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HH and Bajaj - Financial Analysis
HH and Bajaj - Financial Analysis
HH and Bajaj - Financial Analysis
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TABLE OF CONTENTS
1. INTRODUCTION 3
1.1. BAJAJ AUTO LIMITED..............................................................................................................................3
1.2. HERO HONDA MOTORS LIMITED.........................................................................................................3
2.2. WEAKNESSES............................................................................................................................................4
2.3. OPPORTUNITIES........................................................................................................................................4
2.4. THREATS.....................................................................................................................................................4
3.1 STRENGTHS.....................................................................................................................................................5
3.2 WEAKNESSES.................................................................................................................................................5
3.3 OPPORTUNITIES.............................................................................................................................................5
3.4 THREATS..........................................................................................................................................................5
4.1. STRENGTHS...............................................................................................................................................6
4.2. WEAKNESSES............................................................................................................................................6
4.3. OPPORTUNITIES........................................................................................................................................6
4.4. THREATS.....................................................................................................................................................6
5. RATIO ANALYSIS.............................................................................................................................................7
5. FINDINGS..................................................................................................................................................... 23
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6. CONCLUSION..............................................................................................................................................24
7. BIBLIOGRAPHY..........................................................................................................................................25
1. INTRODUCTION
Bajaj Auto is a major Indian automobile manufacturer. It is India's largest and the
world's 4th largest two- and three-wheeler maker.
It is based in Pune, Maharashtra. Bajaj Auto manufactures and exports motor
scooters, motorcycles and the auto rickshaw.
Bajaj Auto came into existence on November 29, 1945 as M/s Bachraj Trading
Corporation Private Limited. It started off by selling imported two- and three-
wheelers in India.
Its real growth in numbers has come in the last four years after successful introduction
of a few models in the motorcycle segment.
In 1959, it obtained license from the Government of India to manufacture two- and
three-wheelers and it went public in 1960.
The demerger of Bajaj Auto Ltd into three separate corporate entities—Bajaj Finserv
Ltd (BFL), Bajaj Auto Ltd (BAL), and Bajaj Holdings and Investment Ltd (BHIL)—
was completed with the shares listing on May 26, 2008.
Hero Honda Motors Limited, based in Delhi, India is a joint venture between
the Hero Group of India and Honda of Japan.
“Hero” is the brand name used by the Munjal brothers for their flagship company
Hero Cycles Ltd.
The joint venture between the Hero Group and Honda Motor Company was
established in 1984 as the Hero Honda company.
During the 1980s, the company introduced motorcycles that were popular in India
for their fuel economy and low cost.
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Hero Honda has three manufacturing facilities based at Dharuhera and Gurgaon in
Haryana and at Haridwar in Uttarakhand.
The 2006 Forbes 200 Most Respected companies list has Hero Honda Motors
ranked at 108.
2.1. STRENGTHS
Skilled low cost manpower in India is strength of the Two wheeler industry, which
would decrease the Manufacturing Cost.
Decentralised Management provides better functioning of the companies.
Has 76% in the overall automotive industry.
Total in-house manufacturing and testing with the latest precision instruments.
A Technocrat MD, in touch with new technology and fast adaptation of this to the
industry.
Supplier to one of the largest Two-Wheeler manufacturers in the world has resulted in
exposure to good manufacturing & functional quality systems.
The Machines of International standards provide better manufacturing capability.
The industry has high Capital Reserves.
Strong Lineage with last 29 years experience in the field of Ignition Coils.
2.2. WEAKNESSES
Low thrust marketing provides lesser propagation of the products amongst the buyers.
Over dependence on 2 key players, makes the industry performance highly related to
the performance of the two players.
The Industry has low exports.
2.3. OPPORTUNITIES
Price war in the market is putting pressure on O.E.Ms.in cutting costs, which provides
the following QCD advantages:
-High Quality Machinery
-Lean Organisation Structure
-Quality Systems in place, mean an ability to contribute to the success of our
customers.
Technically driven management adds value to conventional processes and products.
It has globally tuned organisations which makes it open for Foreign Collaborations.
