HH and Bajaj- Financial Analysis

Under The Guidance Of:Prof. PAWAN JAIN

SUBMITTED BY:

ROCHIT RAJVANSHI 2009195 PAYEL LAHIRI 2009224RANITREASA JOSEPH 2009209 RAJAN PUNATAR 2009232RUCHIR SAURABH 2009216 PUNEET SINGHAL 2009231SAHIL AGGARWAL 2009220 SHRUTI MOHTA 2009242SAHIL CHOPRA 2009221 SMRITTI BANSAL 2009243

2FINANCIAL ANALYSIS

TABLE OF CONTENTS

1. INTRODUCTION 31.1. BAJAJ AUTO LIMITED..............................................................................................................................31.2. HERO HONDA MOTORS LIMITED.........................................................................................................3

2. INDUSTRY SWOT ANALYSIS ..................................................................................................................... 4

2.2. WEAKNESSES............................................................................................................................................42.3. OPPORTUNITIES........................................................................................................................................42.4. THREATS.....................................................................................................................................................4

3. SWOT ANALYSIS OF HERO HONDA ........................................................................................................ 5

3.1 STRENGTHS.....................................................................................................................................................53.2 WEAKNESSES.................................................................................................................................................53.3 OPPORTUNITIES.............................................................................................................................................53.4 THREATS..........................................................................................................................................................5

4. SWOT ANALYSIS OF BAJAJ MOTOR ........................................................................................................ 6

4.1. STRENGTHS...............................................................................................................................................64.2. WEAKNESSES............................................................................................................................................64.3. OPPORTUNITIES........................................................................................................................................64.4. THREATS.....................................................................................................................................................6

5. RATIO ANALYSIS ............................................................................................................................................. 7

5.1. RETURN ON ASSETS (ROA) ANALYSIS....................................................................................................75.2. RETURN ON INVESTED CAPITAL (ROIC) ANALYSIS............................................................................7ACTIVITY/TURNOVER RATIOS.........................................................................................................................95.4. TOTAL ASSET TURNOVER RATIO (TATR) ANALYSIS:........................................................................95.5 INVESTED CAPITAL TURNOVER RATIO (ICTR) ANALYSIS:..............................................................105.6. AVERAGE COLLECTION PERIOD (ACP) ANALYSIS:...........................................................................115.7. INVENTORY TURNOVER RATIO (ITR) ANALYSIS:.............................................................................125.8. DAYS INVENTORY RATIO (DI) ANALYSIS............................................................................................135.9 AVG. CREDIT PERIOD RATIO (ACP) ANALYSIS:...................................................................................145.10. CURRENT RATIO (CR) ANALYSIS:........................................................................................................155.11. DEBT-EQUITY RATIO (DER) ANALYSIS:.............................................................................................165.12. DEBT TO TOTAL INVESTED CAPITAL RATIO (DTIC) ANALYSIS:.................................................175.13. INTEREST COVERAGE RATIO (ICR) ANALYSIS:................................................................................185.14. EARNINGS PER SHARE (EPS) ANALYSIS:............................................................................................195.15. DIVIDEND PAYOUT RATIO (DPR) ANALYSIS:...................................................................................205.16. NET PROFIT RATIO (NPR) ANALYSIS:..................................................................................................215.17. OPERATING PROFIT RATIO (OPR) ANALYSIS:...................................................................................22

5. FINDINGS ..................................................................................................................................................... 23

6. CONCLUSION .............................................................................................................................................. 24

7. BIBLIOGRAPHY .......................................................................................................................................... 25

HH & Bajaj/2009-11/IMT-N

3FINANCIAL ANALYSIS

1. INTRODUCTION

1.1. BAJAJ AUTO LIMITED

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.

1.2. HERO HONDA MOTORS LIMITED

Hero Honda Motors Limited, based in Delhi, India is a joint venture between the Hero Group of India and Honda of Japan.

