Samir Project.docx

A Project Report On “TO STUDY THE FINANCIAL ANALYSIS OF CAPITAL STRUCTURE OF BAJAJ FINSERV, PUNE”

SUBMITTED BY SAMIR SINGH

UNDER THE GUIDANCE OF PROF. CHARU SHARMA

SUBMITTED TO SAVITRIBAI PHULE PUNE UNIVERSITY

SUBMITTED IN PARTIAL FULFILMENT OF

BACHELOR OF BUSINESS ADMINISTRATIO

INDIRA COLLEGE OF COMMERCE AND SCIENCE (2016-2019)

DECLARATION

I, SAMIR SINGH declare that the project work titled “Capital Structure Management” is totally independent work done by me under the guidance and supervision of Prof. CHARU SHARMA . This work has been submitted in the partial fulfilment of the Bachelor of Business Administration to University of Pune.

The information has been collected from genuine and authentic sources.

The project work or any part of it has not be submitted or published in any form for any other degree, to University of Pune or any other university.

PLACE:DATE:-

PREFACE

Someone has rightly said practical knowledge is far better than classroom teaching. During the course of this project I actually realized how true the saying is when I analysed the industry and the real world. This project enables me to know the consumer needs and the competitor’s activity in the real world. Moreover, internship helped in introducing to me the general nature and structure of industries and business organization. It enhanced the awareness towards study, business website and published data and information relating to the hotel industry sector. It has helped in improving my knowledge about the hotel industry sector. This is the brief report on the comparison survey that was conducted and the findings and observation during the survey is drawn and final suggestion and conclusion have been given. The experience which I gained by doing this projects is being submitted which content detailed analysis of the research under taken by me. The research provides as opportunity to the student to devote his/her skill knowledge and competencies required during the technical session.

ACKNOWLEDGEMENT

It gives me great honour while expressing my sense of gratitude towards all those who helped and guided me during this project.

I would like to express my sincere and profound sense of gratitude to the Sales ManagerNext, Mr. Prateek of Bajaj Finserv Limited for their inspiring guidance, kindness, constant encouragement and constructive criticism during the course of my internship and in the preparation of this report.

I would also like to thank my faculty guide Prof. Charu Sharma of Indira College of Commerce and Science, Pune for her complete guidance and encouragement in the completion of this project.

I would also take the opportunity to thank Dr. Janardhan Pawar (Principal Incharge) and Dr. Sonali Shrotri (HOD–BBA and BBA IB) of Indira College of Commerce and Science, Pune for giving me the opportunity to be a part of this institution and encouraging me to complete this project.

I would also like to thank to colleagues working for Bajaj Finserv Ltd for their encouragement and support during my project and also to all those who have helped me directly or indirectly in preparing this project report.

SAMIR SINGH BBA ICCS, PUNE

TABLE OF CONTENT

1

CHAPTER 1

1.1

Introduction of the Capital Structure

1.2

Importance of Capital Structure

1.3

Financial Analysis

1.4

Ratio Analysis

1.5

Ratio to be studied

2

CHAPTER 2

2.1

Company Profile

2.2

History of Company

2.3

Board of Directors

2.4

Future Prospects

3

CHAPTER 3

3.1

Research Methodology

3.2

Reason of Study

3.3

Objective of Study

3.4

Data Source

3.5

Limitations

4

CHAPTER 4

4.1

Data Analysis and Interpretation

5

CHAPTER 5

5.1

Findings

5.2

Conclusion

5.3

Bibliography

5.4

Annexure

PAGE NO.

EXECUTIVE SUMMARY

The core objective of the internship is to fulfill the requirement of the BBA program as prescribed by the Pune University. An intern has to prepare project report at the end of the internship period but the main objective of the internship is to get the hands-on experience of the real world organization. The internship was completed with the objective of getting practical knowledge in the Finance department regarding ratio analysis and capital structure of BAJAJ FINSERV & also attempted to gather more information on basic job functions of other departments to have better understanding of the company financial condition and Finance department. It was commendable to see how wholeheartedly they welcomed, acknowledged and appreciated new ideas and knowledge. I have provided few recommendations based upon my understanding and knowledge.

