Rating Rationale
November 28, 2019 | Mumbai
Bajaj Auto Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.3750 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Fixed Deposits FAAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/FAAA/Stable/CRISIL A1+' ratings on the fixed deposit, and bank loan facilities of Bajaj Auto Limited (Bajaj Auto).
Revenue growth in fiscal 2020 is expected to moderate year-on-year due to weak domestic demand: sales declined by around 3% year-on-year during the second quarter of fiscal 2020. However, presence in the export market and regular launches of refreshers or new products have enabled Bajaj Auto to outperform the industry during year-to-date current fiscal.
Decline in domestic motorcycle volume by 12.3% during April-October 2019 was partially offset by 7% growth in exports. Over the medium term, healthy geographical diversity in the motorcycle segment and improving range of its product portfolio, increasing market share in 3-wheeler, cargo, Quadricycle, and launch of electric scooter are likely to benefit market position. Operating profitability is expected to remain in the range of 15-17% during fiscal 2020. As a result, annual cash accrual is likely to be Rs 2,500-3,100 crore over the medium term.

Credit metrics remained strong; gearing was 0.01 time as on March 31, 2019. Liquidity continued to be superior, with cash surplus of over Rs 16000 crore as on Sept 2019 and unutilised bank limit.
The ratings continue to reflect Bajaj Auto's strong business risk profile backed by an established market position in the motorcycle segment and leading position in the three-wheeler passenger carrier segment; and robust financial risk profile because of a strong capital structure and adequate liquidity. These strengths are partially offset by absence in the scooter segment.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Bajaj Auto and its subsidiaries, PT Bajaj Auto Indonesia and Bajaj Auto International Holdings BV, because they are under a common management and have high operational linkages.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
* Healthy market position in the motorcycle segment
Bajaj Auto remains the second-largest player in this segment, with 18.8% of the domestic market share during the seven months ended October 31, 2019. It continues to be the largest exporter of two-wheelers, accounting for nearly 52% of total exports as on October 2019.
Over the past few years, the company has demonstrated robust product development capabilities, as reflected in model launches under the Avenger and Pulsar brands in the premium segment, and CT and Platina in the economy segment. Performance is expected to remain stable over the medium term, driven by a healthy market position, strong product development capabilities, established brand, and a diversified product portfolio. Bajaj Auto is expected to launch new models in its executive and premium segments, which will help improve market share gradually over the medium term. It is also looking to gain crucial edge in the electric two-wheeler market with Bajaj Chetak.
* Leadership in the three-wheeler passenger carrier segment
Bajaj Auto is the single-largest player in the domestic three-wheeler passenger carrier segment, with around 57.6% market share during the seven months ended October 31, 2019. It is also the largest exporter of three-wheelers, with a 61% share in fiscal 2018. The company continues to dominate the export market, despite entry of new players such as TVS Motor Company Ltd, Mahindra and Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+' by CRISIL), and Piaggio Vehicles Pvt Ltd (rated 'CRISIL A+/Stable/CRISIL A1+'). Steady accrual from this segment provides considerable strength to overall business risk profile, helps diversify revenue base, and improves ability to weather intense competition in the motorcycle segment. The three-wheeler segment also offers higher margin than the two-wheeler segment because of limited competition.
* Robust financial risk profile
The company is likely to maintain near debt-free status over the medium term, given that its annual capital expenditure (capex) requirement will continue to be met through internal accrual. A substantial portfolio of liquid investments and cash surplus (over Rs 16000 crores as on September 2019) provides steady treasury income, besides enhancing financial flexibility. Strong financial risk profile will help withstand any competitive challenge in terms of pricing flexibility, and meet necessary expenditure for in-house research and development, product launches and upgrades, or any sluggishness in revenue growth.
* Modest presence in the executive segment of the motorcycle market
Executive motorcycle segment (More than 110cc but less than 125cc) accounts for 22% of the total motorcycle market. Bajaj's share in this segment has remained modest with 6% as on Year-to-date October 2019 of the total volume sold. Though, this has improved from 2.6% market share for the corresponding period previous year.
Liquidity Superior

Liquidity is expected to remain superior in the absence of debt; unutilised bank limit; and annual cash accrual of Rs 2,500-3,100 crore against capex of Rs 200-300 crore over the medium term.

