FINANCIALMANAGEMANTREPORT ON BAJAJ AUTO LTDSUBMITTED TO -:            SUBMITTED BY-:Prof. D. Satish            Section A, ...
2
TABLE OF CONTENTSAcknowledgement………………………………..…………………………….2Introduction & History............................................
AcknowledgementEvery project requires a great deal of creativity and co-operation on the part of the groupmembers in order...
Introduction & HistoryCompany HistoryBajaj Auto Limited is Indias largest manufacturer of scooters and motorcycles. The co...
New Competition in the 1980sJapanese and Italian scooter companies began entering the Indian market in the early 1980s.Alt...
to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models,one to be developed in colla...
Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj ElectricalsLtd.; Bajaj Hindustan Ltd.; Ma...
Equity Profile for the Year                  2008-09The details of equity distribution for the fiscal year 2008-09 are as ...
Mergers and AcquisitionsBajaj Holdings & Invst. Ltd.Deals where company is targetDate         Deal Type   Acquirer Company...
19-Jan-01   Takeover   Mukand Engineers Ltd.             0    19-Jan-01   Stock Exchange Announcement28-Mar-03   Takeover ...
Financial Functions of the OrganisationBajaj Auto is considered to be amongst the most conservative organisations in the I...
budgets and any other matter of a financial nature or which could or does have a financialimplication.(7) To collaborate a...
WORKING CAPITALIt is a measure of both a companys efficiency and its short-term financial health. In case ofBajaj Auto Ltd...
have to bear additional interest burden of debt servicing and hence, lead to volatile earnings.As per calculations above, ...
Long Term CapitalBajaj Auto Ltd. collects its long term capital through capital market instruments. Capitalmarket instrume...
The following are the details for Bajaj Auto Ltd.                                    Mar  08      Mar  07      Mar  06    ...
Relative Valuation of the Market Price (per share)  In this method we try to estimate the value of market price of a compa...
Capital Asset Pricing Model (CAPM)Capital Asset Pricing Model is a model that provides a framework to determine the requir...
Significance of BetaIn finance, the beta (β) of a stock or portfolio is a number describing the relation of its returnswit...
Weighted Average Cost of Capital (WACC)A firm’s cost of capital is the average required rate of return on the aggregate of...
Calculation of Weighted Average Cost of Capital(as per Market and Book value)Component       Weights as       Weights as  ...
DIVIDEND DISCOUNT MODEL(DDM)People hold common stocks in their portfolios for two reasons1)A respective group of common st...
Year                  Dividend per share   Growth           2000                         10                0           200...
CONCLUSION1.) The company sold 2, 20,429 two-wheelers in December 2009 compared to 1, 19,215 unitssold in the same month o...
EXHIBITSExhibit I: Balance Sheet: Bajaj Autos                   Mar 06      Mar 07    Mar 08    Mar 09    Mar 10          ...
Net Block       1,133.00   1,273.60   1,268.61   1,542.29   1,479.59Capital Work       43.33     107.62      34.74     106...
Exhibit II : Profit and Loss account of Bajaj Auto                Mar 06       Mar 07     Mar 08      Mar 09       Mar 10 ...
Other Written       3.62       0.39       1.12          0          0OffProfit Before    1,543.78   1,701.06   1,075.24    ...
Exhibit III : Cash Flow Statement of Bajaj Auto                                                  Mar 06      Mar 07    Mar...
4/2/2001    1138.1     -16.196     346.1           0  5/2/2001    1137.2   -0.07908      346.1           0  6/1/2001   114...
7/1/2005    2312.3   4.129515    1443.3   5.081908  8/1/2005   2384.65   3.128919    1413.6   -2.05778  9/1/2005    2601.4...
10/1/2009           4711.7             -7.32206            1391         -6.95963        11/3/2009           5032.7        ...
Annual results in brief :: Hero Honda                    Mar  06    Mar  07    Mar  08    Mar  09    Mar  10Sales         ...
APPENDIXFORMULAE USED   Debt-Equity Ratio = Total Debt/Total Equity   Current Ratio = Current Assets/Current Liabilities...
 EPS= (Expected PAT – Preference Dividend) / ( No. Of Outstanding Equity Share) DPS = Dividend Payout Ratio * EPS Enter...
Weighted Average Cost of Capital= We*Ke + Wd*Kd + Wp*Kp + Wre* KreWhere,We= Proportion of equity in capital structure.Wd= ...
BIBLIOGRAPHY    www.yahoofinance.com    www.rediffwiz.com    www.moneycontrol.com    www.fundinguniverse.com    Financial ...
