Ratio and trend analysis for Bajaj motors and their potential threats. Other topics covered are: 1.Business model 2.Quality of earnings 3.Accounting policies and much more....

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A PROJECT REPORT ON
“Financial Analysis of Bajaj Auto Ltd.”
BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY
SEPTEMBER 2020

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TABLE OF CONTENTS
ACKNOWLEDGEMENT…….………………………………….3
INTRODUCTION ABOUT THE COMPANY………………….4
BUSINESS MODEL……………………………………………..5
DECISION FOR GRANTING LOAN………………………….6
ALARMING SIGNAL……………………………………………7
KEY FEATURES OF ACCOUNTING POLICY………………8-9
POTENTIAL SECURITIES IN CAPITAL STRUCTURE……10
QUALITY OF EARNINGS……………………………………..11
ANNEXURE……………………………………………………..12

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ACKNOWLEDGEMENT
An extra ordinary work cannot be done through a single
man’s effort. It is only possible with a team that has
continuous and constant suggestion and guidance from
mentors.
With due respect and regards we wish to express my
deep sense of gratitude and sincere thanks to Dr. Meena
Bhatia Ma’am for giving such wonderful project to work
on and be a constant guide and made the process of
learning an enjoyful one.
We would like to thank her for her valuable time and
suggestion that she recommended to us, without which
the project would have been a herculean task.

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INTODUCTION
TYPE: Public Limited
INDUSTRY: Automotive
FOUNDED: 29 November, 1945
HEADQUARTERED: Pune, Maharashtra
CEO: Rajiv Bajaj
FOUNDER: Jamnalal Bajaj
REVENUE: INR 31,804 crore (FY 19)
Bajaj Auto Limited is an Indian multinational two-wheeler and three-
wheeler manufacturing company based in Pune, Maharashtra. It
manufactures motorcycles, scooters and auto rickshaws. Bajaj Auto is a
part of the Bajaj Group. It was founded by Jamnalal Bajaj in Rajasthan in
the 1940s.
We have chosen TVS Motor Company as our competitor and we have
used it as a proxy for industry average.
TVS Motor Company Limited is an Indian multinational motorcycle
company headquartered at Chennai, India. It is the third largest
motorcycle company in India with a revenue of over ₹20,000 crore in
2018–19. The company has an annual sale of 3 million units and an
annual capacity of over 4 million vehicles.

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BUSINESS MODEL
Bajaj Auto is engaged in the business of manufacturing and distribution of
automobiles such as motorcycles, commercial vehicles etc. and its
accessories. The Company sells its products in India as well as various
other global markets i.e. in more than 70 countries globally.
Bajaj Auto’s total turnover stood at 31,652 crores — a marginal decline of
0.5% from that of the previous year, which was the Company’s highest
turnover ever. Net sales declined by 1.5% to 29,112 crores, which is the
second highest in Bajaj Auto’s history. Operating earnings before interest,
tax, depreciation and amortisation (EBITDA) declined by 1.0% to 5,253
crore, the Company’s second highest. The operating EBITDA margin is
17.6% of net sales and other operating income, versus 17.5% in the
previous year. Operating profit declined by 0.7% to 5,004 crores. The
operating profit margin is 16.7% of net sales and other operating income
points above the previous year. Profit before tax (PBT) before exceptional
items grew by 3.4% to 6,580 crores, which was the Company’s highest
ever. Surplus cash and cash equivalent as on 31 March 2020 reduced by
12.5% to 14,322 crores, on account of payment of interim dividend in
FY2020. Therefore, despite a 17.5% drop in the total number of
motorcycles sold by the industry in India and a 9.2% decline in the number
of three-wheelers sold, Bajaj Auto did well for itself. It earned the highest
ever PBT (before exceptional items); and the benefits of a lower corporate
tax rate helped in earning its highest ever PAT.

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DECISION FOR GRANTING LOAN
Yes, as a banker we will grant loan to Bajaj Auto Ltd. as looking on various
financials provided by the company and doing trend analysis of the past
five years, we found that the net profit increased over the previous years
whereas the total expenditure remains constant. Bajaj is an established
brand in the market and has proved itself to be a market leader. The only
problem is with the cash flows which every automotive company has to
go through. The company was able to make payments to its creditor on
time and is giving dividends regularly. The company does not have much
loans and what they had, they are making payment beforehand.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Sales Other Income Total Income Total
Expenditure
EBIT Interest Tax Net Profit
TREND OF INCOME STATEMENT
TREND ANALYSIS INCOME STATEMENT Mar-20 TREND ANALYSIS INCOME STATEMENT Mar-19
TREND ANALYSIS INCOME STATEMENT Mar-18 TREND ANALYSIS INCOME STATEMENT Mar-17
TREND ANALYSIS INCOME STATEMENT Mar-16
0
0.5
1
1.5
2
2.5
Share
Capital
Reserves &
Surplus
Current
Liabilities
Other
Liabilities
Total
Liabilities
Fixed Assets Current
Assets
Other Assets Total Assets
TREND OF BALANCE SHEET
TREND ANALYSIS BALANCE SHEET Mar-20 TREND ANALYSIS BALANCE SHEET Mar-19
TREND ANALYSIS BALANCE SHEET Mar-18 TREND ANALYSIS BALANCE SHEET Mar-17
TREND ANALYSIS BALANCE SHEET Mar-16

