FRA PROJECT REPORT-BAJAJ AUTO LTD.

vs HERO MOTOCORP
LTD. (GROUP-X)

ROLL NO. NAME E-MAIL MOBILE NO.

190101001 Aashna Jain [email protected] 9810972136

190101134 Zenith Sigfrid [email protected] 7490010953

190103220 Shaurya Jaiswal [email protected] 8240851657

190103008 Abhishek [email protected] 8460774567

Pankhania
190103036 Arpit Jain [email protected] 7415114393

190103206 Palash Gutch [email protected] 8197666330

190103197 Shubham [email protected] 8898600239

Wankhede

Background
The automobile sector has been going through a downturn with inventory levels at an all-time
high, mainly because of weak domestic sales and certain government norms which have gone
against the auto industry. The latest insurance premium policy implemented by the
government has not gone down well with the two-wheeler buyers which now mandates the
customer to pay third-party insurance premium for 5 years upfront against the erstwhile rule
of paying premium for 3 years upfront. From April 2020, automobiles will have to be complaint
with Bharat Stage VI, an emission control standard that will replace the existing Bharat Stage
IV norms and bring India on par with advanced countries such as those in Europe and the US.
The cost of meeting the new regulations, including BS VI, and other safety norms such as air
bags will be higher. The Indian government think tank committee has suggested an aggressive
plan for electrification. In fact, the project would push any new three-wheel vehicle sold in India
to be fully electric y 2023 and all new 150cc and under motorcycle and scooters to be
emission-free by 2025. With automobile manufacturing comprising of 49% of the
manufacturing GDP and with downfall of the non-banking financial corporations (NBFCs), the
auto sector is going through tough times as in recent years NBFCs helped fund nearly 55-60%
of commercial vehicles both new and used, 30% of passenger cars and nearly 65% of the
two-wheelers in the country, according to rating agency ICRA. To aggravate matters, the
stress in the autos market has also prompted banks to begin trimming their exposure to the
sector.

Bajaj Auto-overview

Bajaj auto is the 3rd largest 2-wheeler and largest 3-wheeler manufacturer in India. Its
managing Director is Mr. Rahul Bajaj and CEO is Mr. Rajiv Bajaj. Bajaj auto has strong a
strong presence in the 3-wheeler segment where it is the market leader with 58% market
share. The company has also made investments in its electric vehicle, Qute and has a strong
global presence with exports to 80 countries. It has a strong presence in the countries like
Egypt, Nigeria, Latin America and Spain. It was the only major 2-wheeler company alongside
Suzuki Motorcycles India to have shown a positive growth in domestic sales selling 16,702
units more in the 2019 April-June quarter as compared to the 2018 April-June quarter which
resulted in an overall 171 basis point increase in market share

Hero Motocorp-overview

Hero Motocorp is India’s and the world’s largest manufacturer of 2-wheelers comprising of
motorcycles and scooters. It’s Managing Director and CEO is Mr. Pawan Munjal. Hero
Motocorp is the market leader in the 2-wheeler segment with market share at 36%. Its rival
Honda Motorcycle and Scooter India is at 2nd place with 26.8% market share and Bajaj Auto
is at 3rd place with around 12% market share according to latest reports. Hero Motocorp has
been popular in the entry category of 100-125cc. The company is reeling from prevalent
market conditions as its sales went down by 254,711 units in the 2019 April-June quarter as
compared to the 2018 April-June quarter resulting a 28 basis point loss in market share.

