertiliser application, etc.) are positivedevelopments that will drive sustainable agri and rural growth.

Despite having the second largest arable land area in the world and favourableenvironmental conditions, lower than world average yields have limited India’s agrioutput. Having taken on the BHAG of ‘Delivering Farm Tech Prosperity’ and withthe creation of the Agri Business vertical, your Company is geared to contribute in thisarea. Within India, there are many areas of low tractor penetration, especially among thelarge base of small and marginal farmers. With the increasing cost and scarcity of farmlabour, greater adoption of various forms of mechanisation is the way forward. These areopportunities which your Company is well positioned to tap.

TheIndiandomestictractormarket,havingrecordedasignificant growth in the last twofinancial years, is expected to see more competition among existing players. Theinternational players have been investing in capacity augmentation and graduallyincreasing their market share. Increased competition will lead to more frequent productlaunches in all industry segments and raise customer expectations in terms of performance,quality and technology, leading to higher costs. Your Company views this as both anopportunity and a challenge.

Power shortage remains a reality across the country with power capacity increases notkeeping up with demand growth. This is an opportunity for your Company to continue tooffer power solutions to retail and institutional customers in urban and rural centres,increasing their realm of possibilities.

Risks and Concerns – Automotive and Farm Equipment Sectors

The Company’s business is inherently exposed to many internal and external risks.Your Company has put in place robust systems and processes, along with appropriate reviewmechanisms to actively monitor, manage and mitigate these risks. Many measures undertakenby your Company are likely to result in an increase in costs, which cannot always bepassed on to customers through price increases in a highly competitive market environment.

Raw Material

Financial Year 2011 saw a strong increase in commodity prices going above the previousrecord highs of 2008. Even Financial Year 2012 is expected to see a firming of prices inthe international market. While this will put pressure on margins, your Company willcontinue to focus on cost re-engineering to minimise the impact of this development. Inaddition, with the rapid demand growth, some of the Company’s key suppliersoccasionally face capacity constraints and are unable to meet demand. This could lead topotential loss of volumes and market share. The Company is co-operating closely with theCompany’s key suppliers to minimise such supply constraints through advance capacityplanning, longer term contracts and capacity enhancement.

Environment and Tax Regulations

Stringent regulatory norms are being introduced to safeguard the environment,especially in the area of emissions. In India, there is a large differential in taxeslevied on small cars and larger vehicles. With the resulting lower price tag for smallcars, many customers may opt to postpone large car purchases or buy a small car, whichcould impact the growth of Utility Vehicles and the large car segment.

Fuel prices and alternate fuels

With the price of crude oil rising significantly over the past few months, the price ofautomotive fuel is likely to face upward pressure. Almost all of your Company’sUtility Vehicle models are diesel powered. Diesel is priced lower than petrol. Anyreduction in the price differential between petrol and diesel may increase the demand forpetrol Utility Vehicles at the expense of diesel Utility Vehicles and will bedisadvantageous to the Company.

There is also a growing customer trend, as well as promotion by Government, forvehicles powered by CNG, LPG and electric batteries, as well as hybrid powertrains. YourCompany has developed products powered by alternate energy such as CNG and electricity toprovide lower polluting products. Your Company has also developed prototypes of a hybridScorpio and hydrogen powered three-wheeler as well as a bio-diesel powered Scorpio andBolero. The recent acquisition of Mahindra Reva Electric Vehicle Private Limited will helpyour Company to partially mitigate this risk by expediting the development of an electricvehicle portfolio in accordance with customer demand. Your Company has also developedtractors and gensets capable of running on bio-diesel. The entire tractor and MahindraPowerol range of engines are not only a benchmark for fuel efficiency, but are alsocapable of running on bio-diesel.

Financial market conditions

With the unabated threat of inflation, the Reserve Bank of India has raised its policyinterest rates significantly during the Financial Year 2011 and is expected to furtherraise them in the coming months. Availability of credit and aflordable interest rates areimportant facilitators for automobile and tractor sales. The recent rise in financingrates is likely to impact demand. However, to address this risk, your Company has enteredinto several strategic tie-ups with multiple banks and financing companies for providingpreferential terms of financing to the Company’s customers.