I successfully completed all the assigned duties and handed them over to the senior supervisor at the end of the internship. I thoroughly enjoyed the challenges that came along every single day. These lessons that I have learned will be a valuable one for my future endeavours as well.

CHAPTER 01

1.1 Introduction to 'Capital Structure' The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

'Capital Structure' A firm's capital structure can be a mixture of long-term debt, short-term debt, common equity and preferred equity. A company's proportion of short- and long-term debt is considered when analysing capital structure. When analysts refer to capital structure, they are most likely referring to a firm's debt-to-equity (D/E) ratio, which provides insight into how risky a company is. Usually, a company that is heavily financed by debt has a more aggressive capital structure and therefore poses greater risk to investors. This risk, however, may be the primary source of the firm's growth.

Debt vs. Equity Debt is one of the two main ways companies can raise capital in the capital markets. Companies like to issue debt because of the tax advantages. Interest payments are taxdeductible. Debt also allows a company or business to retain ownership, unlike equity. Additionally, in times of low interest rates, debt is abundant and easy to access. Equity is more expensive than debt, especially when interest rates are low. However, unlike debt, equity does not need to be paid back if earnings decline. On the other hand, equity represents a claim on the future earnings of the company as a part owner.

Debt-to-Equity Ratio as a Measure of Capital Structure Both debt and equity can be found on the balance sheet. The assets listed on the balance sheet are purchased with this debt and equity. Companies that use more debt than equity to finance assets have a high leverage ratio and an aggressive capital structure. A company that pays for assets with more equity than debt has a low leverage ratio and a conservative capital structure. That said, a high leverage ratio and/or an aggressive capital structure can also lead to higher growth rates, whereas a conservative capital structure can lead to lower growth rates. It is the goal of company management to find the optimal mix of debt and equity, also referred to as the optimal capital structure. Analysts use the D/E ratio to compare capital structure. It is calculated by dividing debt by equity. Savvy companies have learned to incorporate both debt and equity into their corporate strategies. At times, however, companies may rely too heavily on external funding, and debt in particular. Investors can monitor a firm's capital structure by tracking the D/E ratio and comparing it against the company's peers.1 ● A firm's capital structure is the composition or 'structure' of its liabilities. For example, a firm that has $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. ● The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage.[1] In reality, capital structure may be highly complex and include dozens of sources of capital. ● Leverage (or gearing) ratios represent the proportion of a firm's capital that is obtained through debt which may be either bank loans or bonds. ● In the event of bankruptcy, the seniority of the capital structure comes into play. A typical company has the following seniority structure listed from most senior to least: ● Senior debt ● Subordinated (or junior) debt ● Preferred stock ● Common stock .

● The Modigliani–Miller theorem, proposed by Franco Modigliani and Merton Miller in 1958, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it disregards many important factors in the capital structure process factors like fluctuations and uncertain situations that may occur in the course of financing a firm. ● The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm.2

1.2 IMPORTANCE OF CAPITAL STRUCTURE The importance or significance of Capital Structure:

1. Increase in value of the firm: A sound capital structure of a company helps to increase the market price of shares and securities which, in turn, lead to increase in the value of the firm. 2. Utilisation of available funds: A good capital structure enables a business enterprise to utilise the available funds fully. A properly designed capital structure ensures the determination of the financial requirements of the firm and raise the funds in such proportions from various sources for their best possible utilisation. A sound capital structure protects the business enterprise from over-capitalisation and under-capitalisation. 3. Maximisation of return:

A sound capital structure enables management to increase the profits of a company in the form of higher return to the equity shareholders i.e., increase in earnings per share. This can be done by the mechanism of trading on equity i.e., it refers to increase in the proportion of debt capital in the capital structure which is the cheapest source of capital. If the rate of return on capital employed (i.e., shareholders’ fund + long- term borrowings) exceeds the fixed rate of interest paid to debt-holders, the company is said to be trading on equity. 4. Minimisation of cost of capital: A sound capital structure of any business enterprise maximises shareholders’ wealth through minimisation of the overall cost of capital. This can also be done by incorporating long-term debt capital in the capital structure as the cost of debt capital is lower than the cost of equity or preference share capital since the interest on debt is tax deductible. 5. Solvency or liquidity position: A sound capital structure never allows a business enterprise to go for too much raising of debt capital because, at the time of poor earning, the solvency is disturbed for compulsory payment of interest to .the debt-supplier. 6. Flexibility: A sound capital structure provides a room for expansion or reduction of debt capital so that, according to changing conditions, adjustment of capital can be made. 7. Undisturbed controlling: A good capital structure does not allow the equity shareholders control on business to be diluted. 8. Minimisation of financial risk: If debt component increases in the capital structure of a company, the financial risk (i.e., payment of fixed interest charges and repayment of principal amount of debt in time) will also increase. A sound capital structure protects a business enterprise from such financial risk through a judicious mix of debt and equity in the capital structure.3

1.3 FINANCIAL ANALYSIS Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Financial analysis may determine if a business will: ● ● ● ● ● ●

Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipment in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital; Make other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

GOALS ●

Financial analysts often assess the following elements of a firm:

●

1. Profitability - its ability to earn income and sustain growth in both the short- and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations;

●

2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations;

●

Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time.

●

4. Stability - the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators. etc.

METHOD Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.): ●

Past Performance - Across historical time periods for the same firm (the last 5 years for example), ● Future Performance - Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects. ● Comparative Performance - Comparison between similar firms. These ratios are calculated by dividing a (group of) account balance(s), taken from the balance sheet and / or the income statement, by another, for example: Net income / equity = return on equity (ROE) Net income / total assets = return on assets (ROA) Stock price / earnings per share = P/E ratio Comparing financial ratios is merely one way of conducting financial analysis. Financial ratios face several theoretical challenges: ●

●

●

●

●

They say little about the firm's prospects in an absolute sense. Their insights about relative performance require a reference point from other time periods or similar firms. One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least two ways. One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's performance. Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever possible. Financial ratios are no more objective than the accounting methods employed. Changes in accounting policies or choices can yield drastically different ratio values. Fundamental analysis.

Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. For example, a group of items can

be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis. Vertical or common-size analysis, reduces all items on a statement to a “common size” as a percentage of some base value which assists in comparability with other companies of different sizes. As a result, all Income Statement items are divided by Sales, and all Balance Sheet items are divided by Total Assets. Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.

1.4 RATIO ANALYSIS A Ratio is a numerical expression signifying the relationship of one figure to another figure. It is calculated by dividing one figure by another figure; resulting in a quotient which is called a ratio. Ratio by itself is an absolute figure and will not convey any meaningful information unless it is compared with other figure and inferences drawn. Ratio analysis is the process of determining and interpreting mathematical relationships based on financial statements. It is a technique of interpretation of financial statements which helps to judge the financial strengths or weakness of the concern. The comparison of financial ratio is done against the following:

(a)

Standard or norms set under standard set of prescribed conditions.

(b)

Historical figures indicating the performance in the past.

(c)

Ratio indicating the performance of other companies in the same industry.

A ratio analysis is a quantitative analysis of information contained in a company’s financial statements. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. When investors and analysts talk about fundamental or quantitative analysis, they are usually referring to ratio analysis. Ratio analysis involves evaluating the performance and financial health of a company by using data from the current and historical financial