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  1. 1. FINANCIALMANAGEMANTREPORT ON BAJAJ AUTO LTDSUBMITTED TO -: SUBMITTED BY-:Prof. D. Satish Section A, Group 3 Ankit Singhal 10BSPHH010105) Anish Pawar (10BSPHH010093) Dhruv Chawla(10BSPHH010226) Gunjan Mundhra(10BSPHH010257) Karan Jain (10BSPHH010319) Shikha Mohanty (10BSPHH010768) Tanvi Bisht(10BSPHH010830)1|Page
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  3. 3. TABLE OF CONTENTSAcknowledgement………………………………..…………………………….2Introduction & History....................................................................................... 3Bajaj Auto Equity Profile ................................................................................... 7Acquisitions and Mergers................................................................................... 8Financial Function ............................................................................................ 10Working Capital ................................................................................................ 12Long Term Capital............................................................................................ 14Relative valuation of the market price (per share) ....................................... 16CAPM ................................................................................................................. 17 Significance of Beta ........................................................................................ 18WACC……...………………………………………………………………….19DDM ................................................................................................................... 21Conclusion…………………………………………………………………….23Exhibits…………………………………………………..................................24Appendix……………………………………………………………………....33Bibliography ...................................................................................................... 36 3
  4. 4. AcknowledgementEvery project requires a great deal of creativity and co-operation on the part of the groupmembers in order to achieve the desired objectives. This Financial Management project gaveus an opportunity to work as a team and also helped us to gain insights into various financialtools and techniques that are used by managers which help them to make effective andefficient decisions. It also helped us to put into practice the concept learnt in class and inlearning their applicability.We would like to take this opportunity to thank Prof. D Satish, for providing us with hisvaluable advice and guidance at every step of this project.We would also like to thank our classmates and seniors for their co-operation and support. 4
  5. 5. Introduction & HistoryCompany HistoryBajaj Auto Limited is Indias largest manufacturer of scooters and motorcycles. The companygenerally has lagged behind its Japanese rivals in technology, but has invested heavily tocatch up. Its strong suit is high-volume production; it is the lowest-cost scooter maker in theworld. Although publicly owned, the company has been controlled by the Bajaj family sinceits founding.OriginsThe Bajaj Group was formed in the first days of Indias independence from Britain. Itsfounder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi, who reportedly referred tohim as a fifth son. Whenever I spoke of wealthy men becoming the trustees of their wealthfor the common good I always had this merchant prince principally in mind, said theMahatma after Jamnalals death.Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942.Kamalnayan, however, was preoccupied with Indias struggle for independence. After thiswas achieved, in 1947, Kamalnayan consolidated and diversified the group, branching intocement, ayurvedic medicines, electrical equipment, and appliances, as well as scooters.The precursor to Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj TradingLtd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained amanufacturing license from the government 11 years later. The next year, 1960, Bajaj Autobecame a public limited company.Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960,at the age of 22, he became the Indian licensee for the make; Bajaj Auto began producing itsfirst two-wheelers the next year.Rahul Bajaj became the groups chief executive officer in 1968 after first picking up an MBAat Harvard. He lived next to the factory in Pune, an industrial city three hours drive fromBombay. The company had an annual turnover of Rs 72 million at the time. By 1970, thecompany had produced 100,000 vehicles. The oil crisis soon drove cars off the roads in favorof two-wheelers, much cheaper to buy and many times more fuel-efficient.A number of new models were introduced in the 1970s, including the three-wheeler goodscarrier and Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rearengine Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscal year alone.The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward,Piaggio, maker of the Vespa brand of scooters, filed patent infringement suits to block Bajajscooter sales in the United States, United Kingdom, West Germany, and Hong Kong. Bajajsscooter exports plummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million)in 1981-82, although total revenues rose five percent to Rs 1.16 billion. Pretax profits werecut in half, to Rs 63 million. 5
  6. 6. New Competition in the 1980sJapanese and Italian scooter companies began entering the Indian market in the early 1980s.Although some boasted superior technology and flashier brands, Bajaj Auto had built upseveral advantages in the previous decades. Its customers liked the durability of the productand the ready availability of maintenance; the companys distributors permeated the country.The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediatelysuccessful, and the company aimed to be able to make 60,000 of them a year by 1985.Capacity was the most important constraint for the Indian motorcycle industry. Although thecountrys total production rose from 262,000 vehicles in 1976 to 600,000 in 1982, companieslike rival Lohia Machines had difficulty meeting demand. Bajaj Autos advance orders forone of its new mini-motorcycles amounted to $57 million. Work on a new plant at Waluj,Aurangabad commenced in January 1984.The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki BajajKB100 motorcycles. The company was making 500,000 vehicles a year at this