Annual Report 2008-09
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Contents Board of Directors 4 Chairman’s Letter 6 Management Discussion and Analysis 10 Corporate Governance 26 Additional Shareholder Information 40 Directors’ Report 48 Auditor’s Report 62 Balance Sheet and Profit & Loss Account 68 Bajaj Auto Ltd. and its Subsidiaries, Associates and Joint Ventures- Consolidated Balance Sheet and Profit and Loss Account 122 Management Team N H Hingorani Rajiv Bajaj Sanjiv Bajaj Pradeep Shrivastava Kevin D’sa Madhur Bajaj Rahul Bajaj 2 Abraham Joseph S Sridhar Eric Vas R C Maheshwari Rakesh Sharma K Srinivas C P Tripathi S Ravikumar 3 Board of Directors Rahul Bajaj D J Balaji Rao Chairman J N Godrej Madhur Bajaj Vice Chairman S H Khan Rajiv Bajaj Ms Suman Kirloskar Managing Director Naresh Chandra Sanjiv Bajaj Executive Director Nanoo Pamnani D S Mehta Manish Kejriwal Kantikumar R Podar P Murari Shekhar Bajaj Niraj Bajaj Auditors Bankers Dalal & Shah Central Bank of India Chartered Accountants State Bank of India Citibank N A Standard Chartered Bank Cost Auditor Bank of America ICICI Bank A P Raman HDFC Bank Cost Accountant Registered under the Indian Companies Act, 1956 4 Management Rahul Bajaj Eric Vas Chairman President (New Projects) Madhur Bajaj C P Tripathi Vice Chairman Vice President (Corporate) Rajiv Bajaj Kevin D’sa Managing Director Vice President (Finance) Sanjiv Bajaj K Srinivas Executive Director Vice President (Human Resources) Pradeep Shrivastava President (Engineering) N H Hingorani Vice President (Commercial) Rakesh Sharma CEO (International Business) S Ravikumar Vice President R C Maheshwari (Business Development) CEO (Commercial Vehicles) S Sridhar CEO (Two Wheelers) Abraham Joseph Company Secretary President (Research & Development) J Sridhar Registered Office Mumbai-Pune Road Akurdi, Pune 411 035 Works • Chakan Industrial Area Chakan, Pune 410 501 • Mumbai-Pune Road Akurdi, Pune 411 035 • Plot No.2, Sector 10 IIE Pantnagar • Bajaj Nagar, Waluj Udhamsinghnagar Aurangabad 431 136 Uttarakhand 263 531 5 Chairman’s Letter Dear Shareholder, of $200 oil. Nobody believed that the scourge of global inflation would suddenly disappear to In April 2008, hardly anyone could have predicted make way for the worst economic downturn since what the global economy would turn out to be by the Great Depression. 31 March 2009. If you recall, we began the year with one of the world’s worst inflationary spirals Yet, it happened with a vengeance since the since World War II. Today, it seems strange that second half of September 2008, after the fall of in the first week of July 2008, the spot price of Lehman Brothers. As I write this letter to you, crude was quoting at above $144 per barrel, the US, countries belonging to the European and pundits were talking of the imminent arrival Union, the UK, Japan, Russia, China, India and 6 others have already pumped in over $2.5 trillion • Japan’s GDP will most likely contract worth of funds and government guarantees to by a massive 6.5% in 2009. Thanks to support their economies and financial systems; lower global demand, industrial production and the G20 has promised another $1.1 trillion of was down by a staggering 38% in support, including to the International Monetary February 2009. Fund. • China’s growth rate has crashed. From heady double-digit rates, GDP growth in While such concerted action has put an end to 2009 is expected to be 6%. the severe liquidity crunch and instability across global financial institutions, the crisis has spread • And the World Trade Organisation estimates to the real economy. Consider the facts: a shrinking of global trade by as much as 9% in 2009. • US GDP is expected to shrink by 2.7% in 2009. Its unemployment rate is at Simply put, 2008-09 has been one of the worst 8.5% (March 2009), and rising — the years for the global economy. And 2009-10 highest since the early 1980s. Between is unlikely to be better. Indeed, most experts October 2008 and March 2009, net payroll believe that the real turnaround will occur only in employment has shrunk by over 3.5 million. calendar 2010 — probably from the April-June And the job losses continue. quarter. • The Euro Zone’s GDP is likely to contract India has not been immune to these tumultuous by 3.4% in 2009. Unemployment is times. After three consecutive years of over 9% already at 8.5%. GDP growth in 2005-06, 2006-07 and 2007-08, quarterly growth rates have steadily fallen from • GDP of the UK is forecast to reduce by the second half of 2007-08. GDP growth for 3.5% in 2009. 