statements. The data retrieved from the statements is used to - compare a company's performance over time to assess whether the company is improving or deteriorating; compare a company's financial standing with the industry average; or compare a company to one or more other companies operating in its sector to see how the company stacks up. Most investors are familiar with a few key ratios, particularly the ones that are relatively easy to calculate. Some of these ratios include the current ratio, return on equity (ROE), the debt-equity (D/E) ratio, the dividend payout ratio, and the price/earnings (P/E) ratio. While there are numerous financial ratios, ratio analysis can be categorized into six main groups: 1. Liquidity Ratios: liquidity ratios measure a company's ability to pay off its short-term debts as they come due using the company's current or quick assets. Liquidity ratios include current ratio, quick ratio, and working capital ratio. 2. Solvency Ratios: also called financial leverage ratios, solvency ratios compare a company's debt levels with its assets, equity, and earnings to evaluate whether a company can stay afloat in the long-term by paying its long-term debt and interest on the debt. Examples of solvency ratios include debt-equity ratio, debt-assets ratio, and interest coverage ratio. 3. Profitability Ratios: these ratios show how well a company can generate profits from its operations. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratio are examples of profitability ratios. 4. Efficiency Ratios: also called activity ratios, efficiency ratios evaluate how well a company uses its assets and liabilities to generate sales and maximize profits. Key efficiency ratios are the asset turnover ratio, inventory turnover, and days' sales in inventory. 5. Coverage Ratios: these ratios measure a company's ability to make the interest payments and other obligations associated with its debts. Times interest earned ratio and debt-service coverage ratio are two examples of coverage ratios. 6. Market Prospect Ratios: e.g. dividend yield, P/E ratio, earnings per share, and dividend payout ratio. These are the most commonly used ratios in fundamental analysis. Investors use these ratios to determine what they may receive in earnings from their investments and to predict what the trend of a stock will be in the future.4

IMPORATNCE OF RATIO ANALYSIS;

A ratio is a symptom comparable with the pulse rate, blood pressure or the temperature of an individual. It is a visible indicator that the problem exists. Ratio analysis focus on the specific relationship in the financial statements. The following are some of the important uses of ratio analysis. I. II.

It helps to understand the efficiency and performance of the concern as a whole. Its main purpose is to gain insights into the operating and financial problem confronting the firm.

III.

It helps to identify the trouble or potential trouble spot of the firm. This would impel the management to investigate those areas more thoroughly.

IV.

It helps to pinpoint the relationships that are not obvious from the financial statements.

V.

It helps to highlight the factor responsible for the present state of financial affairs.

VI.

Ratio analysis helps the shareholder in evaluating the firm’s activities and policies that affect profitability, liquidity and ultimately the market price of the shares.

RATIO TO BE STUDIED

Debt eqity ratio

Capital Gearing Ratio

Solvency Ratio

Interest Coverage Ratio

Fixed Assets to Net Worth Ratio

CHAPTER 02

2.1 COMPANY PROFILE India is undergoing rapid development. This means that there are millions of people who dream of better home, better infrastructure and a better life. This opens several avenues of potentially limitless growth in the banking and finance sector. The availability of credit facility has increased the wants of the people, they aspire for better standard of living and

Bajaj Finser Remi saw an opportunity here and decided to finance lifestyle products such as apparels, eyewear etc. which middle-class people wanted to buy but couldn’t afford to spend on them. An innovative, competitive and thriving financial services industry in any country plays a vital role in its smooth functioning and development. India's financial services sector has posited a stable growth curve over the years driven by sound fundamentals, rising personal incomes corporate restructuring, financial sector liberalization and the growth of a consumer-oriented, credit-oriented culture. This has led to the increasing demand for financial products, including EMI financing, consumer loans (especially for cars and homes), as well as for insurance and pension products. The soaring demand for financial services offers promising investment prospects. BAJAJ Finserv was formed in April 2007 as a result of its demerger from BAJAJ Auto Limited to act as a pure play financial services business. The process of demerger was completed in Feb 2008. BAJAJ Finserv Limited is the holding company for the financial services businesses of the BAJAJ Group. Its insurance joint ventures with Allianz SE, Germany namely BAJAJ Allianz Life Insurance Company Limited and BAJAJ Allianz General Insurance Company Limited are engaged in life and general insurance business respectively. Its subsidiary BAJAJ Finance Limited is a Non-Banking Finance Company engaged in consumer finance, SME finance and commercial lending. BAJAJ Financial Solutions Limited, a wholly owned subsidiary of BAJAJ Finserv Limited is engaged in wealth advisory business.