point.Although Rahul Bajaj credited much of his companys success with its focus on one type ofproduct, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control ofAhsok Leyland failed.The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a yearlater. About this time, the Indian government was initiating a program of marketliberalization, doing away with the old license raj system, which limited the amount ofinvestment any one company could make in a particular industry.A possible joint venture with Piaggio was discussed in 1993 but aborted. Rahul Bajaj told theFinancial Times that his company was too large to be considered a potential collaborator byJapanese firms. It was hoping to increase its exports, which then amounted to just fivepercent of sales. The company began by shipping a few thousand vehicles a year toneighboring Sri Lanka and Bangladesh, but soon was reaching markets in Europe, LatinAmerica, Africa, and West Asia. Its domestic market share, barely less than 50 percent, wasslowly slipping.By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several ofBajajs rivals were looking at this market as well, which was being rapidly liberalized by theIndian government.Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was theworlds fourth largest manufacturer of two-wheelers, behind Japans Honda, Suzuki, andKawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj alsosigned development agreements with two Japanese engineering firms, Kubota and Tokyo R& D. Bajajs most popular models cost about Rs 20,000. You just cant beat a Bajaj, statedthe companys marketing slogan.The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. Thenext year saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, Indias firstfour-stroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was planning 6
  7. 7. to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models,one to be developed in collaboration with Cagiva of Italy.New Tools in the 1990sStill, intense competition was beginning to hurt sales at home and abroad during the calendaryear 1997. Bajajs low-tech, low-cost cycles were not faring as well as its rivals higher-endofferings, particularly in high-powered motorcycles, since poorer consumers werewithstanding the worst of the recession. The company invested in its new Pune plant in orderto introduce new models more quickly. The company spent Rs 7.5 billion ($185 million) onadvanced, computer-controlled machine tools. It would need new models to comply with themore stringent emissions standards slated for 2000. Bajaj began installing Rs 800 catalyticconverters to its two-stroke scooter models beginning in 1999.Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Autosprofits increased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was ableto boast, My competitors are doing well, but my net profit is still more than the next fourbiggest companies combined. Hero Honda was perhaps Bajajs most serious local threat; infact, in the fall of 1998, Honda Motor of Japan announced that it was withdrawing from thisjoint venture.Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology fromits foreign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva(scooters). Hondas annual spend on R & D is more than my turnover, noted Ruhal Bajaj.His son, Sangiv Bajaj, was working to improve the companys supply chain management. Amarketing executive was lured from TVS Suzuki to help push the new cycles.Several new designs and a dozen upgrades of existing scooters came out in 1998 and 1999.These, and a surge in consumer confidence, propelled Bajaj to sales records, and it began toregain market share in the fast-growing motorcycle segment. Sales of three-wheelers fell assome states, citing traffic and pollution concerns, limited the number of permits issued forthem.In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million. TheItalian firm had exited a relationship with entrepreneur Deepak Singhania and was looking toreenter the Indian market, possibly through acquisition. Piaggio itself had been mostly boughtout by a German investment bank, Deutsche Morgan Grenfell (DMG), which was looking tosell some shares after turning the company around. Bajaj attached several conditions to hispurchase of a minority share, including a seat on the board and an exclusive Piaggiodistributorship in India.In late 2000, Maruti Udyog emerged as another possible acquisition target. The Indiangovernment was planning to sell its 50 percent stake in the automaker, a joint venture withSuzuki of Japan. Bajaj had been approached by several foreign car manufacturers in the past,including Chrysler (subsequently DaimlerChrysler) in the mid-1990s.Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a two-month strike atits Waluj factory) to 17,000 in 1999-2000. The company planned to lay off another 2,000workers in the short term and another 3,000 in the following three to four years. 7
  8. 8. Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj ElectricalsLtd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; Mukand Ltd.Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation; Piaggio SpA.Statistics:Public CompanyIncorporated: 1945 as M/s Bachraj Trading Ltd.Employees: 17,200Sales: Rs 42.16 billion ($903.36 million)(2000)Stock Exchanges: Pune Mumbai Delhi London Berlin Frankfurt MunichTicker Symbols: BAJAJAUTO 490 BJATq.L 893361.BE 893361.F 893361.MUNAIC: 336991 Motorcycle, Bicycle, and Parts Manufacturing.Key Dates: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.Address:Akurdi, Pune 411035IndiaTelephone: +91 20 740 2851Fax: +91 20 740 7397http://www.bajajauto.comSource: http://www.fundinguniverse.com/company-histories/Bajaj-Auto-Limited-Company-History.html 8
  9. 9. Equity Profile for the Year 2008-09The details of equity distribution for the fiscal year 2008-09 are as follows: 1. Shares held by Non-Executive DirectorsNAME OF DIRECTOR NUMBER OF SHARES HELD AS ON 31st MARCH 2009Shekhar Bajaj 693,440Niraj Bajaj 1,114,238Manish Kejriwal 100D S Mehta 8,490 2. Distribution of share holding across categoriesCategories 31 March 2009 3rd April 2008 No. Of % to total No. Of % to total shares capital shares capitalPromoters 71,786,036 49.61 72,747,805 50.28Friends and associates 16,327,478 11.28 16,454,136 11.37ofPromotersGDRs 181,775 0.13 768,698 0.53Foreign Institutional 19,980,919 13.81 20,266,586 14.01InvestorsPublic Financial 8,316,122 5.75 8,707,469 6.02InstitutionsMutual Funds 4,926,547 3.41 1,123,175 0.78Nationalised & other 110,397 0.08 251,704 0.17banksNRIs & OCBs 650,056 0.45 613,745 0.42Others 22,404,180 15.48 23,750,192 16.42Total 144,683,510 100.00 144,683,510 100.00Source: Bajaj Auto Ltd. Annual Report for the fiscal year 2008-09 (Yahoo Finance-www.yahoofinance.com) 9