2008-09 is expected at somewhere between 7 6.5% and 7%, which would be some 200-250 Your company has been affected by this basis points lower than the previous year. And downturn. the prospects are fairly grim for 2009-10, with estimates varying from a low of 5% to 6.5%. • Net sales and other operating income fell by 2.6% to Rs.88.11 billion in 2008-09. To be sure, we are better off compared to the OECD countries: we are growing, albeit at a • Operating EBITDA was Rs.12.02 billion. The lower rate; they are shrinking. Besides, we company continued earning a double-digit are better insulated from the global scenario operating EBITDA margin: at 13.6% of net with domestic demand comprising 68% of our sales and other operating income for GDP. Even so, these are difficult times. A fall in 2008-09, rising to 15.2% margin for the demand growth translates to lower order books; fourth quarter. lower capacity utilisation; and severe pressure on prices. The relatively worse performance • Operating profit before tax (PBT) was of most manufacturing and service sector Rs.8.46 billion, with an operating profit companies in the third and fourth quarters of margin of 9.6% of net sales and other 2008-09 reflect this reality. operating income. The Indian automotive sector has been hit by In a difficult year, there have been some positive the combined effect of a severe credit crunch news. The first is Bajaj Auto’s exports. During and a fall in demand growth. The third quarter 2008-09, your company’s exports achieved of 2008-09 was particularly fierce. Average an all-time high of 772,519 units of two- and monthly sales of motorcycles in India fell by three-wheelers — representing a growth of over 17% in Q3 2008-09 versus Q2 — from an 25% over the previous year. The growth was average of 524,939 units per month to 435,114. driven by the export of two-wheelers, which 8 increased by 31% over 2007-08 to achieve do with a better product mix, higher productivity sales of 633,463 units in 2008-09. Last year, and lower input costs. I wholeheartedly support too, I had expressed my satisfaction with our the management focus on lower costs and exports. Given the excellent performance for greater profitability. three successive years and the establishment of significant bridgeheads in many geographies, I The path ahead is going to be challenging — that feel confident that the company’s products will of growing sales without eroding profit margins continue to do well in international markets. in an economy which will be witnessing a 250 basis point drop in growth rates compared to The second good development is that your the last four years. But I am confident that your company will be introducing upgraded Pulsar company’s management will deliver superior models in May 2009 and brand new models for results in 2009-10. The building blocks are in the executive segment in the second quarter of place. With easier credit conditions, we can 2009-10. With these, and the positive response achieve growth with better profits. to the XCD 135 cc which was introduced in February 2009, I expect sales to recover in My thanks to all employees of Bajaj Auto for 2009-10 — not to the levels seen in 2006-07, their unstinting support, especially in hard but better than most of 2008-09. times. And to you for being with us. I would add another heartening news. Despite the severe contraction in your company’s sales in 2008-09, it has been able to maintain healthy operating margins. Indeed, the fourth quarter saw a rise in the margin to 15.2% of net sales Rahul Bajaj and other operating income. This has much to Chairman 9 Management Discussion and Analysis 2008-09 has been a tumultuous year for scrapped investment plans and capital the global economy. The year began with a expenditure; cut down capacities; struggled with continuation of a world-wide inflationary spiral finances because of their earlier over-leveraged and ended with the worst slowdown since the positions; delayed payments to vendors; and Great Depression of the 1930s. While India had to borrow funds at prohibitive interest rates. did not face a contraction in GDP growth like the USA, the Euro zone, the UK and Japan, it It is in this context that one must look at the has witnessed a 250 basis point compression performance of Bajaj Auto Limited (‘Bajaj in growth rate — from 9% in 2007-08 to an Auto’, ‘BAL’ or ‘the Company’). Despite falling expected 6.5% or thereabout in 2008-09. demand in the motorcycle segment, the company has succeeded in maintaining an The second half of 2008-09 has seen severe operating EBITDA (earnings before interest, financial distress across broad sections of taxes, depreciation and amortisation) margin Indian industry — especially the manufacturing of 13.6% of net sales and other operating sectors. Companies have got re-rated; have income.