CONTENTS

1. INTRODUCTION………………………………………………………………………22. ANALYSIS OF BALANCE SHEET…………………………………………………...43. ANALYSIS OF PROFIT AND LOSS STATEMENT………………………………….84. NOTES TO ACCOUNTS……………………………………………………………….155. CASH FLOW STATEMENT……………………………………………………………206. ANALYSIS OF AUDITORS REPORT…………………………………………………227. FINANCIAL STATEMENT ANALYSIS THROUGH VARIOUS

TOOLKITS……….258. RATIO ANALYSIS……………………………………………………………………..349. QUALITY OF EARNINGS……………………………………………………………..3710. DIRECTORS REPORT………………………………………………………………….40

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INTRODUCTION

Bajaj Auto Ltd. is a major Indian automobile manufacturer for two wheelers and three

wheelers. It is India's largest and the world's 4th largest two- and three-wheeler maker. It is a

Pune based company plants in Waluj near Aurangabad, Akurdi and Chakan, near Pune. Bajaj

Auto makes scooters, motorcycles and the auto rickshaw.The company is headed by Mr. Rahul

Bajaj who is the chairman of the company.

BRIEF HISTORY

Bajaj auto came into existence on November 29, 1945 as M/s Bachraj Trading Corporation

Private Limited. Its major business then was to sell imported two and three wheelers in India. In

1959, it obtained license from the Government of India to manufacture two and three wheelers.

Bajaj became a public company in 1960. A land mark was reached by the company in 1970

when it manufactured its 100000 unit. It became a generic product in the country as the country

started to refer to the brand as Hamara Bajaj and soon it managed to produce and sell 100,000

vehicles in a single financial year. In 1985, the Waluj plant in Aurangabad starting producing.

The most recent palnt has been set up at Pantnagar in Uttarakand in April 2007 and would start

producing soon. The commissioning of this plant was done in a record period of eleven months.

The capital expenditure for this project is Rs.1.5 billion. The company has received the formal

approval dated 17 April 2007 from the Department of Commerce, Ministry of Commerce and

Industry, Government of India for the setting up of a Special Economic Zone at Waluj Industrial

area in Aurangabad district. The plans for developing this zone are currently in progress.

The company over the last decade has successfully changed its image from a scooter

manufacturer to a motorcycle manufacturer, product range ranging from Scooterettes to Scooters

to Motorcycles. Its real growth in numbers has come in the last 4 years after the successful

introduction of Pulsar the new power bike for India.

The products offered by Bajaj are Ungeared scooters, geared scooters, motorcycles ranging form

100cc to 220cc. The company offers different motorcycles for different segments. Among three

wheelers it offers 175cc LPG, CNG, Petrol and 416cc diesel vehicles.

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HAMARA BAJAJ AROUND THE WORLD

Bjaj has its presence in more than 30 countries across the world with significant presence in our

neighbouring countries. Bajaj has won many awards for its most recent DTSi technology.Bajaj

Auto Ltd. is the flagship company of Bajaj Group of Companies, which has a significant

presence in key sectors of the Indian economy. A consistently high performer, it employs around

1698 people and is one of the most respected companies in the country.

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Fixed assets valuation policy (schedule 5)

Fixed Assets except freehold land are carried at cost of acquisition or construction or at

manufacturing cost including pre-operative expenses in the case of self manufactured assets, less

accumulated depreciation and amortisation.

Observations and discussion from schedule 5 of balance sheet.

1. Bajaj owns freehold and leased land, buildings, water pumps & reservoirs, plant and

machinery, factory equipments, furniture and fixture, electric installations and fittings etc

totaling Rs.12519.7 million at depreciated value. Buildings would include factory buildings,

godowns, administrative buildings and residential buildings.

Buildings:-

(i) Includes Premises on ownership basis in Co-operative Society Rs. 131.8 million and cost of

shares therein Rs. 2,750/-.

(ii) Includes Premises on ownership basis Rs. 53.8 million represented by 66 equity shares and

182 debentures of the face value of Rs. 660/- and Rs. 18,900,000/- respectively. Plant and

machinery is used for manufacturing scooters and motorcycles.

(iii) Includes office premises given on lease Rs 82.5 million. Accumulated depreciation Rs 9.0

million. Depreciation for the year was Rs 1.3 million.

Plant and machinery is used for manufacturing various finished products like scooters,

motorbikes and three wheelers. Furniture and fixture provides support to the administration,

marketing and production functions.

2. It may also be observed that within the fixed assets, plant and machinery i.e. the assets

directly needed for production, at Rs.5061.9 million or 40% of the total fixed assets. Next is the

amount invested in buildings i.e. Rs.2760.9 millions.

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3. It may be noted that no depreciation has been charged on land, assumption that land never

depreciates. Rest of the fixed assets is depreciable assets.

4. There are some explanatory notes about fixed assets. Note (b) states that Premises includes

Premises on ownership basis in Co-operative Society Rs. 131.8 million and cost of shares therein

Rs. 2,750/- and also includes Premises on ownership basis Rs. 53.8 million represented by 66

equity shares and 182 debentures of the face value of Rs. 660/- and Rs. 18,900,000/-

respectively.

Note (e) gives information about a jointly held aircraft by Bajaj Auto ltd. with another company.

Note (f) says that additions are due to assets installed at the new Pantnagar plant at the end of the

year and hence, no depreciation has been provided therein.

5. It may be noted that Bajaj Auto Ltd. has made all the disclosures as required by AS-10,

“Accounting for Fixed Assets” and as applicable to it, i.e.

Gross book values (costs) and net book values of fixed assets at the beginning and at the

end of the year showing additions, disposals, acquisitions and other movements.

Expenditure incurred towards fixed assets in the course of construction or acquisition.

The historical cost of each class of depreciable asset.

It has made the above disclosure also as required by AS-6, “Depreciation Accounting”

and as applicable to it.

Policy of valuation of assets held under finance lease

On Plant & Machinery given on Lease:

Depreciation on Plant & Machinery and Dies and Moulds given on lease is being provided at the

rates worked out on Straight Line Method over the primary period of lease as stated in the Lease

Agreement or at the rates specified in Schedule XIV to the Companies Act, 1956 whichever is

higher, on Pro-rata basis with reference to the month of commencement of lease period.

Assets Rate on Straight Line Method Status Over the As Specified in As atprimary Schedule XIV % 31st March, 2007Period of

5

Lease %

Plant & MachineryHigh Efficiency Boiler 16.67 * 5.28 Fully Provided for

Dies and MouldsPrimary period 3 years 33.33 11.31 Fully Provided forPrimary period 5 years 20.00 11.31 Fully Provided for

* At the rates applicable to Continuous Process machinery

Intangible assets valuation policy

a) Technical know-how acquired

Expenditure on technical know-how acquired (including Income-tax and R& D cess) is being amortised equally over a period of six years.

a) Technical know-how developed by the company

i) Expenditure incurred on know-how developed by the company, post research stage, is

recognized as an intangible asset, if and only if the future economic benefits attributable are

probable to flow to the company and the costs can be measured reliably.

ii) The cost of Technical Know-how developed is amortised equally over its estimated life

i.e. generally three years.