  10. 10. Mergers and AcquisitionsBajaj Holdings & Invst. Ltd.Deals where company is targetDate Deal Type Acquirer Company Price/Cost Event Date Event Name Swap ratio12-Jan-00 Sale of To Joint Venture With Kawasaki 0 00 Saturday Takeover Plans Dropped asset (P) 0000 12-Jan-00 First media announcement09-Apr-00 Takeover Buy-Back Of Shares 72829.2 09-Mar-00 Buy Back 09-Mar-00 First media announcement 28-Mar-00 Board meeting 29-Jul-00 AGM Date 27-Oct-00 Deal Completed07-Mar-06 Takeover Life Insurance Corpn. Of India 60705.25 07-Mar-06 First media announcement 07-Mar-06 Preferential Allotment17-May-07 Sale of Bajaj Auto Ltd. 150000 17-May-07 Board of Directors approval asset 18-Aug-07 High Court Directed Shareholders Meeting 18-Aug-07 High Court Directed Unsecured creditors Meeting 18-Aug-07 Shareholders approval 19-Feb-08 High Court Approval Date 20-Feb-08 Merger Date w.e.f 03-Apr-08 Date of Allotment17-May-07 Sale of Bajaj Finserv Ltd. 80000 17-May-07 Board of Directors approval asset 18-Aug-07 High Court Directed Shareholders Meeting 18-Aug-07 High Court Directed Unsecured creditors Meeting 18-Aug-07 Shareholders approval 19-Feb-08 High Court Approval Date 20-Feb-08 Merger Date w.e.fDeals where company is AcquirerDate Deal Type Target company Price/Cost Event Date Event Name Swap ratio09-Mar-99 Takeover I C I C I Ltd. [Merged] 443.84 09-Mar-99 First media announcement 12-May-99 Deal Completed29-Jun-99 Takeover Force Motors Ltd. 0 29-Jun-99 First media announcement08-Jun-00 Takeover I C I C I Ltd. [Merged] 0 08-Jun-00 First media announcement 15-Jul-00 Takeover Force Motors Ltd. 0 15-Jul-00 First media announcement 10
  11. 11. 19-Jan-01 Takeover Mukand Engineers Ltd. 0 19-Jan-01 Stock Exchange Announcement28-Mar-03 Takeover Bajaj Auto Finance Ltd. 1401.62 28-Mar-03 Stock Exchange Announcement 31-Mar-03 Inter-se Tranfer20-Dec-04 Takeover Maharashtra Scooters Ltd. 4725 20-Dec-04 First media announcement 18-Jan-06 Deal Completed 18-Jan-06 Preferential Allotment02-Feb-06 Takeover Bajaj Auto Finance Ltd. 5027.04 18-Jan-06 Deal Completed 18-Jan-06 Preferential Allotment 02-Feb-06 First media announcement 02-Feb-06 Stock Exchange Announcement30-Mar-06 Takeover Mukand Ltd. 1738.73 30-Mar-06 Deal Completed 30-Mar-06 First media announcement 30-Mar-06 Open Market Purchases08-Jul-06 Takeover I C I C I Bank Ltd. 33986.21 08-Jul-06 Deal Completed 08-Jul-06 First media announcement 08-Jul-06 Open Market Purchases08-Jul-06 Takeover I C I C I Bank Ltd. 29296.56 08-Jul-06 Deal Completed 08-Jul-06 First media announcement 08-Jul-06 Open Market Purchases06-Nov-07 Takeover K T M Power Sports A G 30000 06-Nov-07 First media announcement Source: Prowess. 11
  12. 12. Financial Functions of the OrganisationBajaj Auto is considered to be amongst the most conservative organisations in the Industryand this reflects in their equity and debt structure. The company has a very efficient financedepartment to take care of its investments to assure the welfare and profit maximization of itsshareholders. Headed by Kevin P D’Sa, the finance department has a gamut ofresponsibilities, least of which is the book keeping and internal auditing. They are expected tobe robust and take decisions that affect every decision of the firm, from production tomarketing, distribution, sales, services and dividend distribution. In light of the modernindustry scenario, the various duties fulfilled by the finance department include-(1) To regulate, supervise and implement a timely, full and accurate set of accounting booksof the firm reflecting all its activities in a manner commensurate with the relevant legislationand regulation in the territories of operation of the firm and subject to internal guidelines setfrom time to time by the Board of Directors of the firm.(2) To implement continuous financial audit and control systems to monitor the performanceof the firm, its flow of funds, the loyalty to the budget, the expenditures, the income, the costof sales and other budgetary items.(3) To timely, regularly and duly prepare and present to the Board of Directors financialstatements and reports as required by all pertinent laws and regulations in the territories of theoperations of the firm and as deemed necessary and demanded from time to time by theBoard of Directors of the Firm.(4) To meet the terms with all reporting, accounting and audit requirements imposed by thecapital markets or regulatory bodies of capital markets in which the securities of the firm aretraded or are about to be traded or otherwise listed.(5) To prepare and present for the approval of the Board of Directors an annual budget, otherbudgets, financial plans, business plans, feasibility studies, investment memoranda and allother financial and business documents as may be required from time to time by the Board ofDirectors of the firm.(6) To alert the Board of Directors and to warn it regarding any irregularity, lack ofcompliance, lack of loyalty, lacunas and problems whether actual or potential concerning thefinancial systems, the financial operations, the financing plans, the accounting, the audits, the 12
  13. 13. budgets and any other matter of a financial nature or which could or does have a financialimplication.(7) To collaborate and coordinate the activities of outside suppliers of financial services hiredor contracted by the firm, including accountants, auditors, financial consultants, underwritersand brokers, the banking system and other financial venues.(8) To maintain a working relationship and to develop additional relationships with banks,financial institutions and capital markets with the aim of securing the funds necessary for theoperations of the firm, the attainment of its development plans and its investments.(9) To fully computerize all the above activities in a combined hardware-software andcommunications system which integrates with the systems of other members of the group ofcompanies?(10) Otherwise, to initiate and engage in all manner of activities, whether financial or other,conducive to the financial health, the growth prospects and the fulfillment of investmentplans of the firm to the best of his ability and with the appropriate dedication of the time andefforts required.Source: Financial Management by IM Pandey 13
