Here is my review of the FY16 annual report of India’s leading two-wheeler company, Bajaj Auto.
Click here to download the PDF review (4 MB file), or read it in the panel below.
Let me know your thoughts and questions on this review in the Comments section of this post, plus any additional thoughts from your own review of Bajaj Auto’s FY16 annual report. Also share any suggestion(s) you may have to make future reviews better and easier for your understanding.
Statutory Warning: This is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I own the stock, and thus my analysis is biased, and may be wrong. I have been wrong many times in the past. I am a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014 (Registration No. INH000000578).
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Good compilation of data points.
Second Level Thinking: Few years back when I was studying bajaj auto I used Invert, always Invert trick. Why margins are high? Considering only domestic operations, Operating Mgn% happens to be as high as 13% as compared to Honda and Hero. One likely reason you pointed out superior product mix but it still doesn’t fully explain the stark difference between the two. And if you see price realization and cost per unit, it happens to be same.
Observations: The inventory which distributors and retailers hold at Bajaj auto are considerably lower than Hero or Honda or TVS. Distributors have 7-14 days of inventory as opposed to Hero at 22/28 days. Source: ConCall
Again, retailers stock more than 14-21 days of inventory at Hero as opposed to Bajaj Auto at 7 days. (Visited sites)
Now since investment of distributors and retailers is low for Bajaj, he has to give them lower margins to justify adequate ROCE for them. This in a way helps increase operating margins at company level. Excellent in supply chain management. Bajaj doesn’t get scared to shut down production facilities if demand is not adequate. Hero is more traditional Indian business mentality who believes in push strategy to maintain market share.
I developed this thought process with help of Joan Magretta value chain analysis as prescribed by Porter but not elaborated by Porter to great extent.
My 2 cents.
Disc. I love the management but not invested yet
Thant’s an excellent input and thought process. Thanks Ketan!
Yes i could download the file from drop box. Great insights and exciting to read. One thought (or rather a doubt) that came to my mind is, “are the annual reports for different companies follow a standard pattern in terms of sections and disclosures made?
A nice initiative. Request to touch a few other companies particularly where information is concealed. Thanks Venkatesh.
Thanks Venkatesh! Yes, the disclosures are almost standard.
But where some companies differ is in the way they present other non-mandatory disclosures and analyses of their last year’s performance.
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Thanks Gurjeev!
Excellent and simple analysis. Thank you. Will have to start following you
Thanks Surender!
Hi Vishal,
There is no doubt that long term value investment is the best approach. But I have observed that there is a daily up and down in share prices. If someone buys the stocks of a good company e.g. Bajaj Auto. It is varying upto Rs30 everyday. If someone buys around 60 shares daily through CNC and sells the next day. Then he can earn daily around 2000. This may be dangerous in case the company is not fundamentally strong. But this approach may work on good companies. Please share your opinion on this. I am very new tho the stock market.
Thanks,
Deepak
I really liked the last page where you compared the 8yr CAGR of the two companies with respect to revenue per unit-thus analyzing pricing power. Keep it up
Thanks Anandh!
Thanks Vishal for nice review.
I see 3 major things that helped Bajaj
1. Decision to focus on export
2. Decision to invest in KTM
3. Decision to exit from Scotters which in turn helped them to stay focussed on bikes/export
4, Profit oriented approach
Few questions that come to mind is
1. How bajaj is likely to be disrupted – One person asked this in AGM for which Mr Rajiv Bajaj answered that KTM is ready with electric bike so that technology is reachable to Bajaj. But not sure if there is any other disruption.
2. Bajaj products are really not known for quality but Power and value for money. Will it haunt them in future?
Disc: Invested since last 3 years
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Please check now. I’ve updated all links. Sorry for the trouble!
Could you please review ICICI Pru Life Insurance annual report?
The report is very informative, not just about the company but the sector at large.