Investments valuation policy

a) Investments other than fixed income securities are valued at cost of acquisition, less provision

for diminution as necessary.

b) Fixed income securities are carried at cost, less amortization of premium/discount, as the case

may be, and provision for diminution as considered necessary.

c) Investments made by the Company are of a long-term nature, hence diminutions in value of

quoted Investments are generally not considered to be of a permanent nature. However, current

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investments representing fixed income securities with a maturity less than 1 year are stated at

cost adjusted for amortization and diminution as considered necessary.

d) The management has laid out guidelines for the purpose of assessing likely impairments in

investments and for making provisions based on given criteria. Appropriate provisions have been

made by the management in this respect.

Inventory valuation policy

Cost of inventories have been computed to include all costs of purchases, cost of conversion and

the costs incurred in bringing the inventories to their present location and condition.

a) Finished stocks, Auto spare parts and Work-in-progress are valued at cost or net realisable

value whichever is lower. Finished stocks lying in the factory premises, Branches, Depots are

valued inclusive of excise duty.

b) Stores and Tools are valued at cost arrived at on weighted average basis. However, obsolete

and slow moving items are valued at cost or estimated realizable value whichever is lower.

c) Raw materials and components are valued at cost arrived at on weighted average basis or net

realisable value, whichever is lower.

d) Machinery spares and Maintenance materials are charged out as expense in the year of

purchase. However Machinery spares forming key components specific to a machinery and held

as insurance spares are capitalized along with the cost of the Asset.

e) Goods in transit are stated at actual cost incurred upto the date of Balance Sheet.

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Analysis of profit and loss account

Features of profit and loss account

1. The profit and loss account has been prepared for the year ended 31st march 2007. It thus

covers the effects of all financial transactions of the financial year 06-07.

2. Comparative position of all the statements in profit and loss account for the year ended

march 2007 has also been disclosed. The profit and loss account has been presented for

two years as per the requirements of schedule VI of the Companies Act, 1956.

3. The profit and loss account has been drawn vertically and not horizontally. This helps in

easier and better readability and better understanding and facilitation of quick review and

analysis of the profit and loss account.

4. Income is represented by Domestic sales, Exports and others. Expenditures are

represented by Materials Consumed, interest, depreciation, compensation paid under

voluntary retirement scheme and other expenses.

5. Reference to 5 schedules from 10 to 14 has been provided against various accounts of the

statement of profit and loss. Reference to schedule 5 has also been provided against

depreciation. Further reference to Note 1 for provision for contingent liabilities and to

Note 5 for managerial remuneration has been provided.

Income

The Company recognizes income on accrual basis. However where the ultimate collection of the

same lacks reasonable certainty, revenue recognition is postponed to the extent of uncertainty.

(1) Interest is accrued over the period of the loan / investment.

(2) Dividend is accrued in the year in which it is declared whereby a right to receive is

established.

(3) Profit / loss on sale of investments is recognized on the contract date.

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(4) Benefit on account of entitlement to import goods free of duty under the “Duty

Entitlement Pass Book Scheme” is accounted in the year of export.

Sales:

i) Domestic Sales are accounted for on despatch from the point of sale

ii) Export sales are recognised on the basis of the dates of the Mate’s Receipt and initially

recorded at the relevant exchange rates prevailing on the date of the transaction.

Highlights for 2006-07

• Sales increased by 24 per cent to an all-time high of Rs.106.06 billion.

• Net sales (net of excise duty) grew by 24.4 per cent to Rs.92.92 billion.

• Motorcycle sales by volume was 2.38 million in 2006-07 - an increase of 24.4 per cent over the

previous year, versus overall market growth of 14.5 per cent. Thus, Bajaj Auto’s market share in

Motorcycles grew from 30.8 per cent in 2005-06 to 33.5 per cent in 2006-07.

Observation and discussion thereon:

The directors’ and the MDA report is silent about the countries in which Bajaj Auto ltd.

exports its products.

Both Sales and Sales volume grew by around 24% during the year speaking good about

the company. The market growth rate of 14.5% is also very significant because for the

long term sustenance of a business it is very important that growth in sales should come

through both volume growth as well as price increase of the product.

Other income of Bajaj Auto Ltd (Schedule 10)

It is clear that other income of Rs.7507.7 million is insignificant as compared to the total

income, this signifies that the company is deriving its income mainly from core, recurring

and productive operating activities. Included in other income is export incentives which

represent a part of core productive income.

In other income the company has a major source of income from interest income and

profit from sale of investments. The company also earned dividends worth Rs.373 million

during the year of which Rs.334 million represents dividends from investments other than

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trade investments. Interest from Government securities has 70% contribution to the total

amount of interest earned during the year.

During the year investments including current investments worth 47million were sold for

a total profit of Rs.2371 million. This amount is a net of tax amount and has been derived

after paying off the necessary tax on the amount.

Expenditure

Materials Consumed (Schedule 11)

It may be observed that Bajaj has spent Rs.69010 million under this head. Raw materials

have been consumed to the extent of Rs.66549 million which is 96.5% of the total

materials cost. Bajaj also made purchases of finished spare parts which were to the extent

of Rs.2350 million.

Since maximum expenses under materials were made under raw materials consumed

hence, Bajaj has disclosed the necessary details in Note 6 under schedule 14.the details

are given below.

It can be observed that the various raw materials consumed by Bajaj are; ferrous metals,

non-ferrous metals, tyres & tubes and other components relating to the manufacture and

assembling of the vehicles. Other components is one item at Rs.62855 million which is a

major component of the raw materials consumed.

Of the total 5.6% of the raw materials are imported and the rest are procured

domestically. This means that Bajaj can procure its requirements in a relatively shorter

period of time and the risks of foreign exchange fluctuation are insignificant.

Note 4 of Schedule 14 provides the C.I.F value of imported raw materials, expenses in

foreign exchange relating to purchase and the foreign exchange fluctuations relating to it.

However, we can see that the details are insignificant due to the lower amounts spent on

them as compared to other items.

Other expenses (schedule 12)

Observation and discussion

1. The total expenses amounts to Rs.12345 million and represents the second highest

expense after materials consumed. Major amounts under this head are represented by

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employee emoluments (including salaries, wages, contribution to PF and EPS and staff

welfare expenses), packaging and forwarding, advertising, incentives and sales

promotion, tools & spare parts, power & fuel and vehicle service charges (the company

provides 6 free services on any new vehicle sold). Unclassified expenses amounts to

Rs.1187.5 million and have been shown as miscellaneous expenses.

2. In respect of employee remuneration & benefits the company has disclosed its accounting

policy on privilege leave entitlements, gratuity, superannuation, PF contribution and

contribution to EPS under point no 9 in Annexure referred to in Note 8 in Schedule 14 to

the Financial Statements.

3. Two unique items of expense that can be noted are advertising and incentives & sales

promotion expenses. Both these expenses are unique to any manufacturing and

automobile company. This signifies the heavy dependence of Bajaj on advertising and

publicity to promote their sale. Generally celebrities are hired and foreign locations are

chosen to shoot the ads hence it incurs a lot of expense. On the other hand the sales and

distribution channel of Bajaj comprises of dealers and sub-dealers who needs to be given

incentives from time to time in order to encourage them to push sales and achieve higher

sales volumes.