Given the uncertainty prevailing in many parts of the world, especially with respect tothe sovereign debt crisis in Europe and the growth outlook for key developed markets inthe wake of the earthquake and nuclear power accident in Japan, the outlook for exchangerates is dificult to predict. This has implications for the Profitability of yourCompany’s overseas operations, which are a key thrust area for the Company. A rupeeappreciation could be a risk for both Automotive and Farm Equipment Sectors. However, theCompany, as a practice, hedges currency exposure appropriately, thus limiting the impactof risk.

New Projects

In order to meet customer needs and competition, your Company is investing in anaggressive new product development programme. Success of new product launches will have animportant bearing on its future growth and Profitability.

Monsoons

A normal monsoon is vital as there is a significant interdependence between the monsoonand the health of the agricultural economy. The tractor business in particular andautomotive business to some degree run the risk of drop in demand in case of significantvariation in monsoon, both positive and negative. In addition, untimely monsoon also hasthe potential of impacting the business.

Outlook – Automotive And Farm Equipment Sectors

Both the Automotive and Farm Equipment Sectors with their updated product portfoliosand their exploration of global horizons will strive to maintain their leadership positionin their respectivemarkets. Simultaneously, your Company will continue its focus onachieving cost leadership through focused cost optimisation, value engineering, improvedefficiency measures like supply chain management, countrywide connectivity of all itssuppliers and dealers and exploiting synergies between its Sectors.

The long term outlook for the automobile industry is bright and robust, though in thenear term there are some challenges relating to the external environment that the industrymust overcome. In the past two financial years, the passenger vehicle growth has been 26%and 29% respectively, while that for Commercial Vehicles has been 38% and 27% - among thehighest in the world. This high growth has been partly driven by the low base effect ofthe previous year due to the global financial crisis, partly by the stimulus measurestaken by the Government and partly by appropriate action on the part of vehiclemanufacturers. This support for industry growth may phase out gradually, returning theindustry to a more normal growth trajectory. In addition, rising inflation, interestrates, fuel prices and commodity prices are likely to dampen consumer confidence andsentiment, which has always been a key determinant of automobile sales. In the long term,the Indian economy is projected to grow rapidly and demand conditions are expected toremain strong. According to SIAM long term forecasts, the Indian automobile industry isexpected to grow at an annual average rate of 10-15%. However, in the near term, there arechallenges in terms of higher commodity prices, rising inflation and rupee appreciation,which will have a bearing on demand and Profitability.

Similarly in the case of tractors, the long term outlook continues to be positive withthe tractor industry expected to continue to grow with a CAGR ranging between 7% and 10%.

Automotive Sector

Your Company is pursuing several strategic initiatives, in all key areas of business,to maintain a healthy and sustainable growth for its Automotive Sector. Some of the keyelements of strategy are to expand the addressable market by entering into new customerand market segments (such as mini and small trucks, and medium & heavy trucks),continually refresh and update its product portfolio (for example with the launch of thenew pick up Genio and impending launch of a new SUV codenamed W201) and by investingsignificantly in upgrading R&D and technology.

In addition, your Company is pursuing expansion in overseas markets through organic andinorganic routes. The recent acquisition of SsangYong Motor Company Limited is animportant step in realising this objective by expanding the global reach and network ofyour Company.

Further, your Company is also seized of the global shift towards sustainable mobilitydriven by climate change concerns. Towards this objective, the Company is investing in newalternate fuel technologies. The recent acquisition of Mahindra Reva Electric VehiclePrivate Limited is an important step towards remaining at the forefront of thesedevelopments.

Farm Equipment Sector: Delivering Farm Tech Prosperity

The Farm Equipment Sector strategy has been aligned to Farm Tech prosperity for theIndian farmer. The core business of tractors will deliver this through its range ofexisting and future products that reduce drudgery and enhance farm productivity. Inaddition, your Company will offer a wider range of mechanisation solutions to make lifeeasier and more prosperous for farmers, especially with rising labour cost and scarcity.The Farm Equipment Sector’s agribusiness will enable the organisation to offerfarmers a range of inputs and knowhow. All these together will lead to greater farmproductivity and deliver prosperity.

