A Comparative Analysis of Hero Honda Motors Ltd. and Bajaj Auto Ltd.

TERM PAPER ON “A COMPARATIVE ANALYSIS OF HERO HONDA MOTORS LTD. AND BAJAJ AUTO LTD.”

&

SUBMITTED TO: -

SUBMITTED BY:-

DR. BHAWNA JOHRI

AKASH KUMAR AKSHAY SRIVASTAVA ALOK MISHRA GOVIND KUMAR PIYUSH AGRAWAL

FACULTY OF COMMERCE DAYALBAGH EDUCATIONAL INSTITUTE (DEEMED UNIVERSITY) DAYALBAGH AGRA

1

TABLE OF CONTENTS SR. NO.

PARTICULARS

PAGE NO.

1.

INTRODUCTION OF TWO WHEELER INDUSTRY

1

2.

PROFILE OF HERO HONDA MOTORS LTD.

2

3.

PROFILE OF BAJAJ AUTO LTD.

6

4.

RATIO ANALYSIS

10

5.

BALANCE SHEET AND PROFIT & LOSS A/C OF HERO HONDA MOTORS LTD.

14

6.

BALANCE SHEET AND PROFIT & LOSS A/C OF BAJAJ AUTO LTD.

16

7.

ANALYSIS AND INTERPRETATION

18

8.

FINDINGS

30

9.

CONCLUSION

31

2

Introduction to Indian Two-wheeler Industry The Indian automotive industry consists of five segments: commercial vehicles, multi-utility vehicles & passenger cars, two-wheelers, three-wheelers, and tractors. With 78,22,963 units sold in the domestic market and 7,53,591 units exported, the industry (excluding tractors) marked a growth of 43% over the corresponding previous. The two-wheeler sales have witnessed a spectacular growth trend since the mid nineties. India is the second largest producer and manufacturer of two-wheelers in the world. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50's. The Automobile Products of India (API) started manufacturing scooters in the country. Bikes are a major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. Hero Honda Motors Ltd. and Bajaj Auto Ltd. are two of the Indian companies that top the list of world companies manufacturing twowheelers. The two-wheeler market was opened to foreign companies in the mid 1980s. The openness of Indian market to foreign companies lead to the arrival of new models of two-wheelers into India. Easy availability of loans from the banks, 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 in India. This lead to the strong growth of Indian two-wheeler industry.

3

Profile of Hero Honda Motors Ltd. (Hero Honda Motors Ltd.) Hero Honda Motors Ltd. (Now Hero Motocorp Ltd.) is the world's largest manufacturer of two - wheelers, based in India. In 2001, the company achieved the coveted position of being the largest two-wheeler manufacturing company in India and also, the 'World No.1' two-wheeler company in terms of unit volume sales in a calendar year. It continues to maintain this position till date.

Hero Honda Motors Ltd.

Type Traded as

Public company BSE: 500182 NSE: Hero Honda Motors Ltd.

Industry

Automotive

Founded

19 January 1984 (Gurgaon)

Founder(s)

Brijmohan Lall Munjal

Headquarters New Delhi, India Key people

Brijmohan Lall Munjal (Chairman), Pawan Munjal (MD & CEO)

Products

Motorcycles, scooters

Revenue

19,669.290 crore (US$3.92 billion)

Operating income

2,597.07 crore (US$518.12 million) (FY 2010-2011)

Net income

1,927.90 crore (US$384.62 million) (FY 2010-2011)

Parent

Hero Group

Website

www.heromotocorp.com

4

Vision The story of Hero Honda began with a simple vision - the vision of a mobile and an empowered India, powered by its bikes. Hero Motocorp Ltd. is company's new identity which reflects its commitment towards providing world class mobility solutions with renewed focus on expanding company's footprint in the global area.

Mission Its mission is to become a global enterprise fulfilling its customers' needs and aspirations for mobility, setting benchmarks in technology, styling and quality so that it converts its customers into its brand advocates. The company will provide an engaging environment for its people to perform to their true potential. It will continue its focus on value creation and enduring relationship with its partners.

Strategy Its key strategies are to build a robust product portfolio across categories, explore growth opportunities globally, continuously improve its operational efficiency, aggressively expand its reach to customers, continue to invest in brand building activities and ensure customer and shareholder delightment.

Manufacturing Hero Honda Motors Ltd. two wheelers are manufactured across three globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of Uttrakhand.

