V The Bajaj Group is amongst the top 10 business houses in

India. Its footprint stretches over a wide range of industries,

spanning automobiles (two-wheelers and three-wheelers),
home appliances, lighting, iron and steel, insurance, travel
and finance.

V The group's flagship company, Bajaj Auto, is ranked as the

world's fourth largest two- and three- wheeler
manufacturer and the Bajaj brand is well-known across
several countries in Latin America, Africa, Middle East,
South and South East Asia.

V Founded in 1926, at the height of India's movement for

independence from the British, the group has an illustrious
history. relentless devotion to a common cause.
V n may 26, 2008 BAL(now called Bajaj
Holdings Ltd) demerged into
1. BFSL
2. BHIL
3. BAL
Closing Share price of BAL before demerger
was Rs 2079
After demerger Bajaj Auto Ltd got listed for
price Rs 945
V From our Analysis
u Average annual Return on security = 51.87 %
u Average annual Return on Market = 11.42 %
u Average Return on security = 0.215 per day
u Average Return on Market = 0.0517 per day
u Risk on Security = 3.22 %
u Risk of Market = 1.87 %
u Covariance (Rj, Rm) = 2.54

V  v ovariance (Rj, Rm) / Variance(m)

= .728
In finance, Beta (ǃ) of a stock or portfolio is a number
describing the relation of its returns with that of
the financial market as a whole.
^articulars Rs ( in millions)
Equity Share Capital 1446.8
Debt Capital 13385.8

Retained Earnings 29283.4

Equity Share Capital

Debt Capital

Retained Earnings
 ¢ero ¢onda TVS
^articulars Rs ( in millions) Rs ( in millions)

Equity Share Capital 399.4 237.5

Debt Capital 660.3 10032.9
Retained Earnings 34650.2 8653.8
V In finance, the cost of equity is the minimum rate of
return a firm must offer shareholders to compensate for
waiting for their returns, and for bearing some risk.
V The cost of equity capital for a particular company is
the rate of return on investment that is required by the
company's ordinary shareholders. The return consists
both of dividend and capital gains, e.g. increases in the
share price.

V The expected rate of return or the cost of equity in

CAPM is given by the following equation:

[ v Rf + ǃj (RM - Rf )
 [E = Rf + ǃj (RM - Rf )
Rf ; Risk free rate of interest = 6.85
ǃj ; Beta of the security = .728
RM ; Market Return = 11.42

[ = 6.85 + .728 (11.42-6.85)

= 10.18%
V The effective rate that a company pays on its
current debt.
V A company will use various bonds, loans and other
forms of debt, so this measure is useful for giving an
idea as to the overall rate being paid by the
company to use debt financing.
V The cost of debt is calculated by the formula :

[
v Interest ^aid (1-Tax Rate)

Tax rate = 33.99%
Secured loans = 129.8 million
Interest paid on fixed loans from annexure 13= 21.6 millions
Interest = 21.6/129.8*100
=16.64098613 %

[
v Interest ^aid (1-Tax Rate)

=16.64(1-.3399)
v10.98%
V Broadly speaking, a company·s assets are
financed by either debt or equity. WACC is the
average of the costs of these sources of
financing, each of which is weighted by its
respective use in the given situation. By taking a
weighted average, we can see how much interest
the company has to pay for every rupee it
finances.
V A firm's WACC is the overall required return on the
firm as a whole and, as such, it is often used
internally by company directors to determine the
economic feasibility of expansionary opportunities
and mergers.
 SOUR OF BOO[ VALU AS W IG¢TS OST OF
A^ITAL ON 31.3.2010 SOUR
(In Millions)
EQUITY SHARE 29283.4 0.6862 10.18%
CAPITAL (+
RESERVES &
SURPLUS)
DEBT CAPITAL 13385.8 0.3138 10.98%

42669.2 1.000

·

· ·
·

 


 


 
V VL = [EBIT( 1-t) + Interest* tax rate] / WACC
= [(24171.1(1-0.3399)+21.6*0.3399]/.1043
= 16009.57068 million

V We can see that the value of the firm is Rs 16,025.734

million

V INTEREST TAX SHIELD = Interest * tax rate

=21.6 * 0.3399 million
= 7.34 million

A tax shield is the reduction in income taxes that results

from taking an allowable deduction from taxable income.
For example, because interest on debt is a tax-deductible
expense, taking on debt creates a tax shield
 2007-08 2008-09 2009-10

EBIT àà
  à  ààà

SALES 
 
 à à




EPS



 àà 

% EBIT Ë 




%SALES Ë 
  

%EPS Ë 




egree of Operating Leverage ²
OL
Summarizes the effect a particular amount of
operating leverage has on a company's earnings
before interest and taxes.

2007-08 2008-09 2009-10

DL Ë  
  


egree of Financial Leverage -
FL
A leverage ratio summarizing the affect a particular
amount of financial leverage has on a company's
earnings per share (EPS)

2007-08 2008-09 2009-10

DFL Ë  




  
    

A leverage ratio that summarizes the combined
effect the degree of operating leverage (DL),
and the degree of financial leverage has on
earnings per share (EPS), given a particular change
in sales.

2007-08 2008-09 2009-10

DCL
Ë    



  


 



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r
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WITH THE HELP F RATI ANALYSIS
AND
RIS[ AND RETURN
V From our analysis:
u Average Return on security = 0.13 % per day
u Average Return on Market = 0.09 % per day
u Risk on Security = 2.33 % per day
u Risk of Market = 1.89 % per day
u Covariance (Rj, Rm) = 0.003943

V a v ovariance (Rj, Rm) / Variance(m)

= 0.003943/ 0.007103
= 0.56
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