It has been referred to as the world's biggest manufacturer of 2-wheeled motorized vehicles.

“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.

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.


http://en.wikipedia.org/wiki/Uttarakhand

http://en.wikipedia.org/wiki/Haridwar

http://en.wikipedia.org/wiki/Haryana

http://en.wikipedia.org/wiki/Gurgaon

http://en.wikipedia.org/wiki/Dharuhera

http://en.wikipedia.org/wiki/Two_wheeler

http://en.wikipedia.org/wiki/Two_wheeler

http://en.wikipedia.org/wiki/Honda

http://en.wikipedia.org/wiki/Hero_Cycles_Ltd

http://en.wikipedia.org/wiki/Delhi,_India

4FINANCIAL ANALYSIS

2. INDUSTRY SWOT ANALYSIS

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.

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.


5FINANCIAL ANALYSIS

3. SWOT ANALYSIS OF HERO HONDA

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.

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


6FINANCIAL ANALYSIS

4. SWOT ANALYSIS OF BAJAJ MOTOR

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.

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.


7FINANCIAL ANALYSIS

5. RATIO ANALYSIS

5.1. RETURN ON ASSETS (ROA) ANALYSIS Useful for managers. Formula: Return on Assets = [(Profit after Tax) + Interest (1-T)]/ Total Assets

ROA 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 0.14 0.14 0.20 0.15(A) RATIO ANALYSIS FOR BAJAJ

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

2005-2006 2006-2007 2007-2008 2008-20090

0.05

0.1

0.15

0.2

0.25

0.3

0.14 0.14

0.2

0.15

0.28

0.220.2

0.22

Return on Assets (ROA) Analysis

BAJAJ

HERO HONDA

5.2. RETURN ON INVESTED CAPITAL (ROIC) ANALYSIS Useful for shareholders and long term lenders Formula: Return on Invested Capital = [(Profit after Tax) + Interest (1-T)]/ [Long Term

Liabilities + Shareholder’s Fund]

ROIC 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


8FINANCIAL ANALYSIS

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


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.


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.

2005-2006 2006-2007 2007-2008 2008-20090

0.050.1

0.150.2

0.250.3

0.350.4

0.450.5

0.18 0.17

0.26

0.19

0.44

0.33 0.31 0.33

Return on Invested Capital

BAJAJ

HERO HONDA

5.3. RETURN ON NET WORTH (RONW) ANALYSIS Useful for Shareholders and managers Formula: Return on Net Worth = [(Profit after Preference Share Dividend]/Net Worth

RONW 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 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


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.


9FINANCIAL ANALYSIS

2005-2006 2006-2007 2007-2008 2008-20090

0.1

0.2

0.3

0.4

0.5

0.6

0.23 0.22

0.48

0.35

0.48

0.350.32 0.34

Return on Net Worth

BAJAJ

HERO HONDA

ACTIVITY/TURNOVER RATIOS

5.4. TOTAL ASSET TURNOVER RATIO (TATR) ANALYSIS: Useful for managers Formula: Total Asset Turnover Ratio = [Sales Revenue (Net of Returns & Excise]/Total

Assets

TATR 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 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


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.


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.


10FINANCIAL ANALYSIS

2005-2006 2006-2007 2007-2008 2008-20090

0.5

1

1.5

2

2.5

3

0.98 1.08

2.3

2.03

2.52 2.49

2.12 2.14

Total Asset Turnover Ratio

BAJAJ

HERO HONDA

5.5 INVESTED CAPITAL TURNOVER RATIO (ICTR) ANALYSIS: Useful for long term lenders Formula: Invested Capital Turnover Ratio = [Sales Revenue (net of returns & Excise)] /(Long

Term Liabilities + Shareholder’s Funds)

ICTR 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 HONDA 3.97 3.76 3.32

3.18


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.


Again we can see that Bajaj is improving on its ICTR ratio that means the managers are effectively utilizing the funds of its lenders 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.