5

Technology In the 1980's the Company pioneered the introduction of fuel-efficient, environment friendly four-stroke motorcycles in the country. It became the first company to launch the Fuel Injection (FI) technology in Indian motorcycles, with the launch of the Glamour FI in June 2006. Its plants use world class equipment and processes and have become a benchmark in leanness and productivity. The company, in its endeavor to remain a pioneer in technology, will continue to innovate and develop cutting edge products and processes.

Products It offers wide range of two wheeler products that include motorcycles and scooters, and has set the industry standards across all the market segments.

Distribution The Company's growth in the two wheeler market in India is the result of an intrinsic ability to increase reach in new geographies and growth markets. Its extensive sales and service network now spans over to 5000 customer touch points. These comprise a mix of authorized dealerships, service & spare parts outlets, and dealer-appointed outlets across the country.

2010-11 Performance  Total unit sales of 54,02,444 two-wheelers, growth of 17.44 per cent.  Total net operating income of Rs. 19401.15 Crores, growth of 22.32 per cent  Net profit after tax at Rs. 2011.23 Crores

6

 Total dividend of 5250% or Rs. 105 per share including Interin Dividend of Rs. 70 per share on face value of each share of Rs. 2 each  EBIDTA margin for the year 13.49%  EPS of Rs. 96.50

Achievements of the company in 2011  Two-wheeler Manufacturer of the Year award by Bike India magazine  Adjudged the "Bike Manufacturer of the Year" at the Economic Times Zig Wheels Car and Bike Awards  "Most Recommended Two-Wheeler Brand of the Year" award by CNBC Awaaz Consumer Awards  Colloquy Loyalty Awards "Innovation in Loyalty Marketing International 2011" for Hero Good Life  "Best Activity Generating Short or Long-Term Brand Loyalty" by the Promotion Marketing Award of Asia Order of Merit for Hero Good Life  Ranked No 1 brand in the Auto (Two-Wheelers) category in the Brand Equity "Most Trusted Brand" 2011 survey

New Releases Hero and Honda part company, thus forming Hero Honda Motors Ltd. and Honda moving out of the Hero Honda joint venture. November-- Hero launched its first ever Off Road Bike Named Hero "Impulse".

7

Profile of Bajaj Auto Ltd. Bajaj Auto Limited

Type

Public

Traded as

BSE: 532977, NSE: BAJAJ-AUTO BSE SENSEX Constituent

Industry

Automotive

Headquarters Pune, Maharashtra, India Key people

Rahul Bajaj (Chairman)

Products

Motorcycles, Scooters

Revenue

16,974 crore (US$3.39 billion) (2011)

Net income

3,454 crore (US$689.07 million) (2011)

Employees

10,250 (2006-07)

Parent

Bajaj Group

Website

www.bajajauto.com

Bajaj Auto Limited is an Indian motorized vehicle-producing company. Bajaj Auto is a part of Bajaj Group. It is founded by Jamnalal Bajaj at Rajasthan in the 1930s. It is based in Pune, Maharashtra, with plants in Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttaranchal. The oldest plant at Akurdi (Pune) now houses the R&D centre ahead. The Forbes Global 2000 list for the year 2005 ranked Bajaj Auto at 1,946. It features at 1639 in Forbes 2011 list. Over the last decade, the company has successfully changed its image from a scooter manufacturer to a twowheeler manufacturer. Its product range encompasses scooterettes, scooters and motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment. 8

The company is headed by Rahul Bajaj who is worth more than US$1.5 billion. Bajaj Auto came into existence on 29 November 1945 as M/s Bachraj Trading Corporation Private Limited. It started off by selling imported two- and threewheelers in India. In 1959, it obtained license from the Government of India to manufacture two- and three-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985, it started producing at Waluj near Aurangabad. In 1986, it managed to produce and sell 500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicle and produced and sold one million vehicles in a year. According to the authors of Globality: Competing with Everyone from Everywhere for Everything, Bajaj has grown operations in 50 countries by creating a line of value-for-money bikes targeted to the different preferences of entry-level buyers.