4. It can be also observed that schedule 12 also includes a loss of Rs.22.5 million being loss

on sale/demolition of fixed asset. It also includes provision for diminution in the value of

investments and an amount of Rs.3.9 million written off against technical know-how.

5. The schedule also includes royalty payments made by Bajaj to others amounting to

Rs.101.2 million. Generally royalties are paid if a company is using any concept which

has been developed by others.

6. Consumption of stores and tools, mainly manufacturing expense, amounts to Rs.772

million net. Shown separately are the expenses relating to power & fuel and repairing

expenses of the company which are Rs.793 million and Rs.925 million respectively.

Interest (schedule 13)

It can be observed that:

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1. Bajaj Auto Ltd has interest expenses amounting to Rs.53.4 million for the year 06-07.

This is a significant increase in the amount of interest paid since it was just Rs.34 million

in the last financial year.

2. Further the interest expense has been divided into two parts, on fixed loans and others.

The amount relating to others has had a significant increase as compared to the previous

year.

3. The significant increase in the interest expense during the year is can be related with the

fact that Bajaj had procured secured loans from the market to the extent if Rs.224 million

during the current year. Also there was an increase in the amount of unsecured loans by

10% approximately.

Depreciation and Amortisation (schedule 5- schedule of fixed assets):

(a) Leasehold land: Premium on leasehold land is amortised over the period of lease.

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(b) On Plant & Machinery given on Lease: Depreciation on Plant & Machinery and Dies and

Moulds given on lease is being provided at the rates worked out on Straight Line Method over

the primary period of lease as stated in the Lease Agreement or at the rates specified in Schedule

XIV to the Companies Act, 1956 whichever is higher, on Pro-rata basis with reference to the

month of commencement of lease period.

Assets Rate on Straight Line Method Status Over the As Specified in As atPrimary Schedule XIV % 31st March, 2007Period of Lease %

Plant & MachineryHigh Efficiency Boiler 16.67 * 5.28 Fully Provided for

Dies and MouldsPrimary period 3 years 33.33 11.31 Fully Provided forPrimary period 5 years 20.00 11.31 Fully Provided for

* At the rates applicable to Continuous Process machinery

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(c) On Pressure Die Casting (PDC) Dies: Depreciation on certain PDC Dies is provided over the

estimated economic life of the asset or at the rates specified in Schedule XIV to the Companies

Act,1956, whichever is higher, proportionate from the month they are put to use.

(d) On other Fixed Assets : Depreciation on all assets is provided on ‘ Straight Line basis ‘ in

accordance with the provisions of Section 205 (2) (b) of the Companies Act 1956, in the manner

and at the rates specified in Schedule XIV to the said Act.

i) Depreciation on additions is being provided on pro rata basis from the month of such

additions.

ii) Depreciation on assets sold, discarded or demolished during the year is being provided

at their rates upto the month in which such assets are sold, discarded or demolished.

Observations and discussions:

1. Bajaj has charged a total depreciation of Rs.83311 million as disclosed on the face of the

profit and loss account. The details of depreciation is provided in the schedule of fixed

assets. The “For the year” column in the schedule provides asset wise details of

depreciation. Land has not been depreciated. The maximum amount has been accounted

by plant and machinery which is at Rs.1038 million is 55% of the total charge. Second

and third highest are dies and jigs and wind energy generators which are at Rs.309

million and Rs.293 million respectively.

2. It can be observed that buildings in spite of having a high gross block accounts for a low

depreciation charge of Rs.2.8 million, signifying the highest useful life of all fixed assets

except land.

Profit before tax

Bajaj has reported a PBT of Rs.17280.5 million for the year ended 31st march 2007, up from

Rs.15807.4 million of previous year. The overall increase in Bajaj,s PBT over the previous year

is 10%.

Provision for taxation

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Note 10 of ” Annexure referred to in Note 8 in Schedule 14 to the Financial Statements” states

on the taxation policy of the company as under:

a) Provision for Taxation is made for the current accounting period (reporting period) on the

basis of the taxable profits computed in accordance with the Income Tax Act, 1961.

b) Deferred Tax resulting from timing difference between book profits and taxable profits are

accounted for to the extent deferred tax liabilities are expected to crystallize with reasonable

certainty. However, in case of deferred tax assets (representing unabsorbed depreciation or

carried forward losses) are recognised, if and only if there is virtual certainty that there would be

adequate future taxable income against which such deferred tax assets can be realised. Deferred

tax is recognised on adjustments to revenue reserves to the extent the adjustments are allowable

as deductions in determination of taxable income and they would reverse out in future periods.

(c) Bajaj has charged its profit and loss account with current tax of Rs.5005 million including

Rs.5 million of wealth tax. The company also enjoyed the benefit of deferred tax asset

amounting to Rs.134 million (details in note 13) and it also had paid fringe benefit tax of Rs.30

million. The total tax paid by Bajaj thus amounted to Rs.4900.9 million.

Profit after tax

Bajaj has earned a profit after tax of Rs.12379.6 million for the year ended 31st march 2007, up

from Rs.11016.3 million of last year. It works out to 12.5% of gross income as against 13%

earned during the last year.

Appropriations by Bajaj

Bajaj has apportioned the current year’s PAT of Rs.12379.6 million as under:

Transfer to General Reserve: Rs.7635.9 million

Proposed dividend: Rs.4047.3 million

Corporate dividend tax paid thereon Rs.687.8 million.

Basic and Diluted Earnings per share

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Bajaj has reported Rs.122.3 as the basic as well as the diluted earnings per share on the face of

profit and loss account. The calculation of EPS has been done by dividing the PAT by the

weighted average number of equity shares outstanding.

NOTES TO ACCOUNTS (schedule 14)

NOTE 1

The company has given details regarding the Contingent liabilities not provided for

during the current year. These include, sales bill discounted, claims against the company

not acknowledged as debt, disputed matters relating to Income tax, Excise & Customs

duty and Sales Tax disputes. A claim made by temporary workmen against the company

has also been disclosed by Bajaj but the actual liability under such dispute is still

unascertainable by the company.

NOTE 2

The company has some contracts still to be executed as on the balance sheet date. These

contractual obligations are made to the outsiders of the company and needs to be fulfilled

by Bajaj in due course.

NOTE 3

Here details regarding the payment of auditors of the company ( Dalal and Shah

Chartered Accountants) is given from the table. We can see in addition to getting the

financial statements audited Bajaj also did Cost Audit which is done by most

manufacturing company. Since Cost accounting plays a significant role in these sort

companies hence cost audit is indispensible.

However, an interesting fact that can be noticed here is that the remuneration of both

Auditors and the Cost auditors has remained same over the previous year.

NOTE 4

The C.I.F value of Foreign exchange transactions are given in under this note. What we

find here is a schedule giving details regarding the value of imports, the expenditure

made in foreign currency, the earnings in foreign currency, the gains/losses arising out of

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foreign exchange fluctuations and the foreign exchange derivatives and exposures

outstanding for the company.

What we observe is that Bajaj’s foreign exports has decreased considerably from the

figures of previous year meaning that Bajaj now acquires more raw materials

indigenously. The expenses made in foreign currency have increased by a very small

proportion but earnings of the company in foreign exchange have almost doubled in 06-

07 as compared to 05-06.