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2.4. THREATS
The foreign players are a threat to the Indian two wheeler industry especially the
imported two wheelers like Harley- Davidson, Ducati.
Slow growth in domestic auto sales, is threat in the generating sales increasing
sales revenue.
Government policies which deal with production or sales constraints can be a
threat to the industry.
3.1 STRENGTHS
The company has an established brand name and a highly extensive dealer network.
One of the major strengths of the company has been its strong after sales service.
The company is one of the technology leaders in the market mainly attributed to
Honda Motors R&D.
The maintenance cost of the vehicles is low and the resale value is high.
Company’s name is synonymous with fuel-efficient motorcycles and boasts a range of
bikes which are economical on fuel.
The company has an effective advertising capability.
3.2 WEAKNESSES
Hero is vulnerable to the joint venture with Honda Motor Company because Honda
Motor Company holds the major stakes in the JV, hence they are more power.
Brand name of Hero itself has no influence in the automobile industry.
The company has to rely on the R&D of Honda Motors for advancement of
technology.
3.3 OPPORTUNITIES
There is a great opportunity for expanding the target market. The female rider market
still remains largely untapped.
The company can actually look forward to making global footprint. It is time the
company went for global expansion, so that they tap into the European two wheeler
markets as well the markets of other third world countries.
The financial sector in India has really opened up in the last few years which has
spurred the sale of automobiles in India
Relatively low rate of interest and the discount of prices offered by the dealers and
manufacturers lead to the increasing demand for two-wheeler vehicles.
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3.4 THREATS
The 25 years old Hero – Honda Motor Company JV is set to expire in 2014. This can
lead to the Joint Venture to go sour.
Bajaj Motors has come up as a strong competitor.
International brands like Harley-Davidson will be introduced soon in the Indian
market.
There has been a sharp increase in the petrol prices throughout the world. The owning
cost of a vehicle has shot up as a result, which lead to sluggishness in the automobile
market
4.1. STRENGTHS
Bajaj Motors can boast of a highly experienced management. The company was one
of the first to enter the two wheeler automobile market in India.
The company has a extensive focus on R&D. This has lead to many technological
breakthroughs in recent past, which has spured the sales of Bajaj two wheelers.
Due to the advancement of technology, the company has introduced high performance
products across all categories.
Bajaj has a widespread distribution market in India.
4.2. WEAKNESSES
The company has struggled to come up with a product to match the success of Hero
Honda’s Splendor in Commuter segment.
In spite of the huge volume of vehicles in the Indian market, Bajaj Motors have
struggled to make a global footprint.
Bajaj is not a globally recognized brand as compared to its JV partner Kawasaki.
4.3. OPPORTUNITIES
With the vastness of the Indian two wheeler market and the favarouble conditions,
there is an ample opportunity for the company to go for a double digit growth.
There is still untapped market the company could consider to make a foray into, like
motorcycles above 180cc.
The gearless trendy scooter market is growing at a fast rate. This provides a great
opportunity to the company to focus on the segment.
There is a growing global demand for entry-level motorcycles especially in the
immerging market.
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4.4. THREATS
There is a major concern for the company as the competition catches up any new
innovation in no time.
International brands like Harley-Davidson will be introduced soon in the Indian
market, which will to more competition which will eat into the market share of the
company.
The increase in the cost of raw materials (aluminium and steel) and lowering of prices
from time to time because of the market forces is leading to decrease in profit margin.
5. RATIO ANALYSIS
On the basis of the information available and ratio comparison, it can be concluded that till 2007-08
it was increasing as there was a significant decrease in the amount of investments but in 2008-09 it
was decreasing as there was a decrease in the profit.
HERO HONDA 0.28 0.22 0.20 0.22
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that ROA has
decreased as there was increase in total asset, especially fixed asset and investment while there was
not much change in profit.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
For Hero Honda ROA is higher than Bajaj so it is getting a comparatively higher return on the total
assets acquired, also we can see that for Bajaj the profit has dipped down while Hero Honda has
maintained the level of profit
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0.05
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded in year 2007-08
it decreases as there is a decrease in the reserves. In 2008-09 there is increase in ROIC as the amount
of reserves and unsecured loan increase.