Mission  Focus on value based manufacturing  Fostering team work & enhancing the capability of the team  Continual Improvement  Total elimination of wastes  Pollution free & safe environment

Vision To attain World Class Excellency by demonstrating Value added products to customers

9

Spin offs and acquisitions 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 26 May 2008. In November 2007, Bajaj Auto acquired 14.5% stake in KTM Power Sports AG (holding company of KTM Sportmotorcycles AG). The two companies have signed a cooperation deal, by which KTM will provide the know-how for joint development of the water-cooled four-stroke 125 and 250 cc engines, and Bajaj will take over the distribution of KTM products in India and some other Southeast Asian nations. Bajaj said it is open to taking a majority stake in KTM and is also looking at other takeover opportunities. On 8 January 2008, Managing Director Rajiv Bajaj confirmed the collaboration and announced his intention to gradually increase Bajaj's stake in KTM to 25%.

Products Bajaj has made a number of motorcycles, scooters and cars. Motorcycles in current production are the XCD, Platina, Discover, Pulsar and Avenger. Bajaj also Distributes many motorcycles in India for other manufacturers, such as the Kawasaki Ninja 250R, the Ninja 650R and new for 2012, the KTM Duke 200. Cars include the Bajaj ULC ultra-low-cost car.

Achievements of the Company in 2010-11  Bike of the Year 2010 by BBC - TopGear  Hall of Pride Awards by CNBC – Overdrive  Bike of the Year by Bike India 10

 Bike India upto 150 cc by Bike India  2011 Mc of the year upto 250cc by NDTV Car & Bike Awards  "Golden Steering Wheel" for Executive Motorcycle by Auto Build  Best Value for Money Vehicle of the Year by ET Zig Wheels

New releases 

2012 - Bajaj RE 60, mini car for intra-city urban transportation



2012 - KTM Duke 200, launch of 200cc bike from the KTM stable



2012 - Bajaj Pulsar 200 NS, launch of 200cc bike

11

RATIOS A relationship between various accounting figures, which are connected with each other, expressed in mathematical terms, is called accounting ratios. According to Kennedy and Macmillan, "The relationship of one item to another expressed in simple mathematical form is known as ratio." Analysis and interpretation of various accounting ratio gives a better understanding of the financial condition and performance of a business concern.

RATIO ANALYSIS Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures. According to Myers, ―Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements." Advantages and Uses of Ratio Analysis  To workout the profitability  To workout the solvency  Helpful in analysis of financial statement.  Helpful in comparative analysis of the performance  To simplify the accounting information  To workout the operating efficiency  To workout short-term financial position  Helpful for forecasting purposes

12

Limitations of Ratio Analysis  Limited Comparability  False Results  Effect of Price Level Changes  Effect of window-dressing

 Absence of standard university accepted terminology

Main ratios Covered in this Project For interpreting financial information, we include following underlined ratios Profitability Ratios These ratios tell us whether a business is making profits - and if so whether at an acceptable rate. The key ratios are: Ratio

Calculation

Interpretation

Gross Profit Margin

[Gross Profit / Revenue] x 100

This ratio tells us about the business's ability consistently to control its production costs or to manage the margins it makes on products it buys and sells.

Net Profit [Net Profit/Net Sales] x 100 Ratio

Return on capital employed ("ROCE")

Net profit before interest & tax ("EBIT") / Capital Employed

Net Profit Ratio shows the relationship between Net Profit of the concern and its Net Sales. This ratio is helpful to determine the operational ability of the concern. While comparing the ratio to previous years’ ratios, the increment shows the efficiency of the concern & vice versa. ROCE is sometimes referred to as the "primary ratio"; it tells us what returns management has made on the resources made available to them before making any distribution of those returns.

13

Liquidity Ratios Liquidity ratios indicate how capable a business is of meeting its short-term obligations as they fall due: Ratio Current Ratio

Calculation Interpretation Current Assets / A simple measure that estimates whether the business Current Liabilities can pay debts due within one year from assets that it expects to turn into cash within that year. Quick Assets / Not all assets can be turned into cash quickly or Quick Ratio (or Current Liabilities easily. Some - notably raw materials and other stocks - must first be turned into final product, then sold and "Acid the cash collected from debtors. The Quick Ratio Test therefore adjusts the Current Ratio to eliminate all Ratio” assets that are not already in cash (or "near-cash") form.

Solvency Ratio These ratios indicate the capability of a business to pay its long term obligations. Ratio

Calculation

Interpretation

DebtEquity Ratio

Long Term Debt equity ratio shows the relationship between Debt/Shareholders, long-term debts and shareholders funds’. It is also Funds known as ‘External-Internal’ equity ratio.