Material Developments in Human Resources/ Industrial Relations for Automotive and FarmEquipment Sectors

The strategic purpose of HR in the Mahindra Group continued to be the creation of aculture of sustained business outperformance while simultaneously showing extreme care forall stakeholders, starting with customers & employees and strengthening the CoreValues of the Group. In the long run, the metric for success would be improvements in thetotal factor productivity, while addressing the business imperatives of cash, cost,competence and confidence. The emphasis was on aligning all the HR levers towards thesegoals.

A new and major challenge for HR during the year was to create a detailed plan ofaction for bringing the RISE pillars – accepting no limits, alternative thinking anddriving positive change – into the nuts and bolts of the HR levers. This is agigantic task which brought together business and HR professionals from across the Group,to formulate a detailed roll-out plan over the next few years. It also created a platformfor sharing best practices which would take the Company to the next orbit.

In this overall architecture, some key strategic initiatives that need mention areemployer branding, the employee value proposition, the template for creatingtomorrow’s leaders and harnessing the power of diversity (across its many dimensionswhich include gender, age, nationality and culture). There was huge focus on the TalentManagement and Leadership Development process.

To understand and prepare for the future workplace, the Company is one of the fiveIndian companies in the Future of Work project being undertaken in collaboration with theLondon Business School. This project is a multi-year project, involving sixty globalCompanies and the Company expects to gain critical insight into leading edge thinking onvarious areas.

The Company continues to harness the power of IT through Project Harmony, which nowcovers 24 HR processes across the Group. Needless to say, all the initiatives mentionedabove need to apply not only to OFFcers but also to the blue collar workforce. To thatextent the ongoing "Transformational Work

Culture" initiatives have grown both in depth and width of coverage. It must,however, be noted that while Industrial Relations largely remained cordial and harmoniousduring the year, the overall industrial relations climate in the country is volatile,especially the issue of contract labour. In this context, training and engagementprogrammes were organised across locations for developing personal, interpersonal andtechnical skills of the Company’s workmen. These training programmes covered a widerange of topics which included Positive Attitude, Stress Management, TPM, Dexterity andTechnical training. The workmen participated wholeheartedly in the training programmes, inmany cases on holidays or after working hours. The permanent employee strength of theCompany as on 31^st March, 2011 was 17,577.

Internal Control Systems

The Company maintains adequate internal control systems, which provide, among otherthings, reasonable assurance of recording the transactions of its operations in allmaterial respects and of providing protection against significant misuse or loss ofCompany assets. The Company uses an Enterprise Resource Planning ("ERP")package, which enhances the internal control mechanism. The Company has a strong andindependent internal audit function. The Chief Internal Auditor reports directly to theChairman of the Board. Professionally qualified, technical and financial personnel of theinternal audit function conduct periodic audits to ensure that the Company’s internalcontrol systems are adequate and are complied with.

Overview

The financial statements have been prepared in compliance with the requirements of theCompanies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India.

The Mahindra Group’s consolidated financial statements have been prepared incompliance with the standard AS 21 on Consolidation of Accounts and presented in aseparate section. The Company has provided segment reporting on a consolidated basis asper standard AS 17 on segment reporting. This information appears along with theconsolidated accounts.

Financial Information Fixed Assets:

As at 31^st March, 2011, the Gross Block of Fixed Assets and Capital Work inProgress was Rs. 7,213.58 crores as compared to Rs. 6,240.49 crores as at 31^stMarch, 2010. During the year, the Company incurred capital expenditure of Rs. 1,152.51crores (previous year Rs. 946.31 crores). The major items of capital expenditure were onNew Product Development, Capacity

Enhancement and Research & Development including on the Company’s researchfacility in Chennai. This included purchase of Intangible assets aggregating Rs. 191.03crores (previous year Rs. 225.28 crores).

Inventories:

The increase in inventory levels is due to higher level of activity, higher projectinventory due to new products and strategic buildups due to supply constraints.

Sundry Debtors:

Sundry debtors amount to Rs. 1,354.72 crores as at 31^st March, 2011, ascompared with Rs. 1,258.08 crores as at 31^st March, 2010. While in absoluteterms, the debtors have gone up as a result of increased sales, as a percentage of grosssales and income from operations, the debtors are lower at 5.29% for the year ended 31^stMarch, 2011, as compared to 6.17% for the previous year. The Company has been ableto achieve this improvement in its debtors’ level due to judicious credit management,control and its emphasis on collections.