Comparison between Bajaj Auto Ltd. and Hero Motocorp Ltd. on financial data

An initial look at the balance sheet shows that the companies had been performing well over
the past 5 years taking the balance sheet as at March 15’ as the base year. The reserves of
both the companies are significantly high with Hero Motocorp having reserves in excess of
12,000+ crores and Bajaj auto having reserves to the tune of 21,500+ crores as at March 19’.
Such significant amount of reserves should help the company face the downturn and
essentially increase spend on new product development with electronic vehicles set to be an
integral part of the sector. Both the companies are almost debt free with long term borrowings
for both company being 0. Bajaj Auto has other long term liabilities to the tune of 169 crores
but it would not be a matter of concern owing to growing sales and huge reserves. Both the
companies have a deferred tax liability to the tune of almost 540 crores. Both companies have
current assets in excess of their current liabilities with Hero Motocorp having CA/CL more than
2 times and Bajaj Auto having CA/CL around 1.45 times. The major difference in the balance
sheet can be noticed under the head non-current assets in non-current investments where
Hero Motocorp has non-current investments to the tune of 2,800 crores whereas Bajaj Auto
has non-current investments to the tune of 17,500 crores. While, Hero Motocorp has higher
current assets, Bajaj Auto’s fixed asset and overall assets are far superior to Hero Motocorp’s
assets. Bajaj Auto’s contingent liabilities are higher at around 1,800 crores as compared to
Hero Motocorp’s contingent liability of around 800 crores. This might be the result of higher
exports by Bajaj and therefore higher chances of a financial event going wrong. As said earlier,
Bajaj Auto’s exports are higher, the expenditure in foreign was 973.07 crores and has
significantly increased over the years showing the interest of the company to export more. On
the other hand, the same expenditure for Hero Motocorp is at 228.27 crores, the earnings in
foreign exchange is again significantly higher for Bajaj Auto, clearly depicting that a significant
chunk of their revenue comes from exports. The net profit margin of Bajaj Auto stands at
15.45% as compared to a net profit margin of 10.05% for Hero Motocorp This means that the
overall profit margin for Bajaj Auto is higher as it sells well in its target category of sports biking,
supplemented by economy biking. The Return on Capital and Return on capital employed is
26.32% and 37.15% for Hero Motocorp. The same corresponding figures for Bajaj Auto is
21.46% and 28.28% respectively. Thus, we see that though net margins is higher for Bajaj
Auto, the total return for investors is more in Hero Motocorp which shows better utilisation of
funds as it commands a higher overall market share and thus the total sales is superior than
that of Bajaj. Both companies pay dividend but generally hold on to more than 50% of the
profits, a phenomenon which can be substantiated by their high reserve figures.

In conclusion, both firms are cash rich and in our opinion

would storm the hard conditions faced by the automobile sector. Both companies have a
sound management team which has given good economic results over the years. Once, the
slowdown in the automobile sector is reversed, we would see them bouncing back much
quicker and better than other players. Both companies have adequate resources to spend on
Research and Development if any new norms come up which have to be complied with. The
data used for compiling the analysis and comparison of the two companies has been taken
from the balance sheet and financial ratios given in the appendix.

Appendix

Balance Sheet of Hero Motocorp

Mar 19’(In
Crores)

12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 39.95
Total Share Capital 39.95
Reserves and Surplus 12,817.17
Total Reserves and Surplus 12,817.17
Total Shareholders Funds 12,857.12
NON-CURRENT LIABILITIES
Deferred Tax Liabilities [Net] 536.51
Other Long Term Liabilities 0
Long Term Provisions 117.2
Total Non-Current Liabilities 653.71
CURRENT LIABILITIES
Trade Payables 3,355.28
Other Current Liabilities 716.05
Short Term Provisions 59.03
Total Current Liabilities 4,130.36
Total Capital And Liabilities 17,641.19
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,477.53
Intangible Assets 141.05
Capital Work-In-Progress 360.67
Intangible Assets Under Development 181.19
Fixed Assets 5,160.44
Non-Current Investments 2,801.51
Deferred Tax Assets [Net] 0
Long Term Loans And Advances 59.96
Other Non-Current Assets 1,503.64
Total Non-Current Assets 9,525.55
CURRENT ASSETS
Current Investments 3,167.10
Inventories 1,072.37
Trade Receivables 2,821.57
Cash And Cash Equivalents 136.46
Short Term Loans And Advances 25.03
OtherCurrentAssets 893.11
Total Current Assets 8,115.64
Total Assets 17,641.19
OTHER ADDITIONAL INFORMATION
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 821.5
CIF VALUE OF IMPORTS
Raw Materials 0
Stores, Spares And Loose Tools 0
Trade/Other Goods 1,620.58
Capital Goods 0
EXPENDITURE IN FOREIGN EXCHANGE
Expenditure In Foreign Currency 228.27
REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS
Dividend Remittance In Foreign Currency -
EARNINGS IN FOREIGN EXCHANGE
FOB Value Of Goods -
Other Earnings 832.01
BONUS DETAILS
Bonus Equity Share Capital 23.96
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market
Value 257.6
Non-Current Investments Unquoted Book
Value 2,698.28
CURRENT INVESTMENTS
Current Investments Quoted Market Value 20.7
Current Investments Unquoted Book Value 3,146.42
Financial Ratios of Hero Motocorp

Mar 19’(In
Crores)