Key milestones ● Launch of EMI card pilot : May 2011 ● 1 Lac Transactions Milestone : June 2011 ● 1Mn Cards Milestone : November 2012

● 5 lac transactions milestone : October 2013 ● 1.5Mn Cards milestone : November 2014 ● 2.1Mn Cards delivered Milestone : June 2015 ● 2.6Mn cards delivered milestone : Apr 2016 Products Covered

0% interest Consumer Durables Finance is available on a wide range of products and in over 80 cities across India. Hereunder is an indicative list of products covered. ➢ Apparels ➢ Footwear ➢ Eyewear ➢ Kitchen Appliances ➢ Cooking Range products ➢ Air purifiers / Water Purifiers / R.O. ➢ Washing machine ➢ Television ➢ Microwave oven Present in the top 79 cities of the country, we are now the largest Consumer Durables Financier in India. We financed over 10% of all consumer electronics sold in the country in the last year. Last year, we acquired more than 1.45 million new customers, through our over 2,500 points of sale across the country. Our existing customers can enjoy special benefits of their relationship with the EMI card. With EMI card, any of our existing customers can go and buy their next consumer durable and Retail product from our partner outlets with the simple swipe of the EMI card. There is no need for any additional document.

GROWING

POTENTIAL

IN

THE

INDUSTRY

Demand for banking services is growing significantly, albeit in a country where less than half of households have a bank account. It is in the retail sector that the surge in demand is most marked. Housing loans grew by more than 50% and loans to the retail commercial sector rose by more than 100%. The NBFCs are growing at a fast pace and gained market share in the origination of rental credit and such a loan is growing at a rapid compound annual growth rate of about 25% over last four years as compare to 17% for overall retail credit. NBFCs have registered a robust growth i.e. a CAGR of 19% over few year, consisting of 13% of total credit and estimated to reach nearly 18% by 2018-19. Indian consumer is increasingly adopting Digital as a way of life. India is currently the second largest smartphone market with user base 220 million and is expected to cross 300 million user by 2017 so, most consumer are adopting digital payment and Debit card to complete their payment. RBI Financial stability report says that NBFCs loan expanded 16.6% in the year, twice as fast as the 8.8% credit growth across the banking sector and aggregate balance sheet of NBFCs sector expanded 15.5% in fiscal year 2016 compared with 15.7% with the previous years. The gross NPA ratio for the NBFCs sector declined to 4.6% of total advances in March 2016 from 5.1% in September 2015, according to FSR (Financial Stability Report).

NON-BANKING FINANCIAL COMPANIES

Non-banking financial companies (NBFCs) are fast emerging as an important segment of the Indian financial system. It is an heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to ultimate

spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. NBFC are present in all competitive fields such as, vehicle financing, housing loans, leasing, hire purchase and personal loans financing etc. NBFC's are not required to maintain cash reserve ratio (CRR) and statutory liquid ratio (SLR). Priority sector lending norm of 40% (of total advances) is not applicable to them. While this is at their advantage, they do not have access to low cost demand deposits. As a result their cost of funds is always high, resulting in thinner interest spread. But currently with surplus liquidity in the system, the cost of funds for NBFC's has substantially eased thus improving their margins. Gradually, they are being recognized as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc. On regulatory front, NBFCs have been classified into 3 categories: ● Those accepting public deposits ● Those not accepting public deposits but engaged in financial business

2.2 HISTORY

2009 -Bajaj Financial Solution, a fully-owned subsidiary of Bajaj Finserv, has appointed Mr Arpit Agarwal as CEO while earlier, Mr Agarwal was the Managing Director and Group Chief Executive Officer at Dawnay Day AV.

2010 -Bajaj Finserv - Bajaj Finserv (BF) announces new brand identity and new busenesses. -Bajaj finserv – recommended a dividend of Re. 1 per share(20%)

2011

-Bajaj Finserv- recommended a dividend of Rs. 1.25 per share(25%)

2012

-Launch of 0% interest Lifestyle Finance. -Bajaj Finserv Lending, Extended Warranty will provide additional 1 year coverage for products after the expiry of the manufacturer Warranty period.