NOTE 5

Under this note the computation of managerial remuneration in accordance with section

349 of the Companies Act, 1956 has been given. The commission payable to the

chairman, managing director, executive & non-executive directors has been disclosed

properly.

NOTE 6

The details of raw materials consumption in quantity has been also provided by Bajaj

under this note. As known Bajaj is a manufacturing company producing automobiles the

usage of ferrous metals is pretty high. But the raw materials that needs the most units of

raw materials is undoubtedly tyres and tubes. From this note we can also get some idea

about how Bajaj should plan for its supply chain management so that all these raw

materials are always at their disposal. Moreover, proper material handling at the godowns

is required and the inventory level should be kept according to the Economic Order

Quantity (EOQ). This would help the company reduce its inventory handling costs.

NOTE 7

The details of the licensed and the actual capacity of the plant of Bajaj is given. What we

can see that Bajaj uses its licensed plant capacity properly for both the two wheelers and

the three wheelers. The data given clearly shows the installed capacity and the production

of Bajaj at its plant.

NOTE 8

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The significant accounting policies followed by the company are in accordance with the

IGAAP, the Accounting Standards issued by the ICAI and the requirements of schedule

XVI of companies act.

NOTE 9

The company states that the details of investments are disclosed in accordance with the

approval of Department of Company Affairs, Ministry of Law, Justice and company

affairs, Government of India under section 211(4) of the companies act,1956, vide its

letter dated 3rd may 2007.

The company has disclosed the investments as per the requirements of AS-2 by dividing

them into long term and current investments. There was a diminution in the value of

quoted investments but the company did not consider it to be long term hence, no

adjustments were made.

NOTE 10

In this note the details of current accounts of the company with non-scheduled foreign

banks are given in tabular form. The data given provides details about the balance in such

banks on the balance sheet date are given. Also the maximum balance outstanding in

such bank during the year is mentioned.

NOTE 11 & 12

In absence of any information requested from the vendors with regards to their

registration (filing of Memorandum) under “The Micro, Small and Medium Enterprises

Development Act, 2006. (27 of 2006)” and in view of the terms of payments not

exceeding 45 days, no liability exists at the close of the year and hence no disclosures

have been made in this regard.

Deposits include a sum of Rs. 37.5 million (Previous year Rs. 37.5 million) against use of

premises on a Leave License basis, placed with Directors and their relatives, jointly and

severally.

NOTE 13

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This note gives the details of deferred tax adjustments of Bajaj in a tabular form. The

deferred tax assets and the deferred tax liabilities of the company are disclosed separately

and all the heads under deferred tax asset and deferred tax liability is also shown in detail.

The table also gives the figures relating to the net of the deferred tax asset and the

deferred tax liability. The accounting policy followed by Bajaj is given below:

Deferred Tax resulting from timing difference between book profits and taxable profits

are accounted for to the extent deferred tax liabilities are expected to crystalise with

reasonable certainty. However, in case of deferred tax assets (representing unabsorbed

depreciation or carried forward losses) are recognised, if and only if there is virtual

certainty that there would be adequate future taxable income against which such deferred

tax assets can be realised. Deferred tax is recognised on adjustments to revenue reserves

to the extent the adjustments are allowable as deductions in determination of taxable

income and they would reverse out in future periods.

NOTE 14

This note gives the details of the liability for gratuity that has been determined by an

actuary as per the principles set out in AS-15. The table also gives the amount to be

recognized in balance sheet, the expenses to be recognized in Profit and loss account and

the assumptions made by the actuary.

NOTE 15

This note says about the minimum lease payments in respect of assets given and taken

under operating is given. No specific note on finance lease agreement has been found.

The note also specifies the amount receivable or payable under operating lease within one

year, between one year and five years, and after five years.

NOTE 16

During this year, the company has written off export incentives of Rs. 103.9 million that

had accrued and was accounted during the last year, due to reduction of incentive under

Target Plus Scheme announced by Government of India in the current year with

retrospective effect.

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NOTE 17

Disclosure of transactions with Related Parties, as required by Accounting Standard 18

‘Related Party Disclosures’ has been set out in a separate statement annexed to this

Schedule. Related parties as defined under Clause 3 of the Accounting Standard have

been identified on the basis of representations made by key managerial personnel and

information available with the Company.

NOTE 18

Segment Information based on the Consolidated Financial Statements attached to the

Independent Financial Statements has been disclosed in the Statement annexed to this

Schedule.

NOTE 19

Amounts less than Rs. 50,000/- have been shown at actuals against respective line items

statutorily required to be disclosed.

NOTE 20

Previous year’s figures have been regrouped wherever necessary to make them

comparable with those of the current year.

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CASH FLOW STATEMENT ANALYSIS

Analysis of the cash flow statement of Bajaj Auto for the year 2006-2007 is as follows:

A. Operating Activities

1. All of the cash inflow in the company in 2007 is from operating activities.1.a. But comparing it with last year it has decreased so it is a unfavourable condition

2. There is Net cash outflow with regard to working capital changes.2.a. This indicates that the efficiency of management of working capital has decreased.

3. Provisions are small as compared to the figures of profit after tax.3.a. This means that hidden reserves are small. This means that there is not a favourable cash position

B. Investing Activities

4. There was no mention of any purchase of fixed assets.4.a. Apparently Bajaj Auto has no active plans to expand its business (except by establishing subsidiaries)4.b. This also means that we cannot predict any increase in future revenues on the basis of operating activities (as we cannot predict the future of the subsidiary businesses)

5. Bajaj had significant investments in subsidiary companies and other investments.5.a. This indicates increase in future profits coming from investments.

6. For investing activities, Bajaj had a net outflow of cash.6.a. This indicates a favorable cash position.6.b. It also promises increased returns in future.

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7. Technical know-how is listed as an investing activity.7.a. This is because the figure is large and cannot be considered as a operating activity as the benefits derived is expected to be for a long period of time.

8. Assets worth Rs.263 million have been sold through the year.

C. Financial Activities

1. There is a net outflow of cash from financial activities.1.a.The rate of interest paid on credit from bank is 20% .If the ROE is greater then This ideally means that the company is paying more dividends and interest that it is taking as a loan. In this case, the company has taken a cash credit of Rs.224.4 million. Also they have taken unsecured loans worth Rs.1365 million. However, it is paying out dividends worth Rs.4041 million.

2. Dividends paid are very high as compared to total inputs from operating activities (almost 60%)2.a. This means that the company is giving out most of its profit rather than reinvesting it. .2.b. This means that cash inflows from operations in future will have a steady growth trend, unless the company starts reinvesting its profits back into the business.

3. Bajaj’s financing activities reflect a favorable cash position.

D. Quality of Cash position

1. The quality of cash position is very high. This is because not only is it making adequate operating profits and paying huge dividends, it is also investing highly into subsidiary companies. This means that it is expecting the subsidiary businesses to do well. So, the investors can expect higher dividends in future.

E. Ability to generate Positive Cash flows from Operations in Future

1. Bajaj has generated cash from operations in both the years. However, the net cash generated this year has decreased. Bajaj’s investment in subsidiaries confirms that it will make profits in future and that the company will continue its good performance. There has also been some investment for technical know-how. This indicates that new technology is being applied in order to increase productivity. Loans taken are minimal as compared to profit figures. This leaves Bajaj in a very comfortable position to operate. Also, the dividends given out are high. This signifies Bajaj’s

21

confidence in its operating activities. So, we think that Bajaj has significant ability to generate positive cash flows in future – both for the owners as well as shareholders.

