Financial management at Bajaj Auto

Abstract

Bajaj Auto Limited is one of India''s largest two-wheeler manufacturers. As the dominant player until the early 1990s, Bajaj''s market share declined from 49.3% in 1994, to 38.9% in 1999 with the entry of major competitors like Hero Honda. Bajaj has initiated several measures to regain its market share and strengthen its competitive position. The case discusses the financial strategy pursued by Bajaj.

We want to get back the leadership position in the two-wheeler segment and will use the cash if required to do so. However, in current volatile market conditions (not to forget the Japanese and their huge cash reserves), we would rather have the security of cash any day. We are competing not only with Indian companies, but also with large foreign two-wheeler companies, many of whom have much deeper pockets than ours. While our surplus cash will assist us in future growth, it also acts as a deterrent to others from indulging in predatory pricing tactics.

Sanjiv Bajaj, Vice-President Finance, Bajaj Auto Limited.

In 2003, Bajaj Auto Limited (Bajaj) was one of India's largest manufacturers of both two and three-wheelers. The three-wheelers, also known as autorickshaws, were unique to the South Asian region. The company recorded revenue of Rs.5125.73 crores representing a 13% increase over the previous year . Once the unchallenged market leader, Bajaj trailed Hero Honda in the late 1990s. Bajaj's market share declined from 49.3% in 1994, to 38.9% in 1999. Thereafter, Bajaj had initiated several measures to regain its market share and strengthened its competitive position. In 2003, Bajaj had a workforce of 12,000 employees and a network of 422 dealers and over 1,300 authorised service centers.

A number of government and private enterprises who entered the scooter segment, had disappeared from the market by the turn of the century.

The License Raj that existed prior to economic liberalization (1940s-1980s) in India, did not allow foreign players to enter the market, making it an ideal breeding ground for local players. But the Raj also hurt the growth of the industry by imposing various restrictions. In the mid-80s, the government started permitting foreign companies to enter the Indian market, through minority joint ventures. During this period, the two-wheeler market witnessed a boom with Japanese players like Honda, Suzuki, Yamaha and Kawasaki, entering the market through joint ventures.

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        Case Code   FINA004
   Case Length    21 Pages
              Period    2003 - 2004
 Organization     Bajaj Auto
        Pub Date     2004
Teaching Note    Not Available
     Countries    India
      Industry    Automobile

Issues

Financial Management, Bajaj Auto

Indian two-wheeler history; Working capital; Cost of capital; Capital structure; Cost structure; Dividends; Investments; Return on capital; Bajaj Auto Limited; Ratio analysis

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.