Turnover Ratio Ratio

Calculation

Inventory COGS / Average Turnover Stock Ratio

Interpretation Stock is a most important component of working capital. This ratio provides guidelines to the management while framing stock policy. It measures how fast the stock is moving through the firm and generating sales. It helps to maintain a proper amount 14

of stock to fulfill the requirements of the concern. A proper inventory turnover makes the business to earn a reasonable margin of profit.

Market Ratio Ratio

Calculation

Earnings Net Profit after per share Tax & Pref. Div. / ("EPS") No. of Equity Shares

Comments A requirement of the London Stock Exchange - an important ratio. EPS measures the overall profit generated for each share in existence over a particular period.

15

Balance Sheet of Hero Honda Motors Ltd. (in Rs. Crore) Mar' 11

Mar' 10

Mar' 09

Mar' 08

Mar' 07

39.94 2916.12 2956.06

39.94 3425.08 3465.02

39.94 3760.81 3800.75

39.94 2946.3 2986.24

39.94 2430.12 2470.06

32.71 1458.45 252.72

66.03 160.63

78.49 153.08

132 130.59

165.17 129.58

4699.94

3691.68

4032.32

3248.83

2764.81

5538.46 1458.18 4080.28 125.14 4205.42 5128.75 5.95

2750.98 1092.2 1658.78 48.14 1706.92 3925.71 7.88

2516.27 942.56 1573.71 120.54 1694.25 3368.75 8.65

1938.78 782.52 1156.26 392.44 1548.7 2566.82 21.27

1800.63 635.1 1165.53 189.92 1355.45 1973.87 1.38

524.93 130.59 71.52 48.87 728.66 1504.57

436.4 108.39 1907.21 24.82 405.76 2882.58

326.83 149.94 219.57 5.89 311.26 1013.49

317.1 297.44 131.09 5.69 185.46 936.78

275.58 335.25 35.78 3.6 263.06 913.27

5063.68 1081.07 6144.75 (4640.18)

3805.06 1026.35 4831.41 (1948.83)

1525.85 526.97 2052.82 (1039.33)

1324.98 499.76 1824.74 (887.96)

1041.92 437.24 1479.16 (565.89)

4699.94

3691.68

4032.32

3248.83

2764.81

Sources of Funds Shareholders' Funds Share Capital Reserves & Surplus Loan Funds Unsecured Deferred Payment Credits Deferred Tax Liabilities

Total Application of Funds Fixed Assets Gross Block Less : Depreciation Net Block Capital Work in Progress Investments Deferred Tax Assets Current Assets, Loans & Advances Inventory Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Less : Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets

Total

16

Profit & Loss A/c of Hero Honda Motors Ltd. (in Rs. Crore) Particulars Income

Mar' 11

Mar' 10

Mar' 09

Mar' 08

Mar' 07

20662.39 1417.36 19245.03 424.87 19669.90

16780.62 1022.44 15758.18 340.61 16098.79

13543.09 1223.97 12319.12 220.72 12539.84

12038.53 1706.73 10331.80 185.42 10517.22

11542.04 1642.08 9899.96 189.95 10089.81

Manufacturing & Other Expenses Depreciation Interest(Net)

16784.77 402.38 (1.85) 17185.3

13096.21 191.47 (20.62) 13267.06

10609.40 180.66 (31.68) 10758.38

8982.43 160.32 (35.81) 9106.94

8726.92 139.78 (22.99) 8843.71

Profit for the Year before tax Provision for Taxation Current Deferred Fringe Benefit Profit after Tax Balance of Profit brought forward Balance available for Appropriation

2404.76

2871.73

1781.46

1410.28

1246.10

392.43 94.02 (92.92) 2011.23 2146.55

590.34 8.32 2233.07 2707.28

475.65 33.85 4.99 1266.97 2021.77

417.49 1.20 4.39 987.20 1594.78

375.81 23.41 2.98 843.90 1224.05

4157.78

4940.35

3288.74

2581.98

2067.95

1397.81 698.91 340.14 276.12 1444.80 4074.45

1597.50 599.06 371.00 226.24 2146.55 4939.11

399.38 67.87 114.21 2707.28 3303.53

379.41 64.48 116.32 2021.77 2562.66

339.47 57.69 76.01 1594.78 2081.94

Gross Sales Less : Excise Duty Net Sales Other Income

Expenditure

Appropriations Interim Dividend Proposed Dividend Tax on Dividend Transfer to General Reserve Balance carried to Balance Sheet