  14. 14. WORKING CAPITALIt is a measure of both a companys efficiency and its short-term financial health. In case ofBajaj Auto Ltd. it is related to the working capital requirements . The working capital ratio iscalculated as:Positive working capital means that the company is able to pay off its short-termliabilities. Negative working capital means that a company currently is unable to meet itsshort-term liabilities with its current assets (cash, accounts receivable and inventory).Also known as "net working capital", or the "working capital ratio".Working capital management entails short term decisions - generally, relating to the next oneyear period - which is "reversible". . Working Capital Calculation of Bajaj Auto Ltd.Particulars Rs. In crores 2008 Rs. In million 2007 Rs. In million 2006Current Assets, Loans and 2,939.55 3,848.25 1,780.67Advances(Less) Current Liabilities 3,734.97 4,517.25 2,019.23and ProvisionsWorking Capital ( Current (795.42) (669) (238.56)Assets- CurrentLiabilities)Calculated Ratios Ratios(decimal) Ratios(decimal) Ratios(decimal)Current Ratio (CA/CL) 0.7870 0.8519 0.8818Debt/Equity Ratio 0.8405 0.2937 0.3075Profit Margin 0.0856 0.1314 0.1455The current ratio of a company is a measure of their short term solvency (in the next twelvemonths or business cycle). Higher the Current ratio better is a company positioned to fulfil itsshort term obligations. As evident from the table above, Bajaj Auto is fairly low on theCurrent Ratio scale but still not a matter of immediate concern to the management.The Debt Equity Ratio of a company is a measure of their proportionate use of debt andequity for financing its assets. A high D/E ratio suggests that the company has financed itsgrowth mostly via debt. This can be a concern for the management as the company will now 14
  15. 15. have to bear additional interest burden of debt servicing and hence, lead to volatile earnings.As per calculations above, the D/E ratio seems fairly decent.The Profit Margin ratio of a company is a measure of how well the business is performing interms of profit. It measures the percentage of profits on per rupee of sales and is thus ameasure of efficiency of a company. It determines the company’s ability to withstandcompetition and adverse conditions like rising costs, falling prices, or declining sales in thefuture. As the interest burden is increasing, it could bea possible reason for the falling profitmargin ratio.Source: www.moneycontrol.com 15
  16. 16. Long Term CapitalBajaj Auto Ltd. collects its long term capital through capital market instruments. Capitalmarket instruments are nothing but the following:Capital Market Instruments: Capital market securities include instruments with maturitiesgreater than one year and those with no designated maturity at all. The market is generallydivided according to whether the instruments contain a promised set of cash flows over time,or offer participation in the future profitability of a company. The first sector is usuallyreferred to as the Fixed Income Market, whereas the second is the Equity Market. Preferredstock is an instrument that has some of the characteristics of each of the other two types.Equity SharesEquity shares represent an ownership claim on the earnings and assets of a corporation. Afterholders of debt claims are paid, the management of the company can either payout theremaining earnings to stockholders in the form of dividends or reinvest part or all of theearnings in the business. . Despite limited liability, because of the residual nature of its claimto earnings and assets, shares as a class is the riskiest of the securities discussed to this point.Corporate BondsCorporate bonds promise to pay interest at periodic intervals and to return principal at a fixeddate. Generally corporate bonds are rated as to quality by several agencies, the best known ofwhich are CRISIL, ICRA and CARE. 16
  17. 17. The following are the details for Bajaj Auto Ltd. Mar 08 Mar 07 Mar 06 Sources of funds Owners fund 2008 2007 2006 Equity share 144.68 101.18 101.18 capital Share application - - - money Preference share 0 0 0 capital Reserves & 1,442.91 5,433.14 4,669.55 surplus Loan funds Secured loans 6.95 22.46 0.02 Unsecured loans 1,327.39 1,602.97 1,467.13 Total 1,334.34 1,625.43 1,467.15Source: www.moneycontrol.com 17
  18. 18. Relative Valuation of the Market Price (per share) In this method we try to estimate the value of market price of a company whose value is unknown. For this purpose we take the values of the companies which are in similar structure to the company for which we are trying to analysis. In our case, we compare Bajaj Auto Ltd. With two of its closest competitors, Hero and TVS. COMPANY NAME HERO TVS AVERAGE HONDA MOTOR COMPANY SALES 15775.77 4363.11 ` CRORES NET INCOME 2231.83 88.01 ` CRORES CURRENT 1736.90 145.10 MARKET PRICE ` EPS ` 111.34 4.58 BOOK VALUE ` 173.52 36.43 P/E 15.59 31.67 23.6300 P/BV 10.01 3.98 6.9950 BAJAJ AUTO LTD AVERAGE ESTIMATED STOCK PRICE ` EPS ` 138.01 BOOK VALUE ` 202.40 P/E 20.81 23.6300 3261.1763 P/BV 14.19 6.9950 1415.7880 AVERAGE PRICE ` 2338.4822 Thus estimated market price of BAJAJ AUTO LTD. is Rs 2338.442 per share. 18
  19. 19. Capital Asset Pricing Model (CAPM)Capital Asset Pricing Model is a model that provides a framework to determine the requiredrate of return on an asset and risk of the asset.The required rate of return specified by CAPMhelps in valuing an asset.One can also compare expected(estimated) rate of return on an assetwith its required rate of return and determine whether the asset is fairly valued.As we explainin this section ,under CAPM ,the security market line (FML) exemplifies the relationshipbetween an asset’s risk and its required rate of return.Assumptions of CAPM  Market Efficiency It implies that share prices reflect all the available information.This means that there are a large number of investors holding a small amount of debt.  Risk Aversion and Mean variance optimization It evaluates a security’s return and risk,in terms of the expected return and variance or standard deviation respectively.We prefer the highest rate of return for a given level of risk.This implies that investors are mean variance optimizers and they form efficient portfolios.  Homogenous expectations All investors have the same expectations of their risk and return  Single Time Period All investors decision are based on single time period  Risk Free Rate All investors can lend and borrow at a risk free rate of interest.The Formula for Expected Rate of Return using CAPM is given by:- Ke = Rf + β (Km – Rf)Where, Ke = Expected Rate of return, Rf = Risk Free Rate of Return, such as interest arising from government bonds Km = Market Rate of Return, 19