HERO HONDA 0.44 0.33 0.31 0.33
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that ROIC has
decreased as total liabilities (reserves) have increased while there was not much change in profit.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
Again, the ROIC is higher for Hero Honda than Bajaj thus it is providing better returns to its
Shareholders and long term lenders as compared to Bajaj.
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On the basis of the information available and ratio comparison, it can be concluded in year 2007-
08 it increases as there is a decrease in the reserves. In 2008-09 there is decrease as the amount of
reserves and unsecured loan increase.
HERO HONDA 0.48 0.35 0.32 0.34
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that RONW
has decreased as total liabilities (reserves) have increased while there was not much change in
profit.
COMPARISON BETWEEN BAJAJ AND Hero Honda
A contrasting situation here shows that Bajaj is providing higher returns to its shareholders as
compared to Hero Honda since 2007-2008.
0.5
0.48 0.48
0.4
0.35 0.35 BAJAJ
0.34
0.32 HERO HONDA
0.3
0.23 0.22
0.2
0.1
0
2005-2006 2006-2007 2007-2008 2008-2009
ACTIVITY/TURNOVER RATIOS
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On the basis of the information available and ratio comparison, it can be concluded that till 2007-08
it was increasing as there is a decent increase in the sales, but in 2008-09 it decreases there is slight
decrease in sales and increase in assets.
HERO HONDA 2.52 2.49 2.12 2.14
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that there is a
slight decrease in TATR as total assets increased more than increase in sales.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
If we see the trend we can see that Bajaj is improving on its TATR ratio that means the managers
are effectively utilizing the total assets while for Hero Honda it is decreasing so it could be a
problem here. It could be due to the fact that Bajaj has increased their sales quite efficiently as
compared to Hero Honda.
1 0.98 1.08
0.5
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded in year 2007-08
it decreases as there is a decrease in the reserves. In 2008-09 there is increase as the amount of
reserves and unsecured loan increase
HERO 3.18
HONDA 3.97 3.76 3.32
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that ICTR has
decreased slightly as total liability (reserve) has increased.
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On the basis of the information available and ratio comparison, it can be concluded that in 2008-09
it increased as the increase in debtors had a higher effect than the increase in sales.
HERO 4.04
HONDA 5.74 10.59 9.01
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that ACP
increase highly in 2007 than decrease in 2009 because debtor increase in 2007 but then decreased till
2009.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
As we can see, the Average collection period for Hero Honda is quite low as compared to Bajaj thus
they are able to recover their debts quite quickly than Bajaj.
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On the basis of the information available and ratio comparison, it can be concluded that it did not
show a significant change thus implies the company was able to maintain the level of inventory.
HERO 29.66
HONDA 29.85 28.83 25.84
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that till 2007 it
was decreasing but in 2008 it was increasing.
<Compare the ratios from 2005 to 2008 of HH>
COMPARISON BETWEEN BAJAJ AND Hero Honda
Again a contrasting situation where Bajaj is able to convert their inventory quicker than Hero
Honda.
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30 29.85 29.66
28.83
25 25.84
24
21.68 20.88 BAJAJ
20 20.55
HERO HONDA
15
10
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded that till 2006 it
was decreasing but from 2007 it was increasing.
HERO 12.31
HONDA 12.23 12.66 14.12
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that till 2007 it
was increasing but in 2008 it was decreasing.
<Compare the ratios from 2005 to 2008 of HH>
COMPARISON BETWEEN BAJAJ AND Hero Honda
We can clearly see that Bajaj prefers keeping higher stock of inventory in advance as compared to
Hero Honda.
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Day's Inventory
20
18 17.48 17.76
16.84
16
15.21
14 14.12
12.66 12.31 BAJAJ
12 12.23
HERO HONDA
10
8
6
4
2
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded that till 2007-08
it was decreasing as the amount of creditor decreased and similarly, it increased in 2008-09 as the
amount of creditors increased.