ANALYSIS OF THE AUDITORS REPORT

1. The auditors’ report for Bajaj auto ltd for the year 06-07 is a clean report without any

qualifications.

2. An auditors’ report is a catalyst towards ensuring better financial performance and

financial discipline because an audit includes a systematic examination of the book of

account to ensure that the financial statements give a time and fair view of the financial

position of the organized. This examination exposes any frauds or discrepancies in the

financial statement. Routine checks by the audit staff also exercise a moral check on the

accounting staff thus ensuring financial discipline.

Clause a- The auditors have obtained all the information and explanations, which to the

best of their knowledge and belief were necessary for the purposes of audit.

Clause b- In our opinion, proper books of accounts required by law have been kept by the

Company so far as appears from our examination of the Books of the Company;

Clause c- The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt

with by the report are in agreement with the Books of Account of the Company;

Clause d -In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash

Flow Statement dealt with by this report comply with the Accounting Standards referred

to in Section 211 (3C) of the Companies Act, 1956, to the extent applicable.

On the basis of the written representations received from the Directors as at 31st March,

2007, and taken on record by the Board of Directors, we report that none of the Directors

22

are disqualified as on 31st March, 2007 from being appointed as a director in terms of

clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

Fixed Assets

(a)The Company has maintained proper records showing full particulars including quantitative

details and situation of fixed assets.

(b) As explained, considering the nature of the Fixed Assets and to ensure minimum disruptions

in production schedules, the fixed assets have been physically verified by the management at

reasonable intervals during the year in accordance with the verification policy adopted by the

Company, whereby all the assets are verified, in a phased manner, once in a block of three years.

According to the information and explanations given and the records produced for verification,

discrepancies noticed on such physical verification were not, material and the same have been

properly dealt with in the Books of Account.

(c) As per the information and explanation given to us on the auditors enquiries the disposal of

assets during the year were not substantial and would not have an impact on the operations of the

company.

Inventories

(a) The inventories have been physically verified by the management at reasonable intervals

during the year and partially at the close of the year.

(b) The procedures of physical verification of inventories followed by the management are

reasonable and adequate in relation to the size of the Company and the nature of its

business as per the auditors.

23

(c) The discrepancies noticed on physical verification of inventories referred to above, as

compared to book records, though not material, have been properly dealt with in the

books of account;

(d) In the auditors opinion and according to the information and explanations given , there

are adequate internal control systems commensurate with the size of the Company and

the nature of its business with regard to the purchase of inventory and fixed assets and for

the sale of goods and services.

(e) No major weaknesses in the internal controls have been identified by the management or

the internal audit department of the company during the year.

Internal audit

On the basis of the internal audit reports broadly reviewed by the auditors, they are of the

opinion that, the Company has an adequate internal audit system commensurate with the size and

nature of its business.

3. Clause No.7 examines the adequacy of the external audit system. The auditors have

relieved on the internal audit report of the Internal Auditors and have commented that the

system is commensurate with the nature and size of the business. We feel that this

explanation is perfect and needs no further discussion. Clause No.8 deals with the

maintenance of cost Audit records as per the statutory requirement under section 209(1)

of the companies Act, 1956.

24

FINANCIAL STATEMENT ANSLYSIS THROUGH VARIOUS TOOLKITS

Multi-step income statement:

particulars31st march 2007

31st march 2006

INCOME : Sales Turnover (a) 10,606.09 8,549.86

Excise Duty (b) 1,313.86 1,080.48

Net Sales (c=a-b) 9292.23 7469.38

Other Income (d) 750.77 617.02

wind power generated (e) 33.05 19.95

  Total Income (c+d+e) 10,076.05 8,106.35

  EXPENDITURE :Materials cost (including stock adj) 6,901.01 5,324.60

Other Manufacturing Exp. 1,234.48 1,011.84

Expenses Capitalised -32.05 -24.81

Compensation under VRS 38.57 22.64

Export incentives written off 10.39 -

Total Expenditure 8,152.40 6,334.27

  PBDIT 1,923.65 1,772.08

Less: depreciation 190.26 191

PBIT 1,733.39 1,581.08

Less: interest 5.34 0.34

PBTEOT 1,728.05 1,580.74

25

Extraordinary Items 0.86 23.38

PBT 1,727.19 1,557.36

Tax 500.50 513.55

Deferred Tax -13.41 -39.44

Fringe Benefit Tax 3 5

PAT 1,237.10 1,078.25

Profit for Bajaj has increased at every step of the statement signifying the growth of the

company year after year.

Net sales for Bajaj for 06-07 have increased by 24.5% over the figures for 05-06. The net

income has also risen by equal terms by 24.3%, this signifies that total income of Bajaj is

derived mostly from its sales and operations. This is a healthy sign for the business and

the shareholders because the operating activities of the business are earning revenue for it

and not income from other sources.

However, the total expenditure has increased upto 29%. The major contributors to this

increase are the interest expenses, employee emoluments and incentives & sales

promotion. The increase of expenses signifies a decrease in the profit of the company. A

high interest expense means that Bajaj has raised loans from outside and this is well till

the time the company is earning more returns on those funds employed than the rate of

interest paid. The increase in sales and promotion expense also means that the company

is following very aggressive push based marketing technique to capture more and more

market share.

There has been an11% rise in the PBT of Bajaj in 06-07. The PAT for Bajaj has also

risen 15%. This signifies the efficient tax planning by the company which helps it to earn

more PAT than PBT and save tax expenses. This creates deferred tax liability for the

company i.e. the tax expenses have been postponed to future years and thus generating a

better cash flow in the current year.

HORIZONTAL ANALYSIS:

HORIZONTAL-BALANCE SHEET - Bajaj Auto Ltd ( Curr: Rs in Cr.)

26

200703 200603 SOURCES OF FUNDS :

Share Capital 101.18 101.18Increase/decrease

% Reserves Total 5433.14 4669.55 16.35253932 Total Shareholders Funds 5534.32 4770.73 16.00572659 Secured Loans 22.46 0.02 112200 Unsecured Loans 1602.97 1467.13 9.258893213 Total Debt 1625.43 1467.15 10.78826296

Deferred Tax Liabilities 184.49 190.21 -3.007202566 Deferred Tax Assets -110.32 102.63 -207.4929358 Deferred Tax Adjustments 74.17 87.58 -15.311715 TOTAL 7233.92 6325.46 14.36195945 APPLICATION OF FUNDS :1) Fixed Assets Gross Block 3174.41 2892.88 9.731824341 Less : Accumulated Depreciation 1922.44 1778.72 8.079967617 Less: Impairment of Assets 0 0 0 Net Block 1251.97 1114.16 12.36895957 Lease Adjustment 17.5 17.5 0 Capital Work in Progress 26.92 24.18 11.33167907

1296.39 1155.84 12.15998754 Technical Know-How 4.13 1.34 208.2089552 Investments 6447.53 5856.97 10.08302928 Current Assets, Loans & Advances Inventories 309.7 272.93 13.47231891 Sundry Debtors 529.83 301.55 75.70220527 Cash and Bank 83.48 82.09 1.693263491 Other Current Assets 36.2 72.13 -49.81283793 Loans and Advances 2859.4 2127.37 34.41009321 Total Current Assets 3818.63 2856.07 33.7022552 Less : Current Liabilities and Provisions Current Liabilities 1498.97 1228.87 21.97954218 Provisions 2833.79 2315.89 22.36289288 Total Current Liabilities 4332.76 3544.76 22.22999582 Net Current Assets -514.13 -688.69 -25.34667267

TOTAL 7233.92 6325.46 14.36195945

Total assets/liabilities up by 14.36%.

