Bajaj Auto Financial Analysis

Presented by:Shailesh MishraTrilokinath GuptaPurushottam Singh

History of Bajaj Auto

Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj Trading Ltd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained a manufacturing license from the government 11 years later. The next year, 1960, Bajaj Auto became a public limited company.

The rating reaffirmation reflects Bajaj Auto Ltd’s (Bajaj Auto) continuing success in the motorcycle market, which has more than offset the decline in its scooter sales in recent years. The company’s motorcycle volumes have accelerated on the back of its product development capabilities as demonstrated in the success of models like the Pulsar. The rating also draws comfort from Bajaj Auto’s strong volume growth in the high-margin three-wheeler segment in the financial year (FY) 2003, the steady improvement in its margins over the last two years because of cost reduction measures as well as from its extremely strong financial profile. These rating strengths are, however, tempered by the intensifying competition in the motorcycle segment and the continuing decline in the geared scooters segment. Bajaj Auto’s ability to revive its scooter sales by leveraging its product development skills would influence its future credit profile.

• Bajaj Auto is the second largest manufacturer in the two and three-wheeler segments of the domestic automobile industry. Bajaj Auto reported a net profit of Rs 5.35 billion on net sales of Rs 43.06 billion in 2002-2003. The company’s operating margins improved during this period on account of the strong volume growth in the relatively higher-margin three-wheelers segment and benefits arising from the cost reduction measures undertaken over the last few years. The company’s net margins, however, were lower in 2002-2003 due to the impact of one-time premia received from Allianz AG in 2001-2002 for the sale of stake in the insurance joint-ventures.

• Continuing success in the domestic motorcycle market: Bajaj Auto’s strong 30 per cent motorcycle volume growth (including the M-80 step-through) over the last three years has been led by new model introductions. The company’s motorcycle volumes first gathered momentum in 1999-2000 with the successful launch of the Boxer in the entry segment. The launch of the Pulsar in 2001-2002 then strengthened its presence as the second-largest player in the motorcycle market. Although Bajaj Auto has also launched other new products in the motorcycles segment, they have not met with the same level of success

• Nevertheless, it has been able to demonstrate its product development capabilities, which will enable it to maintain its strong market position over the medium term. In addition, its relationship with Kawasaki Heavy Industries, Japan, will continue to support its product development initiatives. The company proposes to launch a jointly developed product in the 125 cc category in July 2003, which will also serve Kawasaki’s global requirements.

• Its sharpened thrust on the growing motorcycle segment has also enabled Bajaj Auto to stem the losses in its overall vehicle volumes on account of the continuing decline in its traditional mainstay, the scooters segment. While the share of motorcycles (including the M-80 step-through) has risen to 64 per cent of its total two- and three-wheeler volumes in 2002-2003 from 45 per cent in 2000-2001, its market share in the motorcycle segment has remained stagnant at 24-25 per cent.

• This is because its motorcycle volumes could only manage to keep pace with the industry growth as the high volume build-up of the Boxer (in 2000-2001 and 2001-2002) and Pulsar (in 2002-2003) was moderated by the steep fall in M-80 volumes and sluggish Caliber volumes. The domestic motorcycle segment is, in fact, becoming more challenging as growth rates drop from past levels and players accelerate their pace of new product launches.

• Margins are also likely to come under pressure with the intensifying competition for volumes and market share. The advantage that Bajaj Auto derives from its price-competitive products is also increasingly coming under threat from other players. Its ability to expand its portfolio with successful new model launches will thus be a key determinant of its market

position over the medium term.

.1945: Bajaj Auto is founded.

1960: Rahul Bajaj becomes the Indian licensee for Vespa scooters.

1977: Technical collaboration with Piaggio ends.

1984: Work begins on a second plant.

1998: Bajaj plans to build its third plant to meet demand.

2000: Thousands of workers are laid off to cut costs.

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Financial Highlights 1999-2009.years

particulars

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09

Net Sales

38105 36589 42214 48959 55801 47551 57363 74693 92922 86632

Gross Profit

9705 5468 7675 9598 11403 9604 10864 15807 17280 11347

Net Profit

6137 2626 5211 5384 7315 7315 7668 11016 12379 7559

working capital

6327 5873 3353 2144 (2730) (2042) (6886) (5141) (2275) (1122)

We adopt the ratio analysis method to analyze the financial position of Bajaj Auto Ltd.

.Analysis and interpretation

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Liquid Ratio.

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Absolute Liquid Ratio

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Inventory Turnover Ratio

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Creditors Turnover Ratio

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Debtors Turnover Ratio

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Working Capital Turnover Ratio

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Bajaj Auto V/s Hero Honda

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Comparison.

Attributes Bajaj Auto Hero Honda

P/E Ratio 31.74 25.75

EPS 45.39 64.18

NET PROFIT MARGIN(%)

7.40 10.30

LAST DIVIDENT (%)

220 1000

RETURN ON AVG. EQUITY

38.92 33.72

GROSS PROFIT MARGIN(%)

11.06 12.75

Conclusion Usually 2:1 is considered as ideal. Current ratio is below the standard. However it shows a fluctuating trend

Liquid ratio is a more rigorous test of liquidity.1: 1 is usually considered to be the rule of thumb. So we can conclude that position of the concern is below standard. The analysis shows a fluctuating pattern it first decreases to 0.73 and then increases and again a decrease in the ratio to 0.69

Usually 0.5:1 is considered the rule of thumb for absolute liquid ratio. In all the four years the analysis shows that the company’s absolute liquid ratio is below the industry standard

.inventory turn over ratio for 2004-05 , 05-06, 06-07, 07-08 are 23.48 , 25.30, 27.80, 23.47.As the inventory turnover ratio shows a increasing trend it is good the company

Debtors turn over ratio is decreasing. This is may be due to inefficient management of debtors, sales and it also indicates that debtors are less liquid. The debtors and the creditors should be managed well.

Creditors’ turnover ratio for the year 04-05 is 6.45, for 05-06 is 5.56, for 06-07 is 5.45, for 07-08 is 5.71.The study shows that the company is having a very good payment records. It shows a decreasing ratio which is good for the concern.

Working capital is directly related to sales, current assets. In this project the working capital turn over ratio for the year 2004-05 was (28.1) times, 2005-06 was (10.85) times and 2006-07 was (18.1) times and for the year 2007-2008 is (38.1). The said company is not having a good working capital management.