17

Balance Sheet of Bajaj Auto Ltd. (in Rs. Crore) Mar' 11

Mar' 10

Mar' 09

Mar' 08

Mar' 07

289.37 4620.85 4910.22

144.68 2783.66 2928.34

144.68 1725.01 1869.69

144.68 1442.91 1587.59

101.18 5433.14 5534.32

23.53 301.62 197.70 (167.99)

12.98 1325.60 191.81 (190.12)

1570 164.79 (160.60)

6.95 1327.39 141.94 (130.96)

22.46 1602.97 184.49 (110.32)

5265.08

4268.61

3443.88

2932.91

7233.92

3390.88 1912.45 1478.43 69.86 1548.29 4.28 4795.20

3379.25 1899.66 1479.59 41.52 1521.11 4021.52

3333.94 1807.91 1526.03 22.06 1548.09 16.26 1808.52

2984.15 1726.07 1258.08 34.74 1292.82 10.53 1857.14

3174.41 1922.44 1251.97 286.7 1296.39 4.13 6447.53

547.28 362.76 556.49 216.42 1189.64 2872.59

446.21 239.45 101.41 139.36 657.40 1583.83

338.84 358.65 136.87 125.68 1365.23 2325.27

349.61 275.31 56.07 79.95 888.77 1649.71

309.70 529.83 83.48 36.22 2859.40 3818.63

2426.65 1528.63 3955.28 (1082.69) -

2026.25 831.60 2857.85 (1274.02) -

1213.41 1224.15 2437.56 (112.29) 183.3

1043.25 834.04 1877.29 (227.58) -

1498.97 2833.79 4332.76 (514.13) -

5265.08

4268.61

3443.88

2932.91

7233.92

Sources of Funds Shareholders' Funds Share Capital Reserves & Surplus Loan Funds Secured Unsecured Deferred Tax Liabilities Deferred Tax Assets

Total Application of Funds Fixed Assets Gross Block Less : Depreciation Net Block Capital Work in Progress Technical know how Investments Current Assets, Loans & Advances Inventory Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Less : Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure

Total

18

Profit & Loss A/c of Bajaj Auto Ltd. (in Rs. Crore) Particulars Income

Mar' 11

Mar' 10

Mar' 09

Mar' 08

Mar' 07

16931.53 933.41 15998.12 1701.17 17699.29

12118.08 609.58 11508.50 534.98 12043.48

9049.66 612.72 8436.94 495.32 8932.26

9689.95 1026.66 8663.29 505.55 9168.84

10606.09 1313.86 9292.23 783.82 10076.05

Manufacturing & Other Expenses Depreciation Interest

13224.01 122.84 1.69 13348.54

9328.42 136.45 5.98 9470.85

7837.79 129.79 21.01 7988.59

7878.03 173.96 5.16 8057.15

8184.45 190.26 5.34 8348

Profit for the Year before tax Provision for Taxation Current Deferred Fringe Benefit Profit after Tax Balance of Profit brought forward Balance available for Appropriation

4350.75

2411.13

958.09

1134.73

1728.05

983 28.02 3339.73 854.99

716.14 (5.12) 1700.11 -

300.90 (6.79) 9.48 654.50 -

392.75 (17.32) 3.52 755.78 -

501.36 (13.41) 3.00 1237.10 -

4194.72

1700.11

654.50

755.78

1237.10

1157.47 187.77 334 2515.48 4194.72

578.73 96.12 170.27 854.99 1700.11

318.30 54.10 282.10 654.50

289.37 49.18 417.23 755.78

404.73 69.64 762.73 1237.10

Gross Sales Less : Excise Duty Net Sales Other Income

Expenditure

Appropriations Interim Dividend Proposed Dividend Tax on Dividend Transfer to General Reserve Balance carried to Balance Sheet

19

Data Analysis & Interpretation Gross Profit Ratio (GPR):Table Presentation Selected companies Hero Honda Motors Ltd.

Bajaj Auto Ltd.

