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FM SLP

Company undertaken

GROUP NO.

ROLL NO. 140

141

153

125

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4

BAJAJ AUTO LTD

11

SAKSHI AGRAWAL

Akshay Peshwe

Sanjeeda Siddique

Hina Khera

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COST OF DEBT

Credit Rating for BAJAJ AUTO LTD is AAA for bank loans as obtained from the Website of c

Risk free rate by Indian Government for 5 year

Bonds Yeild is taken from the trading Economics

webiste as shown in the screen shot is 8.05%

Rf 8.05

Here we have assumed the time period to be 5 years

The company has taken long term borrowings for 5 years

Debt Risk Premium 0.53

Cost of Debt before tax 8.58

Tax rate 0.3

Cost of Debt 6.006

As India, does not have corporate bond market,

we choose government bond market to calculate

our Cost of Debt for our company BAJAJ AUTO

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13-Feb-14 6001.1 -1.363 13-Feb-14 1902.85

14-Feb-14 6048.35 0.787 14-Feb-14 1839.6

17-Feb-14 6073.3 0.413 17-Feb-14 1845.35

18-Feb-14 6127.1 0.886 18-Feb-14 1844.65

19-Feb-14 6152.75 0.419 19-Feb-14 1820.9

20-Feb-14 6091.45 -0.996 20-Feb-14 1842.4

21-Feb-14 6155.45 1.051 21-Feb-14 1862.7

24-Feb-14 6186.1 0.498 24-Feb-14 1861.8

25-Feb-14 6200.05 0.226 25-Feb-14 1902.25

26-Feb-14 6238.8 0.625 26-Feb-14 1920.9

28-Feb-14 6276.95 0.611 28-Feb-14 1946.35

3-Mar-14 6221.45 -0.884 3-Mar-14 1917.05

4-Mar-14 6297.95 1.230 4-Mar-14 1921.95

5-Mar-14 6328.65 0.487 5-Mar-14 1920.656-Mar-14 6401.15 1.146 6-Mar-14 1957.9

7-Mar-14 6526.65 1.961 7-Mar-14 1954.7

10-Mar-14 6537.25 0.162 10-Mar-14 2005

11-Mar-14 6511.9 -0.388 11-Mar-14 1986.55

12-Mar-14 6516.9 0.077 12-Mar-14 1959

13-Mar-14 6493.1 -0.365 13-Mar-14 1966.7

14-Mar-14 6504.2 0.171 14-Mar-14 1974.3

18-Mar-14 6516.65 0.191 18-Mar-14 1994.9

19-Mar-14 6524.05 0.114 19-Mar-14 2008.7

20-Mar-14 6483.1 -0.628 20-Mar-14 1972.9

21-Mar-14 6493.2 0.156 21-Mar-14 1977.85

22-Mar-14 6494.9 0.026 22-Mar-14 1981.1

24-Mar-14 6583.5 1.364 24-Mar-14 2021.45

25-Mar-14 6589.75 0.095 25-Mar-14 2014.05

26-Mar-14 6601.4 0.177 26-Mar-14 2039.6

27-Mar-14 6641.75 0.611 27-Mar-14 2072.35

28-Mar-14 6695.9 0.815 28-Mar-14 205831-Mar-14 6704.2 0.124 31-Mar-14 2083.6

1-Apr-14 6721.05 0.251 1-Apr-14 2065.2

2-Apr-14 6752.55 0.469 2-Apr-14 2053.6

3-Apr-14 6736.1 -0.244 3-Apr-14 2053.35

4-Apr-14 6694.35 -0.620 4-Apr-14 2028.9

7-Apr-14 6695.05 0.010 7-Apr-14 2022.6

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9-Apr-14 6796.2 1.511 9-Apr-14 2031.3