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ALARMING SIGNAL
By studying our financials, we conclude that contingent liability and cash
and bank is an alarming signal for Bajaj Auto Ltd.
Cash and bank have decline by 66.59%. In the year 2019 cash and bank
was 922.81 and in 2020, it declined to 308.27 crores. Contingent liability
has also arised in this year of 1980 crore rupees. There is no increase in
Asset mainly due to increase in total expenditure.
859.52
293.68
788
922.81
308.27
0
100
200
300
400
500
600
700
800
900
1000
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
RS.INCRORES
YEAR
Cash and Bank

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KEY FEATURES OF ACCOUNTING POLICY
Inventory-
Cost of inventories have been computed to include all costs of purchases
(including materials), cost of conversion and other costs incurred in
bringing the inventories to their present location and condition.
• Finished stocks of vehicles and auto spare parts and stocks of work-
in-progress are valued at cost of manufacturing or net realisable
value whichever is lower. Cost is calculated on a weighted average
basis.
• Stores, packing materials and tools are valued at cost arrived at on
a weighted average basis or net realisable value, whichever is
lower.
• Raw materials and components are valued at cost arrived at on a
weighted average basis or net realisable value, whichever is lower.
• Inventory of machinery spares and maintenance materials not being
material are expensed in the year of purchase.
• Goods in transit are stated at actual cost incurred up to the date of
Balance Sheet. Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs of completion
and the estimated costs necessary to make the sale.
Property, Plant & Equipment-
• Capital work in progress, property, plant and equipment except land
are carried at historical cost of acquisition, construction or
manufacturing, as the case may be, less accumulated depreciation
and amortisation. Freehold land is carried at cost of acquisition.
• Cost represents all expenses directly attributable to bringing the
asset to its working condition capable of operating in the manner
intended. Such cost includes the cost of replacing part of the plant
and equipment, if the recognition criteria are met. When significant
parts of plant and equipment are required to be replaced at intervals,
the Company depreciates them separately based on their specific
useful lives. Likewise, when a major inspection is performed, its cost

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is recognised in the carrying amount of the plant and equipment as
a replacement if the recognition criteria are satisfied. All other repair
and maintenance costs are recognised in the Statement of Profit
and Loss as incurred.
• Costs incurred to manufacture/construct property, plant and
equipment are reduced from the total expense under the head
''Expenses, included in above items, capitalised in the Statement of
Profit and Loss.
• Land and buildings acquired/constructed, not intended to be used in
the operations of the Company and held for earning long-term rental
yields or for capital appreciation or both, and that is not occupied by
the Company, are categorised as investment property.
• The residual values, useful lives and methods of depreciation of
property, plant and equipment are reviewed at regular intervals and
adjusted prospectively, if appropriate.
Revenue Recognition-
Revenue is recognised when control of goods (vehicles or parts)
and services have been transferred to the customer; at an amount
that reflects the consideration which the Company expects to be
entitled in exchange for those goods or services. The timing of when
the Company transfers the goods or provide services may differ
from the timing of the customer's payment. Amounts disclosed as
revenue are net of goods and service tax (GST). The Company has
generally concluded that it is the principal in its revenue
arrangements, except for the agency services below (in respect of
freight), because it typically controls the goods or services before
transferring them to the customer.

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CAPITAL STRUCTURE
Capital structure refers to the way a corporation finance itself
through some combination of equity sales, equity options, bonds,
and loans. A simple capital structure is a capital structure that
contains no potentially dilutive securities. Such companies are only
required to report basic earnings per share (EPS). Examples
of potentially dilutive securities include convertible preferred stock,
convertible debt, stock options, and warrants.
Bajaj Auto’s paid up equity share capital as on 31 march, 2020 was
Rs. 289.37 crores. There was no public issue, rights issue, bonus
issue or preferential issue etc. during the year. Bajaj Auto has not
issued shares with differential voting rights or sweat equity shares.
During the year 2019, Bajaj Auto granted 287,636 stock options
pursuant to Bajaj Auto Employee stock option scheme 2019.

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QUALITY OF EARNINGS
Bajaj Auto’s earnings before interest & tax has constantly decreased.
From 2016 24% to 2017 25% and then we had a shortfall in 2018 22%
being constant in 2019 at 22%, we again saw a shortfall in 2020 and EBIT
came to 21%. The reason being the percentage on total expenditure has
increased over the years. In march 2016 total expenditure was 80%,
March 2017 was 81%, March 2018 was 82%, March 2019 was 83%,
March 2020 was 84%. As we can see that total expenditure is increasing
every year, EBIT has decreased over the year. The sales dropped down
this year due to worldwide pandemic of Covid-19. On the other hand, the
percentage of other income over sales is constant throughout the years.
There is gross increase in other income every year.
0%
1%
2%
3%
4%
5%
6%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Other Income
19%
20%
21%
22%
23%
24%
25%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
EBIT
78%
79%
80%
81%
82%
83%
84%
85%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Total Expenditure

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ANNEXURE
https://drive.google.com/file/d/1ygENJ7VZH
TBlQWJgnG-
oi6rdbM4MdgcT/view?usp=sharing