YEARS

Gross

Net

Gross

Gross

Net

Gross

(31st

Profit

Sales

Profit

Profit

Sales

Profit

MARCH)

Ratio (%)

Ratio

2006-07

1906.84

9899.96

19.26

2391.22

9292.23

25.73

2007-08

2059.34

10331.80

19.93

2042.92

8663.29

23.58

2008-09

2535.31

12319.12

20.58

1973.47

8436.94

23.39

2009-10

3783.25

15758.18

24.01

3438.06

11508.50

29.87

2010-11

3587.21

19245.03

18.64

4199.31

15998.12

26.25

Avg. GPR

20.48

25.76

Graphical Presentation & Interpretation 35

Gross Profit Ratio

30 25 20

Hero Honda Motors Ltd. Bajaj Auto Ltd.

15 10 5 0 2006-07

2007-08

2008-09

2009-10

Year

20

2010-11

The GPR of Hero Honda increased till 2009-10. It indicates that the company has increased its sale as well as its rate of margin and on the other hand reduce its cost of production. But in 2010-11, GPR of the company declined because of % increase in production overheads comparatively more than the % increase in sales. While the GPR of Bajaj was decreasing consistently till 2008-09 due to the decrease in sales as well as the rate of margin and thereafter in 2009-10 & 2010-11, it increased and decreased respectively.

Net Profit Ratio (NPR):Table Presentation Selected companies Hero Honda Motors Ltd. YEARS (31st

Bajaj Auto Ltd.

Net

Net

Net

Net

Net

Net

Profit

Sales

Profit

Profit

Sales

Profit

MARCH)

Ratio (%)

Ratio (%)

2006-07

843.90

9899.96

8.52

1237.10

9292.23

13.31

2007-08

987.20

10331.80

9.55

755.78

8663.29

8.72

2008-09

1266.97

12319.12

10.28

654.50

8436.94

7.76

2009-10

2233.07

15758.18

14.17

1700.11

11508.50

14.77

2010-11

2011.23

19245.03

10.45

3339.73

15998.12

20.88

Avg. NPR

10.59

13.09

21

Graphical Presentation & Interpretation 25

Net Profit Ratio

20

15 Hero Honda Motors Ltd. Bajaj Auto Ltd.

10

5

0 2006-07 2007-08 2008-09 2009-10 2010-11 Year

The NPR of Hero Honda was increasing continuously till 2009-10.It indicates that the company has reduced its operating as well as non operating expenses in these years but in 2010-11, it decreased due to increase in non operating expenses specially the burden of interest. On the other hand, NPR of Bajaj Auto Ltd. was decreasing continuously till 2008-09 as a result of increase in operating overheads of the company. Thereafter it was increasing which shows that the company focused upon reducing its cost of operations.

22

Return on Net Capital Employed (ROCE):Table Presentation Selected companies Hero Honda Motors Ltd. YEARS

Bajaj Auto Ltd.

Net

Net

ROCE

Net

Net

ROCE

(31st

Profit

Capital

(%)

Profit

Capital

(%)

MARCH)

before

Employed

before

Employed

Int. &

Int. &

Tax

Tax

2006-07

938.14

2635.23

35.60

1237.20

7159.75

17.28

2007-08

1050.84

3118.24

33.70

755.90

2921.93

25.87

2008-09

1423.68

3879.24

36.70

654.57

3439.69

19.03

2009-10

2129.22

3531.05

60.30

1700.11

4266.92

39.84

2010-11

1452.54

2988.77

48.60

3339.73

5235.37

63.79

Avg. ROCE

42.98

33.16

Graphical Presentation & Interpretation

Return on Capital Employed

70 60 50 40

Hero Honda Motors Ltd. Bajaj Auto Ltd.

30 20 10 0 2006-07 2007-08 2008-09 2009-10 2010-11 Year

23

The ROCE of Hero Honda was consistent till 2008-09 as the net profit increased in same proportion as capital employed and in 2009-10 it increased highly as the company made repayment of its long term loans. Thereafter it reduced in 2010-11 due to the decrease in net profit before interest & tax. On the other hand, the ROCE of Bajaj Auto Ltd. increased in 2007-08 as the result of decrease in long term loans and in 2008-09, it decreased as the total liabilities including reserves increased and finally 2009-10 onwards, it was increasing because of increase in net profit before interest & tax.

Current Ratio:Table Presentation Selected companies Hero Honda Motors Ltd. YEARS

Bajaj Auto Ltd.