HERO 63.17
HONDA 70.89 58.93 71.17
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that ACP has
increased in 2008 as creditor increased while it decreased in 2009 as purchases have increased.
As we can see the trend Hero Honda pays off its creditors much more quickly than Bajaj.
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LIQUIDITY RATIOS
On the basis of the information available and ratio comparison, it can be concluded that it is
consistently increasing as there is a proportional change in current assets and current liabilities.
HERO 0.49
HONDA 0.49 0.57 0.48
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that there is a
slight increase in 2007 due to increase in current asset and decrease in current liabilities while CR
decreased in 2008 due to higher increase in current liabilities.
COMPARISON BETWEEN BAJAJ AND Hero Honda
Bajaj has a higher current ratio as compared to Hero Honda which implies that Bajaj has a higher
margin of safety than Hero Honda in case of uneven flow of funds.
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Current Ratio
1
0.9 0.92
0.85 0.88
0.8 0.79
0.7
BAJAJ
0.6 0.57 HERO HONDA
0.5 0.49 0.48 0.49
0.4
0.3
0.2
0.1
0
2005-2006 2006-2007 2007-2008 2008-2009
SOLVENCY RATIOS:
On the basis of the information available and ratio comparison, it can be concluded that it increased
in the year 2007-08 due to decrease in shareholder’s funds (reserves).
HERO 0.02
HONDA 0.09 0.07 0.04
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that there is
continuous decrease in DER as unsecured are decreasing and reserves are increasing continuously.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
The DER for Hero Honda is significantly low as compared to Bajaj which shows that they are not
much dependent on the outside debts and rely more on the owner’s funds while for Bajaj its totally
inverse as they depend highly on the outside debt.
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On the basis of the information available and ratio comparison, it can be concluded that it increased
in the year 2007-08 due to decrease in shareholder’s funds (reserves).
HERO 0.08 0.06 0.04 0.02
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that there is
continuous decrease in DTIC as unsecured are decreasing and reserves are increasing continuously
COMPARISON BETWEEN BAJAJ AND Hero Honda
We can see that Bajaj has a higher proportion of debt in total long term funds available as
compared to Hero Honda.
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On the basis of the information available and ratio comparison, it can be concluded
that it was decreasing consistently due to decrease in the earnings and simultaneous
increase in the interest charges.
HERO 99 101.72 117.6 151.47
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded
that ICR has increased continuously due to increasing EBIT and decreasing interest.
COMPARISON BETWEEN BAJAJ AND Hero Honda
The ICR has come down drastically for Bajaj as the interest rates have risen
significantly while profits dipped but Hero Honda is able to constantly increase their
ICS. As a result Hero Honda is better secured as compared to Bajaj when it comes to
payment of interest charges.
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6000
5000
4000
BAJAJ
3000 HERO HONDA
2000
1000
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded that till 2006-
07 it was increasing but from 2007-08 it started decreasing as there was a decrease in the net profit
and increase in share capital.
HERO 48.64 42.96 48.47 64.19
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that EPS
decreased in 2007 as PAT decreased while it increased highly in 2009 due to high PAT
COMPARISON BETWEEN BAJAJ AND HERO HONDA
Bajaj was providing comparatively higher EPS till 2006-2007 but after that it went down quickly
as the Share capital was increased while profits dipped down. On the other hand Hero Honda is
providing decent EPS as a trend.
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120 122.35
108.87
100
BAJAJ
80
HERO HONDA
60 64.19
48.64 52.25
48.47
42.96 45.37
40
20
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded that it showed an
increase in 2008-09 as the PAT decreased and dividend increased.
HERO 0.41 0.40 0.39 0.31
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that DPR is
decreasing continuously due to increasing PAT and almost constant dividend.
COMPARISON BETWEEN BAJAJ AND HERO HONDA
Both the firms have been providing almost compatible dividend to the shareholders except in 2008-
2009 where Bajaj overtook Hero Honda by a significant amount. Thus they paid off their
shareholders better off than Hero Honda.