Outlook: Stable

CRISIL believes Bajaj Auto will maintain its credit risk profile over the medium term on the back of its well-diversified revenue profile and robust financial risk profile.
Rating Sensitivity Factor
Downward factor
* Sustained decline in market share in the motorcycle segment to below 10% or sharp deterioration in operating profitability to below 10%
* Sizeable cash outflow in the form of dividends, share buyback, or large acquisition severely depleting cash surpluses or increasing dependence on debt

About the Company

Bajaj Auto was incorporated in 1945 as Bachraj Trading Corporation Ltd to import scooters and motorised three-wheelers from Piaggio & Company. The entity's name was changed to Bajaj Auto Pvt Ltd in June 1960, and then to its current one in August 1960, after it was reconstituted as a public limited company. Currently, Bajaj Auto has a dominant market share in the three-wheeler segment, and a strong position in the motorcycle segment.
As per a scheme of demerger, Bajaj Auto formed two companies in fiscal 2008, Bajaj Holdings and Investment Ltd (BHIL) and Bajaj Finserv Ltd (Bajaj Finserv). The two- and three-wheeler manufacturing business carried out by Bajaj Auto was transferred to BHIL, while the wind energy, insurance, and consumer finance businesses were transferred to Bajaj Finserv. After completion of the demerger formalities (Bombay High Court approved the demerger on December 18, 2007), BHIL was renamed Bajaj Auto (new), while Bajaj Auto (old) was renamed BHIL.
Bajaj Auto had set up an assembly line capacity in its Waluj plant in Aurangabad, Maharashtra, to manufacture quadricycle (branded as Qute), which it started exporting apart from catering to the domestic market. The company has a total capacity to manufacture 5,400,000 units of motorcycles and 930,000 units of commercial vehicles (passenger carrier, goods carrier, and quadricycle) at its plants in Waluj, Chakan, Maharashtra; and Pantnagar, Uttarakhand.
As on year-to-date September 2019, Bajaj Auto's consolidated operating income was Rs 15,463 crore (Rs 15,501 crore for the corresponding period last fiscal) with an operating margin of 16% (17.7%).

Key Financial Indicators
Particulars for period ended March 31, Unit 2019 2018
Revenue Rs Cr. 30,270 25,238
Profit after tax Rs Cr. 4928 4219
PAT margin % 16.3 16.7
Adjusted debt/adjusted networth Times 0.01 0.01
Interest coverage Times 1435 4066

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)
Rating assigned
with outlook
NA Bank Guarantee NA NA NA 90 CRISIL A1+
NA Cash Credit NA NA NA 50 CRISIL AAA/Stable
NA Letter of Credit NA NA NA 200 CRISIL A1+
NA Proposed Bank Guarantee NA NA NA 3410 CRISIL A1+
NA Fixed Deposits NA NA NA 0 FAAA/Stable
Annexure - List of entities consolidated
Company name Holding/Subsidiary/Associate % of shares held
PT. Bajaj Auto Indonesia Subsidiary 99.25%
Bajaj Auto International Holdings BV Subsidiary 100%
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  0.00  FAAA/Stable      27-12-18  FAAA/Stable  26-12-17  FAAA/Stable  29-12-16  FAAA/Stable  FAAA/Stable 
                    04-01-16  FAAA/Stable   
Fund-based Bank Facilities  LT/ST  50.00  CRISIL AAA/Stable      27-12-18  CRISIL AAA/Stable  26-12-17  CRISIL AAA/Stable  29-12-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
                    04-01-16  CRISIL AAA/Stable   
Non Fund-based Bank Facilities  LT/ST  3700.00  CRISIL A1+      27-12-18  CRISIL A1+  26-12-17  CRISIL A1+  29-12-16  CRISIL A1+  CRISIL A1+ 
                    04-01-16  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 90 CRISIL A1+ Bank Guarantee 90 CRISIL A1+
Cash Credit 50 CRISIL AAA/Stable Cash Credit 50 CRISIL AAA/Stable
Letter of Credit 200 CRISIL A1+ Letter of Credit 200 CRISIL A1+
Proposed Bank Guarantee 3410 CRISIL A1+ Proposed Bank Guarantee 3410 CRISIL A1+
Total 3750 -- Total 3750 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Two-Wheeler Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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