10-Apr-14 6796.4 0.003 10-Apr-14 2022.15

11-Apr-14 6776.3 -0.296 11-Apr-14 2007.55

15-Apr-14 6733.1 -0.638 15-Apr-14 2004.4

16-Apr-14 6675.3 -0.858 16-Apr-14 2000.55

17-Apr-14 6779.4 1.559 17-Apr-14 2016.05

21-Apr-14 6817.65 0.564 21-Apr-14 2014.15

22-Apr-14 6815.35 -0.034 22-Apr-14 2003.35

23-Apr-14 6840.8 0.373 23-Apr-14 2004.65

25-Apr-14 6782.75 -0.849 25-Apr-14 1996.05

28-Apr-14 6761.25 -0.317 28-Apr-14 1985

29-Apr-14 6715.25 -0.680 29-Apr-14 1939.5

30-Apr-14 6696.4 -0.281 30-Apr-14 1912.15

2-May-14 6694.8 -0.024 2-May-14 1906.75-May-14 6699.35 0.068 5-May-14 1918.85

6-May-14 6715.3 0.238 6-May-14 1900.35

7-May-14 6652.55 -0.934 7-May-14 1868.15

8-May-14 6659.85 0.110 8-May-14 1879.25

9-May-14 6858.8 2.987 9-May-14 1919.95

12-May-14 7014.25 2.266 12-May-14 1948.15

13-May-14 7108.75 1.347 13-May-14 1977.3

14-May-14 7108.75 0.000 14-May-14 2041.75

15-May-14 7123.15 0.203 15-May-14 1950.5

16-May-14 7203 1.121 16-May-14 1931.7

19-May-14 7263.55 0.841 19-May-14 1878.35

20-May-14 7275.5 0.165 20-May-14 1866.4

21-May-14 7252.9 -0.311 21-May-14 1961.15

22-May-14 7276.4 0.324 22-May-14 1986.75

23-May-14 7367.1 1.246 23-May-14 1976.25

26-May-14 7359.05 -0.109 26-May-14 1961.2

27-May-14 7318 -0.558 27-May-14 197228-May-14 7329.65 0.159 28-May-14 1948.4

29-May-14 7235.65 -1.282 29-May-14 1941.2

30-May-14 7229.95 -0.079 30-May-14 1943.95

2-Jun-14 7362.5 1.833 2-Jun-14 1974.4

3-Jun-14 7415.85 0.725 3-Jun-14 1970.15

4-Jun-14 7402.25 -0.183 4-Jun-14 2002.5

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5-Jun-14 7474.1 0.971 5-Jun-14 2000.9

6-Jun-14 7583.4 1.462 6-Jun-14 2048.4

9-Jun-14 7654.6 0.939 9-Jun-14 2161.75

10-Jun-14 7656.4 0.024 10-Jun-14 2152.5

11-Jun-14 7626.85 -0.386 11-Jun-14 2180.85

12-Jun-14 7649.9 0.302 12-Jun-14 2185.6

13-Jun-14 7542.1 -1.409 13-Jun-14 2170.7

16-Jun-14 7533.55 -0.113 16-Jun-14 2169.75

17-Jun-14 7631.7 1.303 17-Jun-14 2160.35

18-Jun-14 7558.2 -0.963 18-Jun-14 2150.6

19-Jun-14 7540.7 -0.232 19-Jun-14 2160.25

20-Jun-14 7511.45 -0.388 20-Jun-14 2179.8

23-Jun-14 7493.35 -0.241 23-Jun-14 2191.1

24-Jun-14 7580.2 1.159 24-Jun-14 2221.1525-Jun-14 7569.25 -0.144 25-Jun-14 2275.85

26-Jun-14 7493.2 -1.005 26-Jun-14 2289

27-Jun-14 7508.8 0.208 27-Jun-14 2309.1

30-Jun-14 7611.35 1.366 30-Jun-14 2316.2

1-Jul-14 7634.7 0.307 1-Jul-14 2334.7

2-Jul-14 7725.15 1.185 2-Jul-14 2349.8

3-Jul-14 7714.8 -0.134 3-Jul-14 2300.1

4-Jul-14 7751.6 0.477 4-Jul-14 2299.2

7-Jul-14 7787.15 0.459 7-Jul-14 2302.7

8-Jul-14 7623.2 -2.105 8-Jul-14 2226.3

9-Jul-14 7585 -0.501 9-Jul-14 2169.65

10-Jul-14 7567.75 -0.227 10-Jul-14 2152.2

11-Jul-14 7459.6 -1.429 11-Jul-14 2133.95

14-Jul-14 7454.15 -0.073 14-Jul-14 2127.55

15-Jul-14 7526.65 0.973 15-Jul-14 2155.75

16-Jul-14 7624.4 1.299 16-Jul-14 2137.1

17-Jul-14 7640.45 0.211 17-Jul-14 2087.6518-Jul-14 7663.9 0.307 18-Jul-14 2081.25

21-Jul-14 7684.2 0.265 21-Jul-14 2070.7

22-Jul-14 7767.85 1.089 22-Jul-14 2070.15

23-Jul-14 7795.75 0.359 23-Jul-14 2105.3

24-Jul-14 7830.6 0.447 24-Jul-14 2108.7

25-Jul-14 7790.45 -0.513 25-Jul-14 2100.75

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21-Nov-14 8477.35 0.898 21-Nov-14 2673.45