Loan Funds:

The loan funds have decreased from Rs. 2,880.15 crores in the previous year to Rs.2,405.29 crores in the current year. The decrease is primarily on account of theconversion into equity shares of the zero coupon convertible bonds in the current yearpartly offset by increased foreign currency borrowings in the last quarter of the currentyear.

RESULTS OF OPERATIONS Income :

Net Sales, Income from Operations and Other Income:

The net sales and income from operations of the Company grew by 26.30 % over theprevious year on a growth of 28.44% in the automotive business and 23.55% in theCompany’s tractor business. This growth in the businesses was due to the increasedvolumes in both the domestic and export markets.

Other income during Financial Year 2011 at Rs. 309.52 is higher than Rs. 199.35 croresearned in the previous year due to higher dividend income from subsidiaries, higher incomefrom surplus funds and other miscellaneous income.

Expenditure:

The total expenditure during the year as a percentage of Net sales / Income fromOperations is 86.84 % as compared to 86.26 % in the previous year.

Material Cost :

For the year ended 31^st March, 2011, material cost has increased by 31.87%which is higher than the increase in net sales and income from operations. Material costas a percentage to net sales and income from operations increased to 69.23% in FinancialYear 2011 as compared with 66.30% in Financial Year 2010. The increase in material costhas been largely driven by the increase in input cost due to increase in commodity prices,changes in product mix and compliance with regulatory norms. The impact of these waspartially offset through selling price increase and continued cost reduction initiativesundertaken by the Company.

Personnel Cost :

Personnel cost has increased by 20.62% to Rs. 1,445.56 crores from Rs. 1,198.47 croresin the previous year. This is mainly due to increase in strength, annual increments,impact of wage agreements signed during the year and VRS settlements at certain locationsin the Company.

Other Expenses :

Other expenses as a percentage of net sales and operating income shows a decrease overthe previous year. The expenses in absolute terms are higher due to increase in marketingrelated expenses on warranty, incentives, service coupon, advertisement and salespromotion due to increased volumes, professional fees and brand building offset by a lowercharge on account of variations in difference in exchange and forward cover cancellationsas compared to the previous year.

Depreciation :

The depreciation for the year ended 31^st March, 2011 at Rs. 413.86 crores ascompared to Rs. 370.78 crores in the previous year is due to the impact in the currentyear on account of increased amortisation of intangibles and capitalisation of assets atthe Company’s research facility in Chennai.

Interest (Net) :

The interest income for the year ended 31^st March, 2011 is Rs. 50.29 crores(net of interest expense Rs. 70.86 crores) as compared to an interest expense of Rs. 27.81crores (net of interest income Rs. 129.04 crores) in the previous year. This is mainly dueto conversion of fully and compulsorily convertible debentures into equity shares towardsthe end of the previous year, resulting in a lower interest charge in the current year.

Exceptional Items :

The Profit from Exceptional items during the year ended 31^st March 2011 isRs. 117.48 crores as against Rs. 90.75 crores in the previous year. The Profit in thecurrent year is on account of Profit earned on exercise of a put option the Company heldon a certain long term investment, while in the previous year the exceptional income wason account of Profit on sale of shares of Mahindra Holidays & Resorts India Limitedoffered as a part of that Company’s Initial Public Offering.

Provision for taxation :

The provision for current tax and deferred tax for the year ended 31^stMarch, 2011 as a percentage to Profit before tax is lower than the previous year, onaccount of higher tax free dividend income during the year and on account of increasedweighted deduction available for research and development expenditure in Financial Year2011.

Consolidated Financial Position of the Mahindra Group

During the year, the Group acquired a 70% stake in Ssangyong Motor Company Limited ofKorea making it a subsidiary of the Company. The Group also acquired stakes in RevaElectric Car Company Private Limited, Gipps Aero Investment Pty. Ltd and AerostaffAustralia Pty. Ltd making them subsidiaries of the Company. Renault s.a.s. exited from theJoint Venture Mahindra Renault Private Limited during the year, making Mahindra RenaultPrivate Limited a wholly owned subsidiary of the Company. Mahindra Renualt Private limitedwas subsequently renamed as Mahindra Automobile Distributor Private Limited.