  20. 20. Significance of BetaIn finance, the beta (β) of a stock or portfolio is a number describing the relation of its returnswith that of the financial market as a whole.An asset with a beta of 0 means that its price is not at all correlated with the market; that assetis independent. A positive beta means that the asset generally follows the market. A negativebeta shows that the asset inversely follows the market; the asset generally decreases in valueif the market goes up and vice versa. Here beta value for Bajaj Auto Ltd. is calculated basedon the market price structure, and using the formula which says, (Cov(m,j))/ ²Where, Cov(m,j) is the covariance between market price and the share price ² is the variance of the market price. (β) Calculated is 0.875739489For detailed calculations, please refer Tables.Calculation of Return on EquityFrom the equation for CAPM Model, we see that Return on Investments isReturn=risk free return + β(market return – risk free return) =6.42+0.8757(16.4854-6.42) =15.2347% 20
  21. 21. Weighted Average Cost of Capital (WACC)A firm’s cost of capital is the average required rate of return on the aggregate of investmentprojects. It is useful for: Evaluating investment decisions. Designing a firm’s debt policy Appraising the financial performance of top management.The component cost of capital is as follows:Cost of Equity A firm’s capital can be divided into internal and external equity. The internal equity of a firm is its retained earnings. In the absence of floatation cost , the cost of retained earnings is equal to the cost of equity . The cost of equity of Tata Motors has been calculated as per the CAPM model which is, equal to 28.80% (refer to page no. )Cost of Debt Tata Motors debt structure as on 31st March 2010 is `16625.91 crores.The following has been our assumption for calculation of cost of debt:  Rate of interest on debt is calculated by taking the average of the last five years total interest payments and the last five years total debt.  As the maturity period cannot be determined in our case we calculate the cost of debt by the formula Kd = ∑I(1-t)/n Where, I = interest rate t = tax rate  Corporate dividend tax rate is 30% Tax rate = 30% Therefore, kd = .5033 21
  22. 22. Calculation of Weighted Average Cost of Capital(as per Market and Book value)Component Weights as Weights as Cost of Weights as Weights as per Market per Book Individual per Market per Book Value(as per Value(as per capital (in %) Value * cost Value * cost balance sheet balance sheet of individual of individual ,march 2010) ,march 2010) capital capitalEQUITY .9097 .0339 15.4254 14.0325 .5229CAPITALRETAINED .0610 .6524 15.4254 .9409 10.0635EARNINGSDEBT .0293 .3137 .5033 .0147 .1579WACC 14.9881 10.7443 22
  23. 23. DIVIDEND DISCOUNT MODEL(DDM)People hold common stocks in their portfolios for two reasons1)A respective group of common stocks bought at a reasonable price level can be counted toprovide a higher total return than bonds.2)Common stocks can be held at a protective measure during inflation because unlike equity ,a bond’s value declines as inflation rises. There should be a standard value for judgingwhether a stock is underpriced or overpriced in the market place. We call this standard valuethe intrinsic value.Intrinsic value is the value of a stock which is justified by the asset , earnings ,dividends,definite prospects and the factor of the management of the issuing company. The majorcomponents of intrinsic values are1)The earning power and profitability of the management in the employment of assets.2)Dividends paid and the ability to pay such dividends in the future.3)Estimates of the growth of earnings.4)Stability and predictability of these quantitative and qualitative projections.Thus,in essence the intrinsic value of a firm’s shares is its economic value as a going concern,taking account of its characteristics , the nature of its business and the investmentenvironment.According to the dividend capitalization approach which is a conceptually soundapproach,the value of an equity share is the discounted present value of the dividendsreceived plus the present value of the resale price expected when the equity share is sold.Therefore, to apply this approach for valuation of equity stock the following assumptions areto be made is to1) Dividends are paid annually which is a common practice for business firms in India.2) The first payment of dividend is to be made 1 year after the equity share is bought. 23
  24. 24. Year Dividend per share Growth 2000 10 0 2001 8 (0.22314) 2002 14 0.559616 2003 14 0 2004 25 0.579818 2005 25 0 2006 40 0.470004 2007 40 0 2008 20 (0.69315) 2009 22 0.09531ke= 0.154254Do=40P0(expected)= 259.3124P0(Actual)= 2108Dividend Growth Rate= 0.138629 24
  25. 25. CONCLUSION1.) The company sold 2, 20,429 two-wheelers in December 2009 compared to 1, 19,215 unitssold in the same month of the previous year, registering a growth of 85%.2.) The company hopes to reach a sales target of one million in the year 2010-11 with thelaunch of its new Pulsar 135 LS. It is the world’s first four valve DTS i-engine bike and theonly light sports bike in the country.3.) The company is planning to set up an assembly plant in a free trade zone in Manaus in Brazil next financial year.4.) To address the tight competition in the two wheeler market, the company is introducing new models time-to-time.5.) The company had introduced DTSi engine for better fuel efficiency and lower emissions.6.) The company as always has been the favourite pick for investors among the auto sector stocks. Company has been on aggressive mode to tame the competition created by its competitors. It has been launching various new entrants in the markets recently. Considering an expected improvement in two-wheeler industry in fourth quarter of the current fiscal on increased liquidity, Bajaj Auto is certainly a very good option one can go for. 25
