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Mahindra & Mahindra + Reliance Infra – Sum of Parts Valuation

March 10, 2010

Is the sum of the parts greater than the whole ? We wi8ll have a look at looks at discounts to NAV as well as stub values for each holding company. Today we will analyze, Mahindra & Mahindra and Reliance Infrastructure.

Mahindra & Mahindra:
Mahindra & Mahindra rallied late in 2009 on strong auto sales in India before correcting early this year on a 3QFY10 earnings miss. We believe the auto momentum should continue and current stub values are attractive after the correction.

Listed Companies under the Parent holding Company and their pro-rated value per share of parent company,
Tech Mahindra – 170
Mahindra Lifespace – 28
M&M Financial Services – 72
Mahindra Holidays and Resorts – 124
Total Rs 394 / share + Core Auto Business Rs 891 = Rs 1285 – Rs 82(Debt) = Rs 1,203 is the SOTP Valuation of Mahindra & Mahindra, bluechip Indian company.

Reliance Infrastructure:
Part of the Reliance ADA Group, has taken a severe beating since the 2008 meltdown and speculation has reduced a bit, in our view. Anil Ambani is slow yet seems to be moving in the right direction to add value to shareholders. Here is the sum of the parts valuation of Reliance Infra.

Listed / Unlisted Company Held by Reliance Infra and its pro-rated value / share:
Reliance Power’s value – Rs 694
EPC Division – Rs 173
Mumbai Energy Business – Rs 220
Delhi + Kochi Energy Business – Rs 70
BOTs – Rs 103
Cash / Share – Rs 250
Net Value / Share of Reliance infrastructure = Rs 1,510

Execution and legal issues are hampering the company’s capacity expansion plan and thus the stock is quoting at a discount to its NAV.

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