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Bajaj Holdings & Investment Equity Research

HomeCompanyBajaj Holdings & Investment Equity Research

Date of Research – 13 January 2016

Price – Rs. 1,620.00

About the Company

Bajaj Holdings & Investment Limited (“Bajaj Holdings” or the “Company“) is a Non-Banking Financial Company (NBFC) which focuses on new business opportunities. The Company was de-merged in December 2007 as per the order of the Hon’ble Bombay High Court, whereby its manufacturing undertaking was transferred to Bajaj Auto Limited (BAL) and its strategic business undertaking consisting of wind farm business and financial services business vested with Bajaj Finserv Limited (BFS).

Both BAL and BFS are public listed companies (listed on the BSE and NSE of India). Post-demerger, Bajaj Holdings & Investment has strategic stakes of 31.49 % in BAL and 39.16 % in BFS. BAL is India’s largest manufacturer of two & three wheelers with 18% of its total sales coming fom exports. BFS on the other hand is a financial services company which offers consumer finance, infrastructure finance, general and life insurance and wealth management services. BFS also has interests in Wind farms with 138 windmills and a total installed capacity of 65.2 MW.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 336.88 386.70 523.93 469.84  842.11 
Expenses 15.09 23.37 39.71 41.31  214.43  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 321.79 363.33 484.22 428.53  627.68  
Depreciation 2.34 4.78 5.93 5.48  5.39  
Finance Costs 0.01 –  – 
Other income 2.58 41.02 34.90 6.85  7.97  
PBT 322.02 399.57 513.19 429.90  630.26  
Tax 68.33 85.84 81.54 88.31  134.60  
Extraordinary items (4.72) 17.82 – 
PAT (before Minority Interest and share of Associates) 253.69 318.45 413.83 341.59  495.66  
Profit/ (loss) attributable to Minority Interest –  0.03
Share of profit / (loss) of Associates (1602.69) (1,669.11) (1,615.41) (1,923.65)  (1,977.50) 
Consolidated Profit / (Loss) for the year 1,856.38 1,987.56 2,029.24 2,265.24  2,473.13  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 95.52 93.96 92.42 91.21  74.54 
Net Profit Margin Ratio 75.31 82.35 78.99 72.70  58.86 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 111.29 111.29 111.29 111.29 111.29
Preference shares issued by subsidiary
Reserves & Surplus 8,568.73 10,233.80 11,887.69 13,281.94 15,182.03
Net worth (shareholders funds) 8,680.02 10,345.09 11,998.98 13,393.23 15,293.32
Other liabilities and provisions 0.61 23.89 31.09 29.81 30.39
Long term borrowings 3.73
Current liabilities 353.20 428.78 413.48 464.73 141.81
Deferred Tax Liabilities 24.91 4.05 4.69 5.21 6.16
Total Liabilities 9,062.47 10,801.81 12,448.24 13,892.98 15,471.68

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 191.46 31.31 26.69 25.75 26.21
Noncurrent Investments 7,004.90 8,653.01 10,932.02 12,669.64 13,215.41
Current assets 1,137.29 1,077.63 700.64 521.20 1,563.86
Long term advances and other noncurrent assets 100.01 534.75 283.78 158.18 147.99
Deferred Tax Assets 276.09
Goodwill on consolidation (net) 352.72 505.11 505.11 518.21 518.21
Total assets 9,062.47 10,801.81 12,448.24 13,892.98 15,471.68

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 3.27 3.11 3.03 3.62 2.80
ROE / RONW 19.44 17.94 16.56 15.15 14.81

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 336.88 386.70 523.93 469.84  842.11 
Growth (%) 14.08 % 14.79 % 35.49 % (10.32 %)  79.23 %
PAT (Rs. Cr.) 253.69 318.45 413.83 341.59  495.66  
Growth (%) 22.69 % 25.53 % 29.95 % (17.46 %)  45.10 % 
Earnings Per Share – Basic (Rs. ) 166.80 178.60 182.30 203.50 222.20
Earning Per Share – Diluted (Rs. ) 166.80 178.60 182.30 203.50 222.20 
Price to Earnings 5.48 5.73 7.15 7.18 9.22 

Dividend History

The Company has maintained an average dividend yield of 3.85 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. BHIL’s average current ratio over the last 5 financial years has been 3.07 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

BHIL’s average long term debt to equity ratio over the last 5 financial years has been 0.00033 which indicate that the Company is operating with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

BHIL’s average interest coverage ratio over the last 5 financial years has been 6,631.15 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Bajaj Holdings reported a promoter holding of 43.77 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 25.34 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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