  26. 26. EXHIBITSExhibit I: Balance Sheet: Bajaj Autos Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mthsSources Of FundsTotal Share 101.18 101.18 144.68 144.68 144.68CapitalEquity Share 101.18 101.18 144.68 144.68 144.68CapitalShare 0 0 0 0 0ApplicationMoneyPreference 0 0 0 0 0Share CapitalReserves 4,669.55 5,433.14 1,442.91 1,725.01 2,783.66Revaluation 0 0 0 0 0ReservesNetworth 4,770.73 5,534.32 1,587.59 1,869.69 2,928.34Secured 0.02 22.46 6.95 0 12.98LoansUnsecured 1,467.13 1,602.97 1,327.39 1,570.00 1,325.60LoansTotal Debt 1,467.15 1,625.43 1,334.34 1,570.00 1,338.58Total 6,237.88 7,159.75 2,921.93 3,439.69 4,266.92LiabilitiesTotal Share 101.18 101.18 144.68 144.68 144.68CapitalEquity Share 101.18 101.18 144.68 144.68 144.68CapitalShare 0 0 0 0 0ApplicationMoneyPreference 0 0 0 0 0Share CapitalReserves 4,669.55 5,433.14 1,442.91 1,725.01 2,783.66 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mthsApplication Of FundsGross Block 2,894.22 3,178.54 2,994.68 3,350.20 3,379.25Less: Accum. 1,761.22 1,904.94 1,726.07 1,807.91 1,899.66Depreciation 26
  27. 27. Net Block 1,133.00 1,273.60 1,268.61 1,542.29 1,479.59Capital Work 43.33 107.62 34.74 106.48 120.84in ProgressInvestments 5,856.97 6,447.53 1,857.14 1,808.52 4,021.52Inventories 272.93 309.7 349.61 338.84 446.21Sundry 301.55 529.83 275.31 358.65 272.84DebtorsCash and 80.84 62.16 54.74 135.68 100.2Bank BalanceTotal 655.32 901.69 679.66 833.17 819.25CurrentAssetsLoans and 2,282.98 2,925.24 1,099.68 1,567.09 2,291.29AdvancesFixed 1.25 21.32 1.33 1.19 1.21DepositsTotal CA, 2,939.55 3,848.25 1,780.67 2,401.45 3,111.75Loans &AdvancesDeffered 0 0 0 0 0CreditCurrent 1,419.08 1,683.46 1,185.19 1,378.20 2,218.06LiabilitiesProvisions 2,315.89 2,833.79 834.04 1,224.15 2,248.72Total CL & 3,734.97 4,517.25 2,019.23 2,602.35 4,466.78ProvisionsNet Current -795.42 -669 -238.56 -200.9 -1355.03AssetsMiscellaneous 0 0 0 183.3 0Expenses 6,237.88 7,159.75 2,921.93 3,439.69 4,266.92TotalAssetsContingent 719.06 811.66 1,129.29 924.96 818.25LiabilitiesBook Value 471.49 546.96 109.73 129.23 202.4(Rs) 27
  28. 28. Exhibit II : Profit and Loss account of Bajaj Auto Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Income Sales 8,653.83 10,741.91 9,856.66 9,310.24 12,420.95 Turnover Excise Duty 1,081.70 1,321.67 1,029.51 610.07 607.7 Net Sales 7,572.13 9,420.24 8,827.15 8,700.17 11,813.25Other Income 458.96 567.16 170.27 -4.52 38.76 Stock 49.01 -0.9 67.85 -24.49 47.6AdjustmentsTotal Income 8,080.10 9,986.50 9,065.27 8,671.16 11,899.61 ExpenditureRaw Materials 5,446.62 6,969.50 6,760.04 6,502.10 8,187.11Power & Fuel 59.09 79.34 69.2 60.89 70.35CostEmployee 282.45 310.07 350.09 366.67 411.76CostOther 79.5 74.53 53.72 58.1 73.8ManufacturingExpensesSelling and 299.99 457.17 390.15 383.41 423.87AdminExpensesMiscellaneous 198.52 230.89 209.63 226.22 221.94ExpensesPreoperative -24.81 -32.05 -23.04 -14.42 -15.67ExpCapitalisedTotal 6,341.36 8,089.45 7,809.79 7,582.97 9,373.16Expenses Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mthsOperating 1,279.78 1,329.89 1,085.21 1,092.71 2,487.69ProfitPBDIT 1,738.74 1,897.05 1,255.48 1,088.19 2,526.45Interest 0.34 5.34 5.16 21.01 5.98PBDT 1,738.40 1,891.71 1,250.32 1,067.18 2,520.47Depreciation 191 190.26 173.96 129.79 136.45 28
  29. 29. Other Written 3.62 0.39 1.12 0 0OffProfit Before 1,543.78 1,701.06 1,075.24 937.39 2,384.02TaxExtra-ordinary 59.03 26.6 59.32 18.72 24.25itemsPBT (Post 1,602.81 1,727.66 1,134.56 956.11 2,408.27Extra-ordItems)Tax 479.11 490.09 378.78 301.61 707.5Reported Net 1,101.63 1,237.96 755.95 656.48 1,702.73ProfitTotal Value 894.74 1,119.95 1,049.75 1,080.87 1,186.05AdditionPreference 0 0 0 0 0DividendEquity 404.74 404.73 289.37 318.3 578.73DividendCorporate 56.76 68.78 49.18 54.1 96.12Dividend TaxShares in 1,011.84 1,011.84 1,446.84 1,446.84 1,446.84issue (lakhs)Earning Per 108.87 122.35 52.25 45.37 117.69Share (Rs)Equity 400 400 200 220 400Dividend (%)Book Value 471.49 546.96 109.73 129.23 202.4(Rs) 29
  30. 30. Exhibit III : Cash Flow Statement of Bajaj Auto Mar 06 Mar 07 Mar 09 Mar 10 12 mths 12 mths 12 mths 12 mthsNet Profit Before Tax 1580.74 1728.05 958.09 2411.13Net Cash From Operating Activities 1072.62 681.73 411.49 2737.11Net Cash (used in)/from -1087.5 -429.99 -207.66 -2163.6Investing ActivitiesNet Cash (used in)/from Financing Activities -11.68 -250.35 -123.03 -608.95Net (decrease)/increase In Cash and Cash -26.6 1.39 80.8 -35.46EquivalentsOpening Cash & Cash Equivalents 108.69 82.09 56.07 136.87Closing Cash & Cash Equivalents 82.09 83.48 136.87 101.41Exhibit IV : Bajaj Auto & Sensex Price NSE BAJAJ AUTO Date Index( Prices) Percentage Share Prices Percentage Returns Returns 1/3/2000 1592.2 0 359.75 0 2/1/2000 1549.5 -2.68182 298.25 -17.0952 3/1/2000 1712.7 10.53243 384 28.75105 4/3/2000 1534.75 -10.39 356 -7.29167 5/2/2000 1333.45 -13.1161 365 2.52809 6/1/2000 1349 1.166148 356.1 -2.43836 7/3/2000 1495.25 10.84136 354.25 -0.51952 8/1/2000 1326.85 -11.2623 357.35 0.875088 9/4/2000 1427.75 7.604477 334.3 -6.45026 10/3/2000 1282 -10.2084 264.5 -20.8794 11/1/2000 1200.8 -6.33385 262.65 -0.69943 12/1/2000 1276.2 6.279147 271.35 3.312393 1/1/2001 1254.3 -1.71603 290 6.873042 2/1/2001 1359.15 8.359244 346.1 19.34483 3/1/2001 1358.05 -0.08093 346.1 0 30
  31. 31. 4/2/2001 1138.1 -16.196 346.1 0 5/2/2001 1137.2 -0.07908 346.1 0 6/1/2001 1148.05 0.954098 346.1 0 7/2/2001 1100.75 -4.12003 253.45 -26.7697 8/1/2001 1063.15 -3.41585 255 0.61156 9/3/2001 1048.05 -1.42031 246.05 -3.5098 10/1/2001 910.1 -13.1625 334.3 35.86669 11/1/2001 994 9.218767 382 14.26862 12/3/2001 1065.4 7.183099 378.95 -0.79843 1/1/2002 1055.3 -0.948 437.75 15.51656 2/1/2002 1081.65 2.49692 457.65 4.545974 3/1/2002 1178 8.907687 464.25 1.44215 4/1/2002 1138.95 -3.31494 487.95 5.105008 5/2/2002 1093.3 -4.00808 484.55 -0.69679 6/3/2002 1039.75 -4.89802 502.6 3.725106 7/1/2002 1068.95 2.808367 502.6 0 8/12/2002 1010.6 -5.45863 418.15 -16.8026 9/2/2002 963.15 -4.69523 389.5 -6.85161 10/1/2002 951.4 -1.21996 421.95 8.331194 11/1/2002 1049.7 10.33214 470.4 11.4824 12/2/2002 1093.5 4.172621 502.3 6.781463 1/1/2003 1041.85 -4.72337 512.95 2.120247 2/3/2003 1063.4 2.068436 516.35 0.662833 3/3/2003 978.2 -8.01204 479.65 -7.10758 4/1/2003 934.05 -4.51339 483 0.698426 5/1/2003 1006.8 7.788662 515.1 6.645963 6/2/2003 