2005-2006 2006-2007 2007-2008 2008-20090

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1.21 1.32

3.02

2.53

3.973.76

3.32 3.18

Invested Capital Turnover Ratio

BAJAJ

HERO HONDA

5.6. AVERAGE COLLECTION PERIOD (ACP) ANALYSIS: Useful for managers and short term lenders Formula: average collection period = [debtors*365]/sales

ACP 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 12.72 18 10.19 14.06(A) RATIO ANALYSIS FOR BAJAJ

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 HONDA 5.74 10.59 9.01

4.04


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

2

4

6

8

10

12

14

16

18

20

12.72

18

10.19

14.06

5.74

10.599.01

4.04

Average Collection Period

BAJAJ

HERO HONDA

5.7. INVENTORY TURNOVER RATIO (ITR) ANALYSIS: Useful for managers and short term lenders Formula: inventory turnover ratio = cost of goods sold/inventory

ITR 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 21.68 24 20.88 20.55(A) RATIO ANALYSIS FOR BAJAJ

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 HONDA 29.85 28.83 25.84

29.66


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.



2005-2006 2006-2007 2007-2008 2008-20090

5

10

15

20

25

30

35

21.6824

20.88 20.55

29.85 28.8325.84

29.66

Inventory Turnover Ratio

BAJAJ

HERO HONDA

5.8. DAYS INVENTORY RATIO (DI) ANALYSIS Formula: Days Inventory Ratio = [365]/Inventory Turnover Ratio

DI 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 HONDA 12.23 12.66 14.12

12.31


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.



2005-2006 2006-2007 2007-2008 2008-20090

2

4

6

8

10

12

14

16

18

20

16.8415.21

17.48 17.76

12.23 12.6614.12

12.31

Day's Inventory

BAJAJ

HERO HONDA

5.9 AVG. CREDIT PERIOD RATIO (ACP) ANALYSIS: Useful for managers Formula: avg. Credit period ratio = [creditors*365]/net purchases

ACP 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 HONDA 70.89 58.93 71.17

63.17


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.



2005-2006 2006-2007 2007-2008 2008-20090

10

20

30

40

50

60

70

80

90

10095.1

88.16

63.99

77.3770.89

58.93

71.1763.17

Average Credit Period

BAJAJ

HERO HONDA

LIQUIDITY RATIOS

5.10. CURRENT RATIO (CR) ANALYSIS: Useful for managers and short term lenders Formula: current ratio = [current assets]/current liabilities

CR 2005-2006 2006-2007 2007-2008 2008-2009


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 HONDA 0.49 0.57 0.48

0.49


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0.790.85 0.88

0.92

0.490.57

0.48 0.49

Current Ratio

BAJAJ

HERO HONDA

SOLVENCY RATIOS:

5.11. DEBT-EQUITY RATIO (DER) ANALYSIS: Useful for lenders, shareholders Formula: debt-equity ratio = [long term liability]/shareholders fund

DER 2005-2006 2006-2007 2007-2008 2008-2009


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 HONDA 0.09 0.07 0.04

0.02


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.31 0.29

0.84 0.84

0.09 0.07 0.04 0.02

Debt Equity ratio

BAJAJ

HERO HONDA

5.12. DEBT TO TOTAL INVESTED CAPITAL RATIO (DTIC) ANALYSIS: Useful for lenders and shareholders Formula: debt to total invested capital ratio = [long term liability]/(long term

liability+ shareholders fund)

DTIC 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 0.24 0.23 0.46 0.46

(A) RATIO ANALYSIS FOR BAJAJ

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 HONDA

0.08 0.06 0.04 0.02


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


We can see that Bajaj has a higher proportion of debt in total long term funds available as compared to Hero Honda.



