Recently had a round in a job interview where
Unfortunately my write-up was unable to allow me to progress to the next round, nevertheless i have decided to attach my write-up on the blog while biding my time to write some other articles.
Personally i do feel that my write-up was pretty bad but if given another chance to re-write it, i am not sure if i would have wrote it much different. I guess i still need more practice and advice.
Bajaj Auto is an Indian automobile manufacturer company. The company mainly focuses on 2 wheelers, 3 wheelers as well as 4 wheelers. In the 2 Wheelers segment which is segregated into Scooters and Motorcycles, Bajaj Auto Limited focuses on motorcycles only unlike some of its competitors. The company believes that it is unable for the company to focus on all segments and hence decides to not go into scooters. In the Motorcycles segment, the bikes are segregated into few segments namely Entry-Level(represented by its bikes such as Platina, CT 100 and Discover 100/110), Commuter and Commuter Deluxe Segment (Discover 125 and V), Sports(Pulsar and Avenger) as well as Super Sports Segment (Dominar 400, Pulsar RS200 and KTM). Its main competitors in the 2 wheelers segment include Hero Motocorp, TVS Motor
-Healthy Financial Ratios. The financial health at Bajaj Auto is healthy. The company has pared down its debts since FY 2017 and remained above 1 in both quick and current ratios. The fall in current and quick ratios in 1H 2019 is largely due to a shift in investments from current assets to non-current assets. Equity to Asset ratio has increased over the years, reflecting lesser % of liabilities in the balance sheet.
|Year||FY 2014||FY 2015||FY 2016||FY 2017||FY 2018||1H 2019|
|Debt: Asset Ratio||0.401%||0.72%||1.03%||0%||0%||0%|
|Equity: Asset Ratio||65.14%||68.70%||78.42%||81.83%||80.2%||76.72%|
-Free Cash Flow generation. The company’s net cash from operating activities has been positive since 2014. However, in some years such as 2017, the company has not been able to have a positive net change in cash and cash equivalents. This is largely due to the purchase of investments
-Investments form bulk of the balance sheet. For a company that mainly does automobile manufacturing, it is indeed surprising that a large part of the balance sheet is made up of Investments. The Investments stood 68.7% of Assets in FY2018 which is
-2 Wheel segment market share falling. Bajaj Auto’s motorcycle segment has been falling over the years. According to Bloombergquint, the market share has fallen from 24% in FY 2013 to 16% in FY2018. Bajaj Auto had released 6 variants of its Discover Models but it seems like it failed to differentiate itself well. This is echoed by Rajiv Bajaj which said that ‘Discover was his biggest blunder and it became a ‘me too’ product which is bad in life and marketing’.
Corporate Governance/ CSR Concerns
-Gender Unbalance. Only 1 female on the board of directors(currently 16). Only 3.73% of
|EBITDA Margin||FY2014-15||FY2015-16||FY2016-17||FY2017-18||1H 2019|
Despite a falling trend in margins from FY 14-15, Bajaj Auto has still managed to maintain higher margins compared to its 2 wheel rival (Hero Motocorp) and 3 wheel rival (Atul Auto). Hero Motorcorp is the market leader in 2 wheels and would be an appropriate comparison. In the 3 wheel space, the 2nd and 3rd in market share are Piaggio and Mahindra and Mahindra Limited but both companies are not used in the peer analysis as Piaggio has derives more than half its revenue(53.68%in FY17) from Western Countries while Mahindra and Mahindra Limited derives revenue(roughly 32% in FY18) from farm equipments as well.
In Bajaj Auto Limited, I have seen a leader(Rajiv Bahaj) who has been able to turn around its company and create superior margins over its competitors for the past years. He has also been candid in admitting his mistakes such as having too many variants of Discover which lead to a decrease in the company’s market share. The company has prided itself on its R&D(which Rajiv Bahaj started in 1996 with 4 young engineers then) and with its high cash position is primed to carry out more R&D in the near future and explore innovations in its automobile products and processes to drive further value in the bottom line.However, my concerns would be in its balance sheet where it has a huge amount of investments in mutual funds, bonds and debentures. Should there be a large currency depreciation, the company’s asset value would decline sharply and largely affect foreign investors who are invested in it.Similarly, an increase in credit risk of companies in India which could lead to higher default among companies would affect the company’s investments negatively and impact its operations and valuations.