Bajaj Auto: Evaluating the Working Capital Requirements
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Themes: Strategy
Pub Date : 2009
Countries : India
Industry : Financial Management & Corporate Finance
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Case Code : FM0021
Case Length : 13 Pages
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Indian Automobile Industry: An Overview cont..
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In an emerging economy like India, three-wheelers are a low cost means of transport in cities and towns. India is the largest three wheeler market in the world. These vehicles are used as passenger vehicles (auto-rickshaws) as well as small capacity commercial vehicles (pick-up vehicles). It is a small but fast growing segment, with production increased from 2,03,234 vehicles in 2001 to 3,74,414 vehicles in 2005. Three-wheeler sales in India touched a new record of 0.36 million registering a growth of 10.5% CAGR over the last 6 years (2004-2009).11 Ernst & Young viewed this growth as, "Three-wheelers have played an important role in the last-mile connectivity both for passenger as well as commercial purposes. The existence of a large number of small-businesses promises a sustainable demand in the domestic market. Very little has been done in terms of product innovation and manufacturers will have to focus on it. Going forward, this segment will face competition from small commercial vehicles in the commercial space, for which the manufacturers have to rethink product positioning and marketing strategies."12 |
Bajaj Auto is an established player in both two-wheeler and three-wheeler market segment. It is one of the leading players (41.3%) in the three-wheeler segment. Total exports of the three wheelers reached 141.24 thousand units, registering a growth of 44.5% CAGR over the last 6 years (2003–2009) with a large contribution i.e., 97% being accounted by Bajaj Auto.13
Bajaj Auto's Working Capital Requirement: Is Negative Working Capital Positive?
Bajaj Auto is a flagship company of the Bajaj Group which is amongst the top 10 business houses in India. Bajaj Auto is ranked as the world's fourth largest two and three-wheeler manufacturer and is well known exporter (it exports to several countries - Latin America, Africa, Middle East, South and South East Asia). The history of the company dates back to 1965, when Rahul Bajaj (present chairman of the Group) took charge of the business and turned the company into new heights.
The predecessor of Bajaj Auto was formed on November 29th 1945 as M/s Bachraj Trading Ltd. In 1948, it started selling imported two- and three-wheelers and in the subsequent year, it became public limited company. After obtaining manufacturing license from the Indian government in early 1960s, the company started manufacturing its own two-wheelers and by 1970 it reached a mark of 10,000 vehicles. In the same year, it introduced new models of two-wheelers and launched three-wheeler vehicles. Based on the consumer categories and approximate price points, Bajaj Auto classifies motorcycles into three segments - Entry segment (these are typically 100 cc motorcycles at a price point of INR 35,000, Bajaj Auto is in this segment through the Platina), Executive segment (they comprise 100 cc to 135 cc motorcycles and priced between INR 40,000 to INR 50,000, it has two brands in this segment - XCD and Discover) and Performance segment (these are sleek and high performing motorcycles with price points in excess of INR 50,000 and Pulsar is the flagship brand in this segment).
11]"Automotive Industry", http://www.ibef.org/download/Automotive_010709.pdf, December 2008
12]"Revving up: Indian automotive industry - a perspective", op.cit
13]"Automotive Industry", op.cit.