24-Nov-14 8530.15 0.623 24-Nov-14 2675.1

25-Nov-14 8463.1 -0.786 25-Nov-14 2644

26-Nov-14 8475.75 0.149 26-Nov-14 2614.45

27-Nov-14 8494.2 0.218 27-Nov-14 2649.6

28-Nov-14 8588.25 1.107 28-Nov-14 2640.8

1-Dec-14 8555.9 -0.377 1-Dec-14 2636.3

2-Dec-14 8524.7 -0.365 2-Dec-14 2602.35

3-Dec-14 8537.65 0.152 3-Dec-14 2609.9

4-Dec-14 8564.4 0.313 4-Dec-14 2625.1

5-Dec-14 8538.3 -0.305 5-Dec-14 2619.9

8-Dec-14 8438.25 -1.172 8-Dec-14 2614.65

9-Dec-14 8340.7 -1.156 9-Dec-14 2608.85

10-Dec-14 8355.65 0.179 10-Dec-14 2569.511-Dec-14 8292.9 -0.751 11-Dec-14 2563.2

12-Dec-14 8224.1 -0.830 12-Dec-14 2521.35

15-Dec-14 8219.6 -0.055 15-Dec-14 2517.9

16-Dec-14 8067.6 -1.849 16-Dec-14 2494.75

17-Dec-14 8029.8 -0.469 17-Dec-14 2463.05

18-Dec-14 8159.3 1.613 18-Dec-14 2503.15

19-Dec-14 8225.2 0.808 19-Dec-14 2473.55

22-Dec-14 8324 1.201 22-Dec-14 2477.3

23-Dec-14 8267 -0.685 23-Dec-14 2519.25

24-Dec-14 8174.1 -1.124 24-Dec-14 2477.7

26-Dec-14 8200.7 0.325 26-Dec-14 2480.7

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-1.279

-3.324

0.313

-0.038

-1.288

1.1811.102

-0.048

2.173

0.980

1.325

-1.505

0.256

-0.0681.939

-0.163

2.573

-0.920

-1.387

0.393

0.386

1.043

0.692

-1.782

0.251

0.164

2.037

-0.366

1.269

1.606

-0.6921.244

-0.883

-0.562

-0.012

-1.191

-0.311

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0.430

-0.450

-0.722

-0.157

-0.192

0.775-0.094

-0.536

0.065

-0.429

-0.554

-2.292

-1.410

-0.2850.637

-0.964

-1.694

0.594

2.166

1.469

1.496

3.259

-4.469

-0.964

-2.762

-0.636

5.077

1.305

-0.529

-0.762

0.551-1.197

-0.370

0.142

1.566

-0.215

1.642

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-0.080

2.374

5.534

-0.428

1.317

0.218-0.682

-0.044

-0.433

-0.451

0.449

0.905

0.518

1.3712.463

0.578

0.878

0.307

0.799

0.647

-2.115

-0.039

0.152

-3.318

-2.545

-0.804

-0.848

-0.300

1.325

-0.865

-2.314-0.307

-0.507

-0.027

1.698

0.161

-0.377

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-0.795

-0.223

-0.168

-0.867

1.468

3.233-0.550

-0.210

-0.823

0.361

0.294

0.581

-0.603

-0.0232.984

0.027

3.149

-0.075

-0.651

0.373

0.898

-0.947

0.082

-0.086

-1.450

3.417

1.640

0.840

-1.617

1.445

-0.7710.509

-0.677

-1.282

0.764

3.155

0.790

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0.008

-0.785

-1.197

-0.596

-0.428

-1.5272.019

-0.659

0.011

0.520

1.175

-0.945

-0.206

2.691-2.009

0.408

1.660

-0.023

3.435

1.395

-0.484

-0.723

2.081

1.029

1.302

-1.409

-0.138

-1.206

0.146

0.242

1.9610.394

1.650

0.181

-0.515

1.172

-0.735

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0.684

0.062

-1.163

-1.118

1.344

-0.332-0.170

-1.288

0.290

0.582

-0.198

-0.200

-0.222

-1.508-0.245

-1.633

-0.137

-0.919

-1.271

1.628

-1.183

0.152

1.693

-1.649

0.121

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return

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y = 0.6241x + 0.0487

R = 0.1372

-6.000

-4.000

-2.000

0.000

2.000

4.000

6.000

8.000

-3.000 -2.000 -1.000 0.000 1.000 2.000 3.000 4.000

Series1

Linear (Series1)

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COST OF EQUITY

MRP for India 8.3

For Market Risk Premium, we took the Mraket Risk Premium for India which is

taken from the excel sheet containing Risk Premiums of various countries, already

calculated by Mr. Aswath Damodaran.