Current

Current

Current

Current

Current

Current

Assets

Liabilities

Ratio

Assets

Liabilities

Ratio

2006-07

913.70

1087.23

0.84

3818.63

4339.35

0.88

2007-08

936.78

1377.62

0.68

1649.71

1874.67

0.88

2008-09

1013.49

1583.58

0.64

2325.70

2448.11

0.95

2009-10

2882.58

6405.73

0.45

1583.83

2879.69

0.55

2010-11

1504.57

3761.43

0.40

2872.59

3935.05

0.73

(31st MARCH)

Avg. CR

0.60

0.80

24

Graphical Presentation & Interpretation 1 0.9 0.8 Current Ratio

0.7 0.6 Hero Honda Motors Ltd.

0.5

Bajaj Auto Ltd.

0.4 0.3 0.2 0.1 0 2006-07

2007-08

2008-09

2009-10

2010-11

Year

Current Ratio of Hero Honda was continuously decreasing till 2010-11 due to increase in current liabilities. On the other hand, Current Ratio of Bajaj Auto Ltd. is constant in first two years and in 2008-09 it increased due to increment in current assets. But thereafter, in 2009-10 it reduced due to decrease in current assets and increase in current liabilities and in 2010-11 it increased due to increase in current assets much more than increase in current liabilities.

25

Liquid Ratio:Table Presentation Selected companies Hero Honda Motors Ltd.

Bajaj Auto Ltd.

YEARS

Liquid

Current

Liquid

Liquid

Current

Liquid

(31st

Assets

Liabilities

Ratio

Assets

Liabilities

Ratio

2006-07

641.47

1087.23

0.59

3514.87

4339.35

0.81

2007-08

619.93

1377.62

0.45

1293.52

1874.67

0.69

2008-09

680.93

1583.58

0.43

1982.97

2448.11

0.81

2009-10

1665.49

6405.73

0.26

1151.88

2879.69

0.40

2010-11

977.97

3761.43

0.26

2321.68

3935.05

0.59

MARCH)

Avg. LR

0.40

0.66

Graphical Presentation & Interpretation

0.9 0.8

Liquid Ratio

0.7 0.6 0.5

Hero Honda Motors Ltd.

0.4

Bajaj Auto Ltd.

0.3 0.2 0.1 0 2006-07 2007-08 2008-09 2009-10 2010-11 Year

26

Liquid Ratio of Hero Honda was continuously decreasing till 2010-11 due to high increase in current liabilities in comparison to increase in liquid assets. On the other hand, Liquid Ratio of Bajaj Auto Ltd. decreased in 2007-08 as the result of high degree of decrement in liquid assets and in 2008-09, it increased due to increase in liquid assets was more than the increase in current liabilities. In 2009-10, it again decreased because of increase in current liabilities & simultaneous decrease in liquid assets and thereafter in 2010-11, it increased due to high degree of increment in liquid assets in comparison to increase in current liabilities.

Debt Equity Ratio (DER):Table Presentation Selected companies Hero Honda Motors Ltd.

Bajaj Auto Ltd.

YEARS

Long

Shareholders’

Debt

Long

Shareholders’

Debt

(31st

Term

Funds

Equity

Term

Funds

Equity

MARCH)

Loans

Ratio

Loans

2006-07

165.17

2470.06

0.07

1625.43

5534.32

0.29

2007-08

132.00

2986.24

0.04

1334.34

1587.59

0.84

2008-09

78.49

3800.75

0.02

1570.00

1869.69

0.84

2009-10

66.03

3465.02

0.02

1338.58

2928.34

0.46

2010-11

32.71

2956.06

0.01

325.15

4910.22

0.07

Avg. DER

0.03

Ratio

0.50

27

Graphical Presentation & Interpretation 0.9 0.8

Debt Equity Raio

0.7 0.6 0.5

Hero Honda Motors Ltd.

0.4

Bajaj Auto Ltd.

0.3 0.2 0.1 0 2006-07

2007-08

2008-09

2009-10

2010-11

Year

The DER of Hero Honda was continuously decreasing as the amount of unsecured loans was decreasing and amount of reserves was increasing continuously. The DER of Bajaj Auto Ltd. was increasing till 2008-09 as there was decrease in shareholders’ funds and thereafter it started declining in connection with the increase in shareholders’ funds.