2005-2006 2006-2007 2007-2008 2008-20090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.24 0.23

0.46 0.46

0.080.06

0.040.02

Debt to Total Invested capital

BAJAJ

HERO HONDA

5.13. INTEREST COVERAGE RATIO (ICR) ANALYSIS: Useful for lenders and managers Formula: interest coverage ratio = [earnings before interest and tax ]/total interest charges

ICR 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 5113.94 355.25 243.31 51.79


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 HONDA

99 101.72 117.6 151.47


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

1000

2000

3000

4000

5000

6000

Interest Coverage Ratio

BAJAJ

HERO HONDA

CAPITAL MARKET RATIOS

5.14. EARNINGS PER SHARE (EPS) ANALYSIS: Useful for shareholders Formula: Earnings Per Share = [PAT-Preference Share Dividend]/No. of Equity share o/s

EPS 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 108.87 122.35 52.25 45.37


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 HONDA

48.64 42.96 48.47 64.19


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


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.



2005-2006 2006-2007 2007-2008 2008-20090

20

40

60

80

100

120

140

108.87

122.35

52.2545.3748.64

42.9648.47

64.19

Earnings Per Share

BAJAJ

HERO HONDA

5.15. DIVIDEND PAYOUT RATIO (DPR) ANALYSIS: Useful For Shareholders Formula: Dividend Payout Ratio = [Dividend]/Profit After Tax

DPR 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 0.37 0.33 0.38 0.48


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 HONDA

0.41 0.40 0.39 0.31


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

0.1

0.2

0.3

0.4

0.5

0.6

0.370.33

0.38

0.48

0.41 0.4 0.39

0.31

Dividend Payout Ratio

BAJAJ

HERO HONDA

PROFITABILITY RATIOS:

5.16. NET PROFIT RATIO (NPR) ANALYSIS: Useful For All The Parties Involved Formula: Net Profit Ratio = [Net Profit *100]/Sales Net Of Returns & Excise

NPR 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 14.5513.14

8.56 7.55


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 HONDA

11.14 8.66 9.36 10.40


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.


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.



2005-2006 2006-2007 2007-2008 2008-20090

5

10

15

20

25

21.86 21.1

17.29

19.96

22.43

19.7920.78

Gross Profit Ratio

BAJAJ

HERO HONDA

5.17. OPERATING PROFIT RATIO (OPR) ANALYSIS: Useful for all the parties involved Formula: Operating Profit Ratio = [Operating Profit *100]/Sales Net of Returns & excise

OPR 2005-2006 2006-2007 2007-2008 2008-2009

BAJAJ 16.9 14.12 12.29 12.56


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 HONDA

15.85 12.13 13.22 13.20


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.


As against the NPR, we can see that there is not much difference between the two firms as far as OPR is concerned.



2005-2006 2006-2007 2007-2008 2008-20090

2

4

6

8

10

12

14

16

1816.9

14.12

12.29 12.56

15.85

12.1313.22

Operating Profit Ratio

BAJAJ

HERO HONDA

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.



6. CONCLUSION

From the financial analysis and the other findings for both the companies we can deduce the following conclusions:

6.1 FOR SHAREHOLDERS:

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.

6.2 FOR LONG TERM LENDERS

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.

6.3 FOR SHORT TERM LENDERS

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.

6.4 FOR MANAGERS

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.



7. BIBLIOGRAPHY

1. Annual Report Bajaj Auto Ltd,(2004-05,2005-06,2006-07,2007-08,2008-09)2. Annual Report Hero Honda Ltd,(2004-05,2005-06,2006-07,2007-08,2008-09)3. Ramchandran, Neelakantan and Kakani, Ram Kumar, Financial Accounting for Management,

2008.4. Shah, B.S., Accountancy Principle, 2005.5. Websites and webpages:

www.herohonda.com/invest_annual_reports.htm www.bajajauto.com/investor_annual.asp www.moneycontrol.com/ www.siamindia.com/


Documents

HH and Bajaj- Financial Analysis