Presented By Gaurav Pathak Nisheeth Pandey Prateek Goel Sagar Shah Shubhi Gupta Sushant

Short-term Investment Long-term investment Short-term Lending Long-term Lending Strategic Suggestions

Important Financial Ratios Analyzed Liquidity Profitability Overall performance measures Asset utilization ratio

Criteria Analyzed Current ratio Quick ratio/Acid-test Ratio Credit rating Inventory turnover ratio Total assets turnover Debtors turnover ratio

Average holding period

Ratios Current Ratio Quick Ratio Inventory Turnover Ratio Debtors Turnover Ratio Total Asset Turnover 0.69 0.55

Bajaj (2010)

Hero Honda (2010) 0.46 0.31 47.5 55.1 3.36 8.27

28.47 37.45 2.77

Average Holding Time 7.91

Current ratio of Bajaj Auto Ltd is much higher than Hero Honda Quick ratio of Bajaj Auto Ltd is much higher than Hero Honda Since Bajajs current ratio is higher and inventory turnover ratio is lesser than Hero Honda, we can easily infer that operating cycle is slow in case of Bajaj Auto Ltd. in comparison to Hero Honda Ltd. Sales are increasing in both the companies. Out of the two short term lending is not required as quick ratio is less than 1 in both the cases Still if we have to make a choice than we should go for Hero Honda because of its faster operating cycle and better activity turnover ratio

Criteria Analyzed
Return on Equity

Total Debt to total capital Debt/equity Credit rating Interest coverage

Ratios Return on Equity Debt Equity Ratio

Bajaj (2010) 58.63 0.46

Hero Honda (2010) 43.33 0.02

Interest Coverage Ratio

403.61

1349.44

Expansion Rate i.e. Growth rate for Hero Honda (92.3%) is much greater than that of Bajaj (17.6%) so Hero Honda is growing faster than Bajaj so it will need lending in the long run Debt/ Equity ratio of Bajaj is much greater than that of Hero Honda so it has lesser debt than Bajaj Interest Coverage Ratio of Bajaj is lesser than Hero Honda (nearly 3 times) Operating Profit is sufficient to cover interest in both the companies so long term lending is a good option for both the companies So Out of the two companies Hero Honda would be preferred over Bajaj incase of Long Term Lending

Criteria Concerned Price to Earnings Ratio (P/E) = Average Share Price/EPS Earnings Per Share (EPS) = PAT/No. of Shares Outstanding Dividend Per Share (DPS) = Total Dividend/ No. of Shares Outstanding Current Ratio = Current Assets/Current Liabilities Operating Profit Margin = Operating Profit/Sales Market Capitalization Beta Ratio

Ratios Dividend per Share Operating Profit Margin (%) Earnings per Share

Bajaj (2010) 40 21.05 117.69

Hero Honda (2010) 20 14.22 64.19

P/E Ratio
Beta value Market Capitalization

18.11
0.56 40440.95

20.85
0.78 35646.45

The purpose of short term investment is to buy and book profit as early as possible We need to ascertain risk and return to figure out the better of the two companies When it comes to Short Term Investment perspective Beta Factor of Bajaj is 0.56 and that of Hero Honda is 0.78, So volatility is lesser in case of Bajaj than Hero Honda Earnings per share is higher in case of Bajaj so Bajaj is a more profitable option Price/ Earnings per Share is almost equal in both the companies so no tangible comparison can be made on the basis of this Price/ Book Value ratio is slightly higher in case of Hero Honda Both Companies are overvalued but the earning per share of Bajaj is higher than Hero Honda and to couple it with the lesser volatility of Bajaj makes it a better option to go for Short Term Investment

Criteria Analyzed Return on Capital Employed (ROCE) = Return/Capital (debt + equity) Debt Equity Ratio (D/E) = Long term Debt/Equity Return on Net Worth (RONW) = Return/Equity Interest Coverage Ratio = PBIT/Interest Dividend Payout Ratio = Cash Dividends/PAT Return on Total Assets (ROTA) = PAT/Total Assets

Ratios Return on Capital employed Return on Total Assets Return on Net Worth

Bajaj (2010) 58.63 202.4 58.14

Hero Honda (2010) 43.33 190.33 33.72

Dividend Payout Ratio

Interest Coverage Ratio Growth (%) D/E Ratio

39.63
403.61 17 0.46

36.45
1349.44 92 0.02

We need to ascertain risk and return to figure out the better of the two companies when it comes to Short Term Investment perspective. First we will try to ascertain the risk by interest coverage ratio and Debt /Equity ratio Interest Coverage Ratio is higher in case of Hero Honda Debt/Equity Ratio of Hero Honda is lesser than Bajaj so risk is lesser in Hero Honda than Bajaj Dividend Per Share ( DPS) is higher in case of Bajaj Dividend Payout Ratio is similar for both the companies Stock Price is overvalued in case of Hero Honda based on Price/ Book Ratio Growth Potential is better in case of Hero Honda. It is growing at 92% in contrast with 17% of Bajaj Efficiency: Fixed Asset is better utilized in case of Hero Honda based on Fixed Asset Turnover Hero Honda is better placed for Long Term Investment than Bajaj

Both the Companies have been giving dividend to its investors as they are established companies. They should continue to do that. Operational Efficiency is good for both companies so no immediate improvement required on this front. Fixed Asset utilization of Hero Honda is better than Bajaj and hence the operations are smoother in case of Hero Honda, Bajaj needs to revamp a bit to make it as good as Hero Honda and will do well in taking cues from Hero Honda in this regard. Average Holding Days of Inventory for both companies is nearly equal and pretty less. So no immediate problem in this regard too. Both Companies have a Negative Net working Capital so they both function on credit and this can be improved by taking steps to increase the current assets or decrease the current liabilities. Growth Rate of Bajaj is lesser than the aggregate growth rate of the automobile industry and thus it requires expansion and should take necessary steps in this regard The basic working model of both the companies is very similar and both being the leaders in the automobile industry dont have many points of distinction and the companies should look at tackling the stage when maturity might come and profits may stop coming. This might not be of relevance in the near future but in some years this might be a pertinent problem for both of them

Thanks