-Flexisaver launches another innovative product for Small and Medium Enterprise customers.

-Bajaj Finserv Lending launches online personal loan service

-Tie up with CPP India for card protection services

-Bajaj Finserv Ltd Issues Rights in the Ratio of 1:10

2013 -Bajaj has recommend a dividend of Rs. 1.50 per share.

2014 -Bajaj has recommended a dividend of Rs. 1.75 per share.

2015 -Bajaj Finserv Ltd – Tata power solar partners with Bajaj Finserv to make solar more accessible -Bajaj Finserv Ltd – Proud to be ranked amongst the top 25 workplaces in Asia by GPTW(Grate Place To Work)

2.3 BOARD OF DIRECTORS

Rahul Bajaj (Chairman) Rahul Bajaj, (born on 10 June 1938), is a Non-Executive Chairman of our Company. He is recognized as one of the most successful business leaders of India. He has been conferred Honorary Doctorates by 7 Universities including IIT Roorkee.

Nanoo Gobindram Pamnani Vice Chairman Nanoo Gobindram Pamnani (born February 26, 1945) is an Economics (Honours) graduate from Bombay University and also holds a Bachelor of Science (Economics) degree from London School of Economics (major in Economics and Econometrics).

Sanjiv Bajaj Managing Director

Sanjiv Bajaj (born November 2, 1969) graduated with distinction in Mechanical Engineering from the University of Pune. He then completed his Masters in Manufacturing Systems Engineering from the University of Warwick, UK and subsequently went on to complete his MBA from Harvard Business School.

D.J. Balaji Rao Director D. J. Balaji Rao (born December 15, 1939) is a Mechanical Engineer from the University of Madras and holds a Postgraduate Diploma in Industrial Engineering from Bombay University. He attended the Advanced Management

Programme

at

the

European

Institute

Administration (INSEAD) at Fountainbleu, France, in 1990.

of

Business

Madhur Bajaj Director

Madhur Bajaj (born August 19, 1952) graduated in Commerce from Sydenham College, Bombay, in 1973. He also holds a Master’s degree in Business Administration from the International Institute of Management Development (IIMD), Lausanne, Switzerland.

Rajiv Bajaj Director Rajiv Bajaj graduated, with distinction, in Mechanical Engineering, from the University of Pune in 1988. He then went on to complete his Masters in Manufacturing Systems Engineering, again with distinction, from the University of Warwick in 1990.

Dr Gita Piramal Independent Director Dr. Gita Piramal (born September 4, 1954) is an Entrepreneur and Businesswoman, author and journalist, with a PhD. in business history from Bombay University.

Dr. Naushad Forbes Director Dr. Naushad Forbes (born on 13 May 1960) is the Co - Chairman of Forbes Marshall, India's leading Steam Engineering and Control Instrumentation firm. He chairs the Steam Engineering Companies within the group.5

2.4 FUTURE PROSPECTUS

VISION: 1. To attain world class Excellency by demonstrating value added products to customers. 2. To attain brand value by learning, innovation, perfection and transparency. 3. To ensure proactively, to create the future through innovation. 4. To set new standards and reach near to perfection. 5. To convey clear conviction and characterize themselves.

MISSION: 1. Focus on value based lending. 2. Fostering team work and enhancing the capability of team. 3. Continual Improvement. 4. Total elimination of fraud practices. 5. Ensuring easy and quick accessibility to customers.

BAJAJ Finserv has a vision to become a full-fledged financial services company and be the financial partner to the Indian consumer and help him across his financial needs, whether for finance, for investment management, for protection or for post-retirement support, throughout his lifecycle. BAJAJ Finserv is a consumer focused company with emphasis on profitable growth and operational efficiency to deliver best results to all its stakeholders.