The increase in gross block has been 9.73% but the increase in net sales has been

24.4%. Hence, we can conclude that the management has utilized the assets very

efficiently.

27

The net worth has increased by 15% (approx) as compared to the increased on

loan funds by 34%. This shows company has a good market reputation in case it

raises funds from the market.

There has been a 10% increase in the investments figures of 06-07.

Since sales has increased by only 24% however the increase in the sundry debtors

is 75%. This means that the company is having a lenient credit policy i.e. the cash

collection period from the customers is very long.

The company is not enjoying a liberal credit policy from its suppliers because the

growth in current liabilities is 22% compared to the growth in materials cost

which is 29%.

Technical know-how has increased by 208% but is not significant because of the

low carrying amount.

HORIZONTAL P&L ACCOUNT Bajaj Auto Ltd (curr in Rs Cr.)

particulars 200703 200603% change

INCOME :

Sales Turnover (a) 10,606.09 8,549.86 24.04987

Excise Duty (b) 1,313.86 1,080.48 21.59966

Net Sales (c=a-b) 9292.23 7469.38 24.4043

Other Income (d) 750.77 617.02 21.67677

wind power generated (e) 33.05 19.95 65.66416

 

Total Income (c+d+e) 10,076.05 8,106.35 24.29824

 

EXPENDITURE :

Materials cost (including stock adj) 6,901.01 5,324.60 29.60617

Other Manufacturing Exp. 1,234.48 1,011.84 22.00348

Expenses Capitalised -32.05 -24.81 29.18178

Compensation under VRS 38.57 22.64 70.36219

Export incentives written off 10.39 - #VALUE!

Total Expenditure 8,152.40 6,334.27 28.70307

28

 

PBDIT 1,923.65 1,772.08 8.553226

Less: depreciation 190.26 191 -0.38743

PBIT 1,733.39 1,581.08 9.633289

Less: interest 5.34 0.34 1470.588

PBTEOT 1,728.05 1,580.74 9.319053

Extraordinary Items 0.86 23.38 -96.3216

PBT 1,727.19 1,557.36 10.90499

Tax 500.50 513.55 -2.54114

Deferred Tax -13.41 -39.44 -65.999

Fringe Benefit Tax 3 5 -40

PAT 1,237.10 1,078.25 14.7322

Increase in expenses like materials cost is higher than the increase in net sales.

There has been a decrease in profit margin for bajaj because the net sales have

increased by 24% but the PAT has only increased by 15% (approx). this is

basically because of in the materials cost.

Profit has increased at every step for Bajaj signifying a rosy picture of the

company.

COMMON SIZED ANALYSIS

Bajaj Auto Ltd -Common sized Balance Sheet

Mar 07  Mar 06 SOURCES OF FUNDS :Share Capital 1.41 1.62Reserves Total 75.88 74.86Total Shareholders’ Funds 77.3 76.48Secured Loans 0.31 0Unsecured Loans 22.39 23.52Total Debt 22.7 23.52

Total Liabilities 100 100

APPLICATION OF FUNDS :Gross Block 44.39 46.4Less : Accumulated Depreciation 26.85 28.51Net Block 17.54 17.88Lease Adjustment 0.24 0.28

29

Capital Work in Progress 0.38 0.39Investments 90.05 93.89Current Assets, Loans & AdvancesInventories 4.33 4.38Sundry Debtors 7.4 4.83Cash and Bank 1.17 1.32Loans and Advances 40.44 35.26Total Current Assets 53.33 45.79Less : Current Liabilities and ProvisionsCurrent Liabilities 20.94 19.7Provisions 39.58 37.13Total Current Liabilities 60.52 56.83Net Current Assets -7.18 -11.04Miscellaneous Expenses not written off 0 0Deferred Tax Assets 1.54 1.65Deferred Tax Liability 2.58 3.05Net Deferred Tax -1.04 -1.4

Total Assets 100 100

 http://www.capitaline.com

Secured loans have gone up this can be directly related to the increase in interest

expense for the company. However there has been a decrease in the unsecured

loans which has resulted in the decrease in total debts of the company in 06-07.

Current assets, loans and advances and current liabilities have gone up but not in

proportion to the growth in net sales. This shows an efficient turnover of current

assets. But the creditors’ period for the company has gone down and similarly the

debtors period has gone up, this signifies an inefficient management by the

company since it will result in decreasing the cash available for operations for the

company.

Gross block has come down despite this there has been an increase in sales by

24%.this means efficient fixed asset utilization by the company. However looking

at the long term perspective and growth opportunities Bajaj should invest more

into fixed assets so that they can expand the capacity of their operations.

Deferred tax liabilities in comparison to current tax provisions as well as the size

of the resources is hardly any amount and thus not going to cause a burden on the

tax outflows of the company in future.

30

Common-sized Profitability StatementMar 07  Mar 06 

INCOME :Sales Turnover 114.18 114.45Excise Duty 14.18 14.45Net Sales 100 100Other Income 8.07 8.24Stock Adjustments -0.01 0.65

Total Income 108.06 108.9

EXPENDITURE :Raw Materials 73.97 71.75Power & Fuel Cost 0.85 0.79Employee Cost 3.65 3.96Other Manufacturing Expenses 1.82 2.02Selling and Administration Expenses 5.9 5.48Miscellaneous Expenses 1.57 1.57Less: Pre-operative Expenses Capitalized 0.34 0.33

Total Expenditure 87.42 85.24

Operating Profit 20.64 23.66Interest 0.06 0Gross Profit 20.58 23.65Depreciation 2.04 2.55Profit Before Tax 18.54 21.1Tax 5.4 6.92Deferred Tax -0.14 -0.53Reported Net Profit 13.29 14.71Extraordinary Items 1.62 0.77Adjusted Net Profit 11.67 13.94

There has been no change in the amount of depreciation for the year 06-07 over

the previous year (05-06) data.

The materials cost has increased by 2percentage points. This calls for more

attention of the management towards the issue. A proper supply chain should be

established so that the cost can be curtailed.

There has been a substantial decrease in profit for Bajaj because an increase in

material price and increase in competition. This is also proved by the fact that in

spite of an increase in the top line of the company the dividend percentage

remained the same over the previous year.

31

The margins at each and every step have decreased over the previous year figure.

This can be related to the fact that competitions and the expense have increased.

The company has become tax efficient due to the fact that instead of increase in

the sales the overall tax has come down.

ANALYTICAL BALANCE SHEET - Bajaj Auto Ltd (Curr: Rs in Cr.)