Beta (as calculated) 0.624

Risk Free Rate 8.05

Cost of Equity 13.23

Here the cost of equity has been calculated using the CAPM method for BAJAJ AUTOas we have the market data available for it. It becomes an easy way to calculate

the COE of BAJAJ using the beta obtained from regression analysis of stock of BAJAJ versus MARKET.

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WACC

Cost of Debt (obtd from Calculations) 6.006

Cost of Equity (obtd from Calculations) 13.23

Long Term Borrowings(in crores) 57.74

Market Price of Shares 2452.15No. Of Outstanding Shares (from Balance sheet) 289367020

Common Equity(in crores) 70957.13

Number of Preferred Stock 0

Total Equity( in crores) 70957.13

Total Debt and Equity(in crores) 71014.87

Proportion of Debt 0.0008131

Proportion of Common Equity 0.9991869

WACC 13.224

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Here we have used market value of weights of debt and Equity because the market values r

% market's expectations of the size, the timing and the risk of future cash flows.

%

WACC is the weighted average cost of capital that BAJAJ uses as a whole of debt and Equity

It can be observed that BAJAJ is majorly financed by Equity as compared to debt, and the W

us that the interest that BAJAJ is paying on the overall financing it gets from debt and equity

So the overall required return for BAJAJ comes out to be 13.22%

%

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eflect the

CC tells

is 13.22%

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Now for Bajaj Auto Ltd which is presently into manufacturing of 2 and 3 wheeler automobiles, we think of an

Here since we want to introduce a new project in the company we look at some companies like mahindra &

use pure play method for different project, so we useAccounting Beta methodwhere we find out the beta b

we just chose and the slope of that regression can give us the new accounting beta, which help us calculate n

ROA for BAJAJ AUTO over period of 5 years

(in crores) 2014 2013Net income 3241.95 3043.57

Total Assets 14747.6 12478.62

ROA 0.2198 0.2439

Average ROA for sample companies over 5 years

(in millions) 2014 2013

Net income 27830 23921

Total Assets 305357 266880

Net income 3345.2 3018.1

Total Assets 497344.2 521847.7

Net income 37583.5 33528.2

Total Assets 312886.5 274535.9

TOTAL NI 68758.7 60467.3

TOTAL TA 1115587.7 1063263.6

AVERAGE ROA 0.0616 0.0569

Years

2014

20132012

2011

2010

Slope of this project

MARUTI SUZUKI

TATA MOTORS

Mahindra & Mahindra

y = 0.686x + 0.2791R = 0.1275

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000

Beta calculation for BAJAJ

ROA of BAJAJ

Linear (ROA of BAJAJ)

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unrelated project like manufacturing of 4 wheeler project needs to be introduced.

ahindra, tata motors and Maruti Suzukiwhich deal in 4 wheelers. We cannot

y conducting regression of ROAs of our company bajaj and average ROAs of the sample of companies

ew Cost of Equity. Using the new COE we can calculate discounting rate(WACC) for unrelated project.

2012 2011 20103004.05 3339.73 1703.6 ACCOUTING BE

11081.07 5265.08 4268.61

0.2711 0.6343 0.3991

2012 2011 2010

16352 22888 17899

223022 143412 125809

12422.3 18118.2 22400.8

545192.8 379352.1 331000.2

28788.9 26621 20877.5

239119.8 130730.7 109507.1

57563.2 67627.2 149806.9

1007334.6 653494.8 566316.3

0.0571 0.1035 0.2645

X-Axis Y-Axis

Average ROA ROA of BAJAJ

0.0616 0.2198

0.0569 0.24390.0571 0.2711

0.1035 0.6343

0.2645 0.3991

is the accounted beta for BAJAJ's four wheeler project

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TA METHOD

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Using the new cost of Equity as obtained, we calculated

Previously in the WACC it was observed to be 13.22 for BAJAJ AUTO, it was assumed that if BAJAJ AUTO

starts manufacturing four-wheelers too, then the new WACC came out to be 13.74, so it can be observ

the WACC of the project has increased and hence the riskiness of the company overall. So if BAJAJ AUT

starts manufacturing four-wheelers then the overall risk of the company increases too. Also, it can be o

that the relationship between ROA of BAJAJ and Average ROA of the market of Expected project to be

13.74% is the appropriate discount rate which is to be used for the cashflows of the new project which

undertaken in this case with new risk calculated in the form of beta = 0.68, using the sample of

four-wheeler companies like Maruti Suzuki, TATA motors and Mahindra & Mahindra to calculate the ov

asscociated with BAJAJ AUTO if it takes up the new project of four-wheeler.

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d that

bserved

aken

has been

erall risk