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0.5
0.48
0.2
0.1
0
2005-2006 2006-2007 2007-2008 2008-2009
PROFITABILITY RATIOS:
On the basis of the information available and ratio comparison, it can be concluded that it was
decreasing consistently as the profit was decreasing and the sales was increasing.
HERO 11.14 8.66 9.36 10.40
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that NPR
decreased in 2007 due to decrease in profits while after that it has increased till 2009 due to higher
increase in profit as profit has a higher impact on NPR than sales.
COMPARISON BETWEEN BAJAJ AND Hero Honda
While the NPR has decreased for Bajaj, it has increased for Hero Honda over the years. Thus if we
compare the profitability Hero Honda is performing really well as compared to Bajaj.
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10
0
2005-2006 2006-2007 2007-2008 2008-2009
On the basis of the information available and ratio comparison, it can be concluded that it was
decreasing consistently as the profit was decreasing and the sales was increasing.
HERO 15.85 12.13 13.22 13.20
HONDA
(B) RATIO ANALYSIS FOR HERO HONDA
On the basis of the information available and ratio comparison, it can be concluded that OPR
decreased in 2007 while it increased slightly in the later years as profit has increased.
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5. FINDINGS
Turnover: Hero Honda (FY2008-09)- Rs.12048 cr and Bajaj Auto Ltd(FY2008-09)- Rs.9310
cr. Thus we can note that the turnover of Hero Honda is 30% more than Bajaj Auto Ltd for
FY2008-09. This implies that Hero Honda has a substantial high market share.
Profit: The profit made by Hero Honda in FY 2008-09 at Rs. 967.88 cr is considerably more
than that made by Bajaj Auto which is at Rs. 656.48 cr. Thus we can note that the profit for
Hero Honda is 47% more than Bajaj Auto Ltd. This implies that the operations at Hero Honda
are more profitable.
PE ratio: As on 9-09-2009 the PE ratio for Hero Honda was Rs.26 and for Bajaj Auto was
Rs.27.87. Therefore it can be concluded that at present Bajaj Auto is more profitable for the
short term investors.
Cash flow from operations: In the FY 2008-09, the net cash from operating activity for
Bajaj Auto has been Rs.411.49 cr, where as net cash from operating activity for Hero Honda
has been Rs.1211.78 cr.
Investments and fixed assets: There has been a consistent increase in this for both the
companies which shows the growth of the overall market and the efforts been taken by Hero
Honda and Bajaj Auto to increase their capacities and research and development capabilities
and also improving their existing manufacturing facilities to compete in this high competitive
segment.
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6. CONCLUSION
From the financial analysis and the other findings for both the companies we can deduce the
following conclusions:
From all the analysis done and various ratios calculated such as Return on capital,
Debt-equity ratio, EPS, Net profit ratio etc. we can see that both the companies are
doing fairly good however the shareholders for Hero Honda are in a much better
position than those of Bajaj Auto Ltd.
From all the analysis done and various ratios calculated such as Return on invested
capital, Invested capital turnover ratio, Interest coverage ratio, Net profit ratio etc. we
can see that though Bajaj is able to provide better utilization of lender’s funds in terms
of sales still they are not able to provide higher and secure interest payments to the
lenders as compared to Hero Honda.
From all the analysis done and various ratios calculated such as Average collection
period, Inventory turnover ratio, current ratio, Net profit ratio etc. we can infer that
while Bajaj has high current ratio thus the funds of the creditors are more secure
however the average collection period is low than Hero Honda which means, they are
not able to recover their debts as quickly as Hero Honda.
From all the analysis done and various ratios calculated such as Return on net worth,
Total assets turnover ratio we can see that the managers of Bajaj are able to provide
better return/sales on the net worth/assets as compared to Hero Honda. Also the
Inventory turnover ratio and current ratio is better than Hero Honda, thus they prefer
maintaining comparatively higher liquidity. However if we compare the Return on
Assets, Average collection period and Net profit ratio we can see that the managers of
Hero Honda are able to generate higher profits and at the same time able to collect
their debts quickly as compared to Bajaj.
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7. BIBLIOGRAPHY
HH & Bajaj/2009-11/IMT-N