In March 2010, pursuant to the exercise of options by AT&T, Tech Mahindra Limitedalong with its subsidiaries ceased to be subsidiaries of the Company. Hence, for thecurrent year in the books of the Company, Tech Mahindra Limited and its subsidiaries havebeen treated as Joint Ventures and consolidated line by line on the proportionate holdingbasis as compared to full line by line basis consolidation as a subsidiary in the previousyear. As on 31^st March, 2011, the Group comprised of the flagship holdingcompany, Mahindra & Mahindra Limited, 110 Subsidiaries, 6 Joint Ventures and 13Associates.

The Gross turnover for the year ended 31^st March, 2011 of ConsolidatedMahindra Group is Rs. 39,708.66 crores as against Rs. 33,790.10 crores for the previousyear. The Mahindra Group’s net turnover grew by 16.85% to Rs. 37,026.37 crores in thecurrent year from Rs. 31,687.97 crores in Financial Year 2010. The Profit beforeexceptional items and tax for the current year is Rs. 4,310.84 crores as compared to Rs.3,782.59 crores registering an increase of 13.97% over the previous year. The MahindraGroup’s performance across most of its segments has registered an improvement. TheSystech segment, which had faced challenges on account of the situation prevailing postthe global meltdown of 2009, has shown encouraging improvement on the back of an improvedperformance in Europe. During the year, there was an exceptional gain of Rs. 218.83 croresmainly arising from gains on account of deemed divestitures of the Company’s holdingsin Mahindra & Mahindra Financial Services Limited and disposal of an Associate companyon exercising a put option available with the Company. The consolidated Group Profit forthe year after exceptional items, prior period adjustments and tax and after deductingminority interest is Rs. 3,079.73 crores as against Rs. 2,478.56 crores earned last year,a growth of 24.25%.

Tech Mahindra Limited (TML), the Group’s IT arm, registered a total income(consolidated) of Rs. 5,257.68 crores as against Rs. 4,700.84 crores in Financial Year2010 - an increase of 11.85%. Its Net Profit, after share of minority interest, was lowerat Rs. 644.19 crores during Financial Year 2010 as against Rs. 700.53 crores in theprevious year. Excluding TML’s share of associate company loss, the Net Profit, aftershare of minority interest was Rs. 743.79 crores.

The Mahindra Group’s Finance company, Mahindra & Mahindra Financial ServicesLimited (Consolidated), while maintaining its leadership position as the largest retailfinancier for semi-urban and rural markets, witnessed a revenue growth of 30% over theprevious year. With its continuous focus on NPA reduction, buoyant rural cashflows andcontainment of interest costs through broad basing the borrowing profile, it reported atotal income of Rs. 2,074.39 crores during the current year as compared to Rs. 1,595.60crores last year. With a network of 547 offices, its improved performance as a carfinancier and its increased presence in Heavy Commercial Vehicles and ConstructionEquipment, the consolidated Profit after tax for Financial Year 2011 grew by 38.49 % fromRs. 355.82 crores in the previous year to Rs. 492.77 crores in the current year.

Mahindra Lifespace Developers Limited, the Group’s subsidiary in the business ofreal estate and infrastructure development, showed impressive growth during the year underreview. Sales of residential units by the Company and its subsidiaries engaged inresidential development registered a growth of 19% over the previous year. The Company isalso engaged in the development of integrated business cities, under the name MahindraWorld City, through its subsidiary companies at Chennai and Jaipur. The Company’sconsolidated operating income increased from Rs. 417.86 crores to Rs. 611.93 crores, anincrease of 46.44%. The consolidated Profit after tax after minority interest for the yearincreased by 37.81% from Rs. 78.49 crores to Rs. 108.17 crores.

Segment Results (before exceptional item)

The results achieved by major business segments of the Group are given below:

Disclaimer

Certain statements in the Management Discussion and Analysis describing theCompany’s objectives, projections, estimates, expectations or predictions may be"forward-looking statements" within the meaning of applicable securities lawsand regulations. Actual results could diffier from those expressed or implied. Importantfactors that could make a difference to the Company’s operations include raw materialavailability and prices, cyclical demand and pricing in the Company’s principalmarkets, changes in Government regulations, monetary policy, tax regimes, economicdevelopments within India and the countries in which the Company conducts business andother incidental factors.