1134.15 12.64899 573.9 11.41526 7/1/2003 1185.85 4.55848 637.35 11.05593 8/1/2003 1356.55 14.39474 728 14.22295 9/1/2003 1417.1 4.463529 790.75 8.619505 10/1/2003 1555.9 9.794651 915.25 15.74455 11/3/2003 1615.25 3.814513 981.15 7.200219 12/1/2003 1879.75 16.37517 1137.35 15.92009 1/1/2004 1809.75 -3.7239 997.2 -12.3225 2/2/2004 1800.3 -0.52217 906.6 -9.08544 3/1/2004 1771.9 -1.57751 912.05 0.601147 4/1/2004 1796.1 1.365766 920.7 0.948413 5/3/2004 1483.6 -17.3988 871.9 -5.30031 6/1/2004 1505.6 1.482879 884.55 1.450854 7/1/2004 1632.3 8.41525 822.15 -7.05443 8/2/2004 1631.75 -0.03369 932.65 13.44037 9/1/2004 1745.5 6.971043 1024.65 9.864365 10/1/2004 1800.1 3.128044 963.5 -5.96789 11/1/2004 1958.8 8.816177 1010.25 4.852102 12/1/2004 2080.5 6.212988 1131.45 11.99703 1/3/2005 2057.6 -1.1007 1037.8 -8.27699 2/1/2005 2103.25 2.218604 1033.3 -0.43361 3/1/2005 2035.65 -3.21407 1081.35 4.65015 4/1/2005 1902.5 -6.54091 1090 0.799926 5/2/2005 2087.55 9.726675 1227.4 12.6055 6/1/2005 2220.6 6.3735 1373.5 11.9032131
  32. 32. 7/1/2005 2312.3 4.129515 1443.3 5.081908 8/1/2005 2384.65 3.128919 1413.6 -2.05778 9/1/2005 2601.4 9.089384 1692.1 19.70147 10/3/2005 2370.95 -8.85869 1705.2 0.774186 11/1/2005 2652.25 11.86444 2010.75 17.91872 12/1/2005 2836.55 6.948817 2000.8 -0.49484 1/2/2006 3001.1 5.801061 2155 7.706917 2/1/2006 3074.7 2.452434 2601.4 20.71462 3/1/2006 3402.55 10.66283 2746.85 5.59122 4/3/2006 3508.1 3.102085 2941.35 7.080838 5/1/2006 3185.3 -9.20156 2744.9 -6.67891 6/1/2006 3128.2 -1.79261 2736.85 -0.29327 7/3/2006 3143.2 0.479509 2473.65 -9.6169 8/1/2006 3413.9 8.612242 2697.5 9.04938 9/1/2006 3588.4 5.111456 2998.2 11.14736 10/3/2006 3744.1 4.338981 2751.05 -8.24328 11/1/2006 3954.5 5.619508 2644.75 -3.86398 12/1/2006 3966.4 0.300923 2618.85 -0.9793 1/2/2007 4082.7 2.93213 2762.5 5.485232 2/1/2007 3745.3 -8.26414 2616.95 -5.26878 3/1/2007 3821.55 2.035885 2425.45 -7.31768 4/2/2007 4087.9 6.969685 2445 0.806036 5/3/2007 4295.8 5.085741 2224.35 -9.02454 6/4/2007 4318.3 0.523767 2128.85 -4.29339 7/2/2007 4528.85 4.875761 2360.15 10.86502 8/1/2007 4464 -1.43193 2345.1 -0.63767 9/3/2007 5021.35 12.48544 2539.7 8.298154 10/1/2007 5900.65 17.51123 2474.2 -2.57904 11/1/2007 5762.75 -2.33703 2709.1 9.493978 12/3/2007 6138.6 6.52206 2613.3 -3.53623 1/1/2008 5137.45 -16.3091 2355.65 -9.85918 2/1/2008 5223.5 1.674955 2280.15 -3.20506 3/3/2008 4734.5 -9.36154 691.45 -69.6752 4/1/2008 5165.9 9.111839 709.2 2.567069 5/2/2008 4870.1 -5.72601 639.4 -9.84208 6/2/2008 4040.55 -17.0335 451 -29.4651 7/1/2008 4332.95 7.236639 539 19.5122 8/1/2008 4360 0.624286 588 9.090909 9/1/2008 3921.2 -10.0642 609.9 3.72449 10/1/2008 2885.6 -26.4103 540 -11.4609 11/3/2008 2755.1 -4.52246 318 -41.1111 12/1/2008 2959.15 7.406265 391 22.95597 1/1/2009 2874.8 -2.85048 473.65 21.13811 2/2/2009 2763.65 -3.86636 537 13.37485 3/2/2009 3020.95 9.310151 620 15.45624 4/1/2009 3473.95 14.99528 636.15 2.604839 5/4/2009 4448.95 28.06603 1024.9 61.1098 6/1/2009 4291.1 -3.54803 981.3 -4.25407 7/1/2009 4636.45 8.048053 1227.8 25.11974 8/3/2009 4662.1 0.553225 1217 -0.87962 9/1/2009 5083.95 9.048497 1495.05 22.8471732
  33. 33. 10/1/2009 4711.7 -7.32206 1391 -6.95963 11/3/2009 5032.7 6.812828 1559 12.07764 12/1/2009 5201.05 3.345123 1754.05 12.51123 1/4/2010 5225.65 0.472981 1780.05 1.482284 2/11/2010 4922.3 -5.80502 1812.1 1.800511 3/2/2010 5249.1 6.639173 2018 11.36251 4/1/2010 5278 0.550571 2108 4.459861 5/3/2010 5086.3 -3.63206 2220.2 5.322581 6/1/2010 5312.5 4.447241 2500 12.60247 7/1/2010 5367.6 1.037176 2688 7.52 8/2/2010 5402.4 0.648334 2740 1.934524 9/1/2010 5479.4 1.425292 2870 4.744526Exhibit VAnnual results in brief :: Bajaj Auto Mar 06 Mar 07 Mar 08 Mar 09 Mar 10Sales 7,572.13 9420.24 8827.15 8700.17 11813.25Operating profit 1279.28 1329.89 1085.21 1092.71 2487.69Interest 0.34 5.34 5.16 21.01 5.98EPS (Rs) 108.87 122.35 52.25 45.37 117.69Annual results in brief :: TVS Mar 06 Mar 07 Mar 08 Mar 09 Mar 10Sales 3234.96 3854.96 3219.50 3670.92 4363.11Operating profit 206.92 139.95 45.31 121.08 122.25Interest 20.99 42.35 11.47 64.61 63.17EPS (Rs) 4.93 2.8 1.34 1.35 3.71 33
  34. 34. Annual results in brief :: Hero Honda Mar 06 Mar 07 Mar 08 Mar 09 Mar 10Sales 8719.21 9905.95 10345.01 12325.38 15775.77Operating profit 1381.98 1201.96 1367.77 1753.02 2661.97Interest 15.58 13.76 13.47 13.04 -20.62EPS (Rs) 48.64 42.96 48.47 64.19 111.77 34
  35. 35. APPENDIXFORMULAE USED  Debt-Equity Ratio = Total Debt/Total Equity  Current Ratio = Current Assets/Current Liabilities Profitability Ratio = (Net Profit / Net Sales)*100  Covariance XY =Standard Deviation X * Standard Deviation Y * Correlation XY  Beta = Covariance(Kj ,Km) / Variance(Km)  CAPM is represented mathematically by Kj = Rf + Bj( Rm – Rf) Where, Kj = Expected or Required Rate Of Return on security j Rf = Risk-Free Rate Of Return βj = Beta Coefficient Of Security j Rm = Return on market portfolio  Dividend Discount Model Single Period Valuation Model P0= D1/(Ke-g) Where, P0 = Current Market Price Of Share D1 = Expected Dividend a year hence Ke = Required Rate Of Return g= Growth Rate  P/E Ratio = Market Price / EPS  P/B Ratio = Market Price / Book Value 35
  36. 36.  EPS= (Expected PAT – Preference Dividend) / ( No. Of Outstanding Equity Share) DPS = Dividend Payout Ratio * EPS Enterprise Value = (Total Equity + Total Debt) - Cash In Hand and Bank Cost Of Term Loans Kt=I ( 1 – T ) Where, I = Interest Rate T= Tax Rate Cost Of Equity Capital Ke = (D1 / Pe) + g Where, D1 = Expected Return Of The Next Year Pe= Price Per Equity Share g = Growth Rate Cost Of Debenture Kd = [ I(1-T) + {(F-P)/ N} ] / [ (F+P)/2 ] Where, Kd = Cost Of Debenture I = Annual Interest Payment Per Debenture Capital T = Corporate Tax Rate F = Redemption Price Per Debenture P = Net Amount Realized Per Debenture N = Maturity Period36
  37. 37. Weighted Average Cost of Capital= We*Ke + Wd*Kd + Wp*Kp + Wre* KreWhere,We= Proportion of equity in capital structure.Wd= Proportion of debt in capital structure.Wp= Proportion of preference shares in capital structureWre = Proportion of retained earnings in capital structureKe = Cost of equityKd = Cost of debtKp = Cost of preference share capitalKre = Cost of retained eartnings 37
  38. 38. BIBLIOGRAPHY www.yahoofinance.com www.rediffwiz.com www.moneycontrol.com www.fundinguniverse.com Financial Management by IM Pandey Prowess 38

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