200703 200603SOURCES OF FUNDS Share Capital 101.18 101.18 Reserves Total Total Shareholders’ Funds 5534.32 4770.73 Secured Loans Unsecured Loans Total Debt 1625.43 1467.15 Deferred Tax Liabilities 184.49 190.21 Deferred Tax Assets -110.32 102.63 Deferred Tax Adjustments 74.17 87.58 TOTAL 7233.92 6325.46 APPLICATION OF FUNDS :1) Fixed Assets Gross Block 3174.41 2892.88 Less : Accumulated Depreciation 1922.44 1778.72 Less:Impairment of Assets 0 0 Net Block 1251.97 1114.16 Lease Adjustment 17.5 17.5 Capital Work in Progress 26.92 24.18

1296.39 1155.84 Technical Know-How 4.13 1.34 Investments 6447.53 5856.97 Current Assets, Loans & Advances Inventories 309.7 272.93 Sundry Debtors 529.83 301.55 Cash and Bank 83.48 82.09 Other Current Assets 36.2 72.13 Loans and Advances 2859.4 2127.37 Total Current Assets 3818.63 2856.07 Less : Current Liabilities and Provisions Current Liabilities 1498.97 1228.87 Provisions 2833.79 2315.89 Total Current Liabilities 4332.76 3544.76 Net Current Assets -514.13 -688.69

Total Assets A 7233.92 6325.46

Less Loan FundsSecured 22.46 0.02

32

Unsecured 1602.97 1467.13 B 1625.43 1467.15 Net Assets C(A-B) 5608.49 4858.31Less: Preference Capital 0 0Net Assets Net of Preference Capital E (C-D) 5608.49 4858.31REPRESENTED BY:EQUITY SHAREHOLDERS' FUNDSCapital 101.18 101.18Reserve and Surplus 5433.14 4669.55 F 5534.32 4770.73Less: Misc Expenditure Not w/o G 0 0EQUITY OWNERS' FUNDS H (F-G) 5534.32 4770.73

This balance sheet shows the net assets at a glance which is at Rs.5608.49 cr for the year

06-07.

It provides an owners view since we go on to find the Equity owners funds at the end

which is at 5534 cr for 06-07. This is 16% higher than the funds last year signifying that

the business has done well but could have done better since the net sales went up by 24%.

This is because of the inefficient asset management by the company management.

In spite of equity share capital remaining same at Rs. 101cr. the company did have a

growth. The company did not go for any issuing of shares during the year but resorted to

loan funds from the market leading to some dilution and risk in the business.

33

Overall ratio analysis to evaluate the performance of and financial position of Bajaj

Ratio Formula 2007Figures in Rupees Crore

Result2006Figures in Rupees Crore

Result

a)ROI Ratios

Return on Net worth

PAT/Net worth

1272.17/ 6029.24

21.1

1139.37/4605.37

24.74

EPS PAT/weighted Average No. of Equity Shares outstanding

1272.171/10.12

125.7 1139.37/10.12

112.5

CEPS (PAT-Preference dividend +Non Cash Charges)/Weighted Average No. of Equity Shares O/S

(1272.17+190.26 )/10.12

144.50 (1139.37+191.00 )/10.12

130.30

b) Solvency Ratios

NAVNet Worth /No. of Equity Shares

6029.24/10.12 595.774605.37/10.12

455.07

Debt-EquityLong term Debt/Net Worth

1808.7/6029.24

0.31381.6/4605.37

0.3

34

C)Liquidity Ratios

Current Ratio (Current Assets ,Loans and advances+short term investments)/Current Liabilities+Provisions

(3818.6+320.95)/4332.7

.81 (2856+104.68)/ 3544.7

.78

Quick Ratio (Current Assets ,Loans and advances+short term investments-Inventories)/Current Liabilities+Provisions

(3818.6+320.95-309.7)/4332.7

0.88 (2856+104.68-272.93)/3544.7

.70

Collection Period allowed to consumers

Receivables*365/Total Sales

(529.8*365)/10606

18.23 (365*301.5/8549.8)

12.87

Suppliers Credit Payables *365/Purchases

(365*1374.5/6901)

72.7 (365*1155.8)/5324.6

79.22

Inventory Holding Period

(309.7*365)/6901

16.38 (365*272.9)/5324.6

19.12

d)Fixed Assets Turnover Phase

Net Sales /Net Block of Fixed Assets

10606/1251.9 8.47 8549.86/1114.1

7.67

e)DuPont Analysis

Ratio--

Net Profit Margin

* Net Worth Turnover

= RONW

Formulae

(PAT/Net Sales)*100

* Net Sales/Net worth

= PATNW

20071272.17/9317.47=13.65

*

9317.47/ 6029.24

1.54 21.1

2006 1139.37/7488.11=15 .2

* 7488.11 1.62 24.74

35

/4605.37

RONW has decreased over the last year in comparison to 05-06.

EPS has increased from Rs.112.5 to Rs. 125.7 and CEPS has also increased from

Rs.130.3 to 144.50. But there is a slight difference between the reported EPS and the

calculated EPS the company did not adjust the extra-ordinary item in PAT calculation.

The net asset value for Bajaj has increased by 31% in 06-07 over the previous year. This

speaks well for the company and the shareholders must be happy looking at the figures.

The debt-equity ratio of bajaj has remained same in 06-07 over 05-06. This is because

there were no significant movements in long term debts during the year.

Current ratio has become stronger slightly but there has been an increase in the quick

ratio of the company. Hence it can be concluded that the company was very liquid and

has good cash reserves. Therefore, it would be able to pay off its creditors easily and this

would go on to strengthen the market loyalty of the company which would enable them

to easily raise funds through loans in times of crisis.

The collection period from customers have gone up while the credit period enjoyed by

the company has gone down during the year. This situation needs the attention of the

management because the company would be able to handle the situation on if it has high

liquidity. But Bajaj may face problems during unfavourable business cycles.

The inventory holding period for bajaj has gone down during the year signifying an

efficient materials management system. Thus less amount of funds are blocked in

inventory meaning better utilization of cash by the company.

The fixed assets to net sales ratio has also gone up during the year signifying the fact that

fixed assets has been used more efficiently and more sales has been generated from

existing block of fixed assets. The capacity utilization of the company has increased.

Du Pont analysis- increase in RONW but there has been a decrease in net profit margin

and net worth turnover. This means that the company’s net sales have increased

sufficiently to do away with the corresponding decreases. This speaks well for the

company because it enjoys higher resource efficiency and its an ideal situation.

36

Analysis of Quality of Current assets, loans and advances (refer schedule 8)

Sundry debtors have increased during the year by 75% over the 05-06 figures. Also the

percentage of bad or doubtful debtors is very low as compared to the total figure. This

means that the company would generate earnings in near future and hence is very liquid.

But one concern is the debtors collection period which has gone up during the year.

Inventory figures have gone up in 06-07 but the inventory holding period has come down

meaning a good inventory management system.

Cash and bank balances have gone up significantly by 41%. This speaks for itself

regarding the liquidity position of the company. However, any ideal cash should be

utilized properly by Bajaj.

The entire figure for loans and advances has gone up during the year for Bajaj. The major

contributors have been advances for capital assets and the balances with central excise

and custom departments.