28

Inventory Turnover Ratio (ITR):Table Presentation Selected companies Hero Honda Motors Ltd.

Bajaj Auto Ltd.

YEARS

Cost of

Average

Inventory

Cost of

Average

Inventory

(31st

Goods

Stock

turnover

Goods

Stock

turnover

Ratio

Sold

MARCH)

Sold

2006-07

7993.12

251.07

31.84

6901.01

291.32

23.69

2007-08

8272.46

296.34

27.92

6620.37

329.66

20.08

2008-09

9783.81

321.97

30.39

6463.47

344.23

18.78

2009-10 11974.93

381.62

31.38

8070.44

392.53

20.56

2010-11 15657.82

480.67

32.57

11798.81

496.75

23.75

Avg. ITR

30.82

Ratio

21.37

Graphical Presentation & Interpretation 35

Inventory Turnover Ratio

30 25 20

Hero Honda Motors Ltd. Bajaj Auto Ltd.

15 10 5 0 2006-07 2007-08 2008-09 2009-10 2010-11 Year

29

The ITR of Hero Honda was decreased in 2007-08 as the increase in average stock was much more than the increase in COGS and 2008-09 onwards, it was increasing. On the other hand, ITR of Bajaj Auto Ltd. was decreasing upto the year 2008-09 due to the increase in average stock & then it was increasing.

Earning Per Share (EPS):Table Presentation Years (as on

Selected companies

31st March)

Hero Honda Motors Ltd.

Bajaj Auto Ltd.

Earning per share

Earning per share

2006-07

43.00

122.00

2007-08

48.50

54.20

2008-09

64.20

45.20

2009-10

111.80

58.80

2010-11

96.50

115.40

Avg. EPS

72.80

79.12

Graphical Presentation & Interpretation 140

Earning Per Share

120 100 80

Hero Honda Motors Ltd. Bajaj Auto Ltd.

60 40 20 0 2006-07 2007-08 2008-09 2009-10 2010-11 Year

30

It is clear from the above graph that the EPS of Hero Honda Motors ltd. was increasing till 2009-10 as there was an increase in Profit after Tax (PAT) but in 2010-11, it declined as there was decrease in PAT. On the other hand, EPS of Bajaj Auto Ltd. was highest in 2006-07 and thereafter it started declining till 2008-09 as there was decrease in Net Profit & increase in Share Capital but 2009-10 onwards it was increasing as there was increase in Net Profit.

31

Findings From the comparison of various ratios between Hero Honda Motors Ltd. and Bajaj Auto Ltd., it can be concluded that Bajaj Auto Ltd. shows good performance during the last 5 years in comparative to Hero Honda Motors Ltd. The major findings are – GPR & NPR:The GPR as well as NPR of Bajaj Auto Ltd. is considerably more than that made by Hero Honda. This implies that the operations of Bajaj Auto Ltd. are more profitable. Return on Capital Employed:In recent Years the ROCE of Bajaj Auto Ltd. is higher than that of Hero Honda which shows that the company is providing better returns to its shareholders as well as to its long term loan providers. Turnover:The ITR of Hero Honda Motors Ltd. is more than that of Bajaj Auto Ltd. which indicates that the company is able to convert their inventory into sales quickly. Liquidity:The Bajaj Auto Ltd. has the higher current ratio as well as liquid ratio than that of Hero Honda which indicates that Bajaj is comparatively more able to meet out its short term liabilities. EPS:Bajaj Auto Ltd. is good from the point of view of investors as its EPS is comparatively more than that of Hero Honda Motors Ltd. Debt Equity Ratio:The DER of Hero Honda is significantly low as compared to Bajaj which implies that they are not much dependent on the outside debts and rely more on owner’s funds. 32

Conclusion On the basis of various ratios used, both the companies are doing fairly good but the performance of Bajaj Auto Ltd. is better than that of Hero Honda Motors Ltd. as its most of the ratios are higher than that of Hero Honda Motors Ltd. The shareholders of Bajaj Auto Ltd. are in much better position than those of Hero Honda Motors Ltd. On the basis of net profit ratio, debt equity ratio, return on capital employed etc., it can be said that Bajaj is able to provide better utilization of funds provided by the long term lenders. Similarly the short term lenders are more secure in Bajaj Auto Ltd. as it has high current ratio & liquid ratio than that of Hero Honda Motors Ltd.

33