Per Share Ratios

Basic EPS (Rs.) 169.48
Diluted EPS (Rs.) 169.47
Cash EPS (Rs.) 199.59
Book Value [ExclRevalReserve]/Share
(Rs.) 643.66
Book Value [InclRevalReserve]/Share
(Rs.) 643.66
Dividend / Share(Rs.) 87.00
Revenue from Operations/Share (Rs.) 1,684.63
PBDIT/Share (Rs.) 281.42
PBIT/Share (Rs.) 251.28
PBT/Share (Rs.) 250.85
Net Profit/Share (Rs.) 169.46
Profitability Ratios
PBDIT Margin (%) 16.70
PBIT Margin (%) 14.91
PBT Margin (%) 14.89
Net Profit Margin (%) 10.05
Return on Networth / Equity (%) 26.32
Return on Capital Employed (%) 37.15
Return on Assets (%) 19.18
Asset Turnover Ratio (%) 190.74
Liquidity Ratios
Current Ratio (X) 1.96
Quick Ratio (X) 1.71
Inventory Turnover Ratio (X) 31.38
Dividend Payout Ratio (NP) (%) 56.05
Dividend Payout Ratio (CP) (%) 47.58
Earnings Retention Ratio (%) 43.95
Cash Earnings Retention Ratio (%) 52.42
Valuation Ratios
Enterprise Value (Cr.) 50,904.66
EV/Net Operating Revenue (X) 1.51
EV/EBITDA (X) 9.06
MarketCap/Net Operating Revenue (X) 1.52
Retention Ratios (%) 43.94
Price/BV (X) 3.97
Price/Net Operating Revenue 1.52
Earnings Yield 0.07
Balance Sheet of Bajaj Auto
Mar 19(in
crores)

12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 289.37
Total Share Capital 289.37
Reserves and Surplus 21,490.53
Total Reserves and Surplus 21,490.53
Total Shareholders Funds 21,779.90
NON-CURRENT LIABILITIES
Long Term Borrowings 0
Deferred Tax Liabilities [Net] 542.66
Other Long Term Liabilities 169.59
Long Term Provisions 14.56
Total Non-Current Liabilities 726.81
CURRENT LIABILITIES
Trade Payables 3,786.73
Other Current Liabilities 946.33
Short Term Provisions 140.62
Total Current Liabilities 4,873.68
Total Capital And Liabilities 27,380.39
ASSETS
NON-CURRENT ASSETS
Tangible Assets 1,688.69
Intangible Assets 19.75
Capital Work-In-Progress 11.54
Intangible Assets Under Development 36.48
Other Assets 55.5
Fixed Assets 1,811.96
Non-Current Investments 17,582.88
Long Term Loans And Advances 31.63
Other Non-Current Assets 891.26
Total Non-Current Assets 20,317.73
CURRENT ASSETS
Current Investments 1,576.48
Inventories 961.51
Trade Receivables 2,559.69
Cash And Cash Equivalents 922.81
Short Term Loans And Advances 6.34
OtherCurrentAssets 1,035.83
Total Current Assets 7,062.66
Total Assets 27,380.39
OTHER ADDITIONAL INFORMATION
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 1,853.88
CIF VALUE OF IMPORTS
Raw Materials 0
Stores, Spares And Loose Tools 0
Trade/Other Goods 0
Capital Goods 0
EXPENDITURE IN FOREIGN EXCHANGE
Expenditure In Foreign Currency 973.07
REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS
Dividend Remittance In Foreign Currency -
EARNINGS IN FOREIGN EXCHANGE
FOB Value Of Goods 11,434.23
Other Earnings -
BONUS DETAILS
Bonus Equity Share Capital 258.85
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market
Value -
Non-Current Investments Unquoted Book
Value 11,203.40
CURRENT INVESTMENTS
Current Investments Quoted Market Value -
Current Investments Unquoted Book Value 1,134.71

Key Financial Ratios of Bajaj Auto

Mar 19(In Crores)

Per Share Ratios

Basic EPS (Rs.) 161.6
Diluted EPS (Rs.) 161.60
Cash EPS (Rs.) 170.75
Book Value [ExclRevalReserve]/Share (Rs.) 752.67
Book Value [InclRevalReserve]/Share (Rs.) 752.67
Dividend / Share(Rs.) 60
Revenue from Operations/Share (Rs.) 1,045.37
PBDIT/Share (Rs.) 229.16
PBIT/Share (Rs.) 219.98
PBT/Share (Rs.) 231.65
Net Profit/Share (Rs.) 161.56
Profitability Ratios
PBDIT Margin (%) 21.92
PBIT Margin (%) 21.04
PBT Margin (%) 22.15
Net Profit Margin (%) 15.45
Return on Networth / Equity (%) 21.46
Return on Capital Employed (%) 28.28
Return on Assets (%) 17.07
Total Debt/Equity (X) 0
Asset Turnover Ratio (%) 110.48
Liquidity Ratios
Current Ratio (X) 1.45
Quick Ratio (X) 1.25
Inventory Turnover Ratio (X) 31.46
Dividend Payout Ratio (NP) (%) 37.13
Dividend Payout Ratio (CP) (%) 35.13
Earnings Retention Ratio (%) 62.87
Cash Earnings Retention Ratio (%) 64.87
Valuation Ratios
Enterprise Value (Cr.) 83,429.99
EV/Net Operating Revenue (X) 2.76
EV/EBITDA (X) 12.58