Analysis of Quality of Earnings

Perusal of conservative financial analysis

Creation of provisions for contingencies and current liabilities as per requirements.

Creation of provision for deferred taxes as per AS 22.

Proper disclosures of accounting policies in notes to accounts and annexures to accounts.

Highlights of earlier financial analysis

Highly liquid debtors, doubtful debts and debts outstanding for a period exceeding six

months are insignificant.

There has been significant growth in operations on account of volume and not value. This

fact can be seen from the increase in sales figure by 24%.

37

The contribution of other income to the total income is almost insignificant meaning that

the company earns most of its income from its operations. This is a good sign for the

business as the risk of losing future income would be almost nil. It also signifies the

strength of the quality of income for Bajaj.

A steady growth in the sales figures inspite of no new investments into the gross block of

assets. This means an efficient asset utilization by the company.

A clean auditors report and a good MDA report stating the strengths and the future

prospects of the company.

All the above points suggests a very high quality of predictable and sustainable future earnings.

Analysis of Dividend policy

The directors of Bajaj recommended payment of a dividend of Rs.40 per share (400 per

cent) for the year ended 31 March 2007.

The amount of dividend and the tax thereon aggregated to Rs.4,735 million.

Dividend paid for the year ended 31 March 2006 was Rs.40 per share (400 per cent).

The amount of dividend and the tax thereon aggregated to Rs.4,615 million.

Analyzing the trend of dividend policy of Bajaj for the past 10 years we find Bajaj

follows their own policy of paying dividend irrespective of the profits earned. Bajaj pays

same rate of dividend for every two consecutive years this means that if an investor wants

to invest money he can see one years’ dividend and then invest in the shares of Bajaj to

expect the same rate of dividend the following year. This is a very good tactic adopted by

Bajaj to keep up the demand for their shares in the stock market.

However, the dividend trend of Bajaj over the years shows that their dividend is always

increasing after every block of two years. This means that the business is doing very well

and is always growing. The direct consequence of this can be seen with their increasing

market shares in the two-wheeler market.

38

Analysis of Capital Market Valuation

Ratios 31st March 2007 31st March 2006

Formula Figures Result Figures Result

EPS PAT/Weighted

average no. of

equity shares

12379.6/101.183 122.3 11016.3/101.83 111

P/E Closing market

price on 31 march/

EPS

2475/122.3 20.32 2747/111. 24.74

NAV Net worth/no. of

equity shares

54155.7/101.83 531.82 46775.6/101.83 459.34

Market price

to NAV

Closing market

price on 31

march/NAV

2475/531.82 4.653 2747/459.34 5.98

Market

capitalization

No. of equity

shares O/S*

closing market

price on 31 march

101.83*2475 252029.25 101.83*2747 27972701.01

The market prices of shares of Bajaj have reduced from Rs.27.47 to Rs.24.25 per share.

This has happened inspite of having a very high earnings per share.

39

The growth of sensex during the period is also very good with the index reaching almost

15000 points towards the end of the year.

The performance of their main competitor Hero Honda is also very good with a steady

increase in share prices.

Though the annual report does not provide good reasons in respect of the above we can

somewhat conclude that being an automobile company the success of the business

depends on new launches and the moves of the competitors.

During the period we find that Bajaj had made a few launches but most of them were

unsuccessful. On the other hand Hero Honda through their CBZ extreme and TVS motors

through Apache had couple of very successful launches.

The decrease in share prices can also be related with the moves of various foreign players

esp. Chinese players who will soon flood the market with low priced goods. Other

foreign players who will have high prices has a brand of their own and their technology is

unmatchable by Indian players.

Analysis of directors’ report

Director’s Report gives details regarding:

Operations

Financial results

Dividends

New Projects

Research & development and technology absorption

Conservation of energy, impact of the measures taken and investment/savings

Foreign exchange earning and outgo

Joint ventures/ new companies

Rural and community development activities and empowerment of women

Directors

Director’s responsibility statement

Consolidated financial statements

Statutory Disclosures

Corporate Governance

40

Reconciliation of accounts under US GAAP

Auditor’s report

Auditors

Compliance with statutory requirements:

Going through the director’s report of Bajaj Auto, all the requirements have been complied with.

The state of the company is covered under the ‘Financial Results’ head. The other requirements

have also been covered under the various heads as mentioned above. The report also speaks

about the new technology and research and development of the company.

SWOT ANALYSIS

STRENGTHS

Sales increased by 24% to an all time high of Rs.106.06 billion. Net sales grew by 24.4%.

Motorcycle sales in particular increased by 24.4% vis-à-vis overall market growth of

14.5%.. PBT increased by 9.3% from Rs.15.81 billion in 05-06 to Rs.17.28 billion in 06-

07. PAT increased by 12.3% from Rs.11.02 billion in 05-06 to Rs. 12.38 billion in 06-07.

EPS grew from Rs.111 in 05-06 to Rs.122.3 in 06-07.

Dominant position in the 150+ cc segment – Bajaj dominates this sector with its

Pulsar DTS-i and avenger DTS-i variants controlling 61% of the market. Its

high performance, high efficiency technology and modern ways styling are its

main assets.

125cc Segment- Bajaj Auto is the pioneer in this segment through Discover

DTS-i. Despite severe competition, its market share has grown and stands at

32%.

It has further introduced a first of its kind 2 stroke digital direct injection model

for its 3 wheeler market which offers customers 30% higher fuel efficiency and

superior operating performance.

State of the art plants: 3 of the 4 Bajaj plants namely Akurdi, Waluj and Chakan

have been awarded with JIPM (Japan Institute of Plant Maintenance)

certifications. Also, the latest plant at Pantnagar has been strategically built. The

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plant represent low cost capital outlay (just Rs. 1.5 billion) on a plant that will

have an annual capacity of a million vehicles. It has also been structured around

a unique vendor-clustor concept that shall meet 75% of the plants components

needs. As a consequence, the plant will essentially operate on the basis of ‘Zero

Inventory’.

WEAKNESS

Bajaj’s only weakness is its lack of presence in the rural areas in terms of the

number of authorized dealers as relative to its main competitor Hero Honda the

leader in the motor-cycle segment. Also it is yet to shed its image of only a scooter

(Chetak) company in many parts of the country.

OPPORTUNITIES

The domestic two wheeler market is dominated by motorcycles. Also, over the last

decade, household income has increased considerably, both for rural and for urban

areas. Hence, the country is bound to see double digit growth in this sector. Given

the potential market growth, there is a lucrative opportunity for Bajaj to increase

its market share as well.

2006-07 saw additions in the list of cities legislated in favour of CNG or LPG

vehicles. Bajaj auto sales in these cities contributed significantly to its growth in

the small passenger segment. With a further increase in the list inevitable, there is

an opportunity for Bajaj to capture the market for its 3 wheelers.

Western Maharashtra Development Corporation has offered Bajaj 27%

shareholding in Maharashtra Scooters Ltd.

THREATS

In the last 3 months of the year 06-07 overall market growth slackened

considerably, largely due to steadily rising interest rates and constraints on credit

growth due to actions taken by RBI, banks and financial institutions to control non

food credit. This credit squeeze is however only a short term phenomenon.

New introduction by competitors like hero Honda and TVS.

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Foreign players coming to Indian markets with new technology.

THANK YOU

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