Consumer lifestyle Finance: ● “Consumer Lifestyle finance means to provide the finance on the consumer durable products like, apparels, footwear, eyewear, small electronic appliance, utensils and other household items it is known as consumer lifestyle finance”

● The consumer lifestyle finance provide the 0% interest on lifestyle product to the consumer, this gives customers another compelling reason to opt for 0% interest Consumer Lifestyle Finance for their lifestyle purchases. Consumer lifestyle finance schemes are generally available at the dealer location (point of sale) or the showroom. The beneficiaries are not just customers – lenders, manufacturers, and retailers too benefit. Manufacturers gain from the resultant boost to sales and increased consumer preference towards high-margin products. Financing schemes enable customers, especially those with lower income levels, to use future income streams to buy consumer products upfront and pay in installments over a period. ● The most popular finance scheme prevalent in the market currently is the 3 months scheme, where there is 0 down payment scheme to the consumer and they can pay the amount in next 3 months. The interest and processing charges are 0. Consumer lifestyle financing appears robust, continued support from manufacturers (who are effectively bearing the interest costs currently) would be critical to sustain high growth.

EMI Card: ● BAJAJ FINSERV Lending launched an innovative product for its existing Consumer Lifestyle Finance customers. ● Through the EMI card, an existing customer can buy any consumer durable by simply swiping the EMI card across our dealer partner outlets, without the need for any repeated documentation. ● This is another industry first, leveraging the technology investments the company has made and is a proof point of our commitment to investing in growing our relationship with our existing customers.

Consumer Finance: ● “The division of retail banking that deals with lending money to consumers. This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans, and can also be used to refer to loans taken out at either the prime rate or the subprime rate.” ● The consumer finance is a win-win system in which everyone wins. For the consumers it is an opportunity to upgrade standard of living here and now instead of waiting for years of savings to accumulate. For manufacturer, consumer finance stimulates demand and brings down inventories. For dealers it is one type of sales booting. For finance company it is profit generation.

Area of operation: ● Consumer Durable Finance ● Two and Three Wheeler Finance ● Lifestyle product finance ● Vendor finance ● Construction Equipment Finance ● Doctor loan

CHAPTER 03

3.1 Research Methodology

3.1.1 RESEARCH Research comprises "creative and systematic work undertaken to increase the stock of knowledge, including knowledge of humans, culture and society, and the use of this stock of knowledge to devise new applications." It is used to establish or confirm facts, reaffirm the results of previous work, solve new or existing problems, support theorems, or develop new theories.

3.1.2 METHODOLOGY Methodology is the systematic, theoretical analysis of the methods applied to a field of study. It comprises the theoretical analysis of the body of methods and principles associated with a branch of knowledge. Typically, it encompasses concepts such as paradigm, theoretical model, phases and quantitative or qualitative techniques.

3.2 REASON OF STUDY 1) To study the financial position and status of the company. 2) To take out different prospects related to capital structure. 3) To seek knowledge related to financial statement analysis. 4) To give out finding and a short SWOT Analysis related to capital structure.

3.3 Objective of study The study is emphasises on checking the financial strength and weakness related to following sub objectives. ● To study the various component of capital structure and the overall composition. ● To gain more knowledge regarding analysing the financial statement of the company. ● To take out finding and highlights in regard of capital structure.

3.4 DATA SOURCE A) The study is based on the secondary data available from the company through different source. B) The Financial statement are extracted from the annual reports provided by the company for

3.5 LIMITATION

1) Lack of Availability of data 2) Time constrains 3) Lesser knowledge in Financial matter 4) Lesser chances to gather primary data 5) Inaccuracy in numerical calculation.

CHAPTER 04 4.1 DEBT-EQUITY RATIO Debt/Equity (D/E) Ratio, calculated by dividing a company’s total liabilities by its stockholders' equity, is a debt ratio used to measure a company's financial leverage. The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity. ● The formula for calculating D/E ratios is: ● The debt/equity ratio is also referred to as a risk or gearing ratio.6 The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. The Ideal Ratio of Debt Equity is 1:1.

Debt/Equity Ratio= DEBT/EQUITY

DEBT

EQUITY

YEAR

RATIO (in times) (in Cr.)

(in CR.)

2016

17.34

2560.3

0.0068

2017

19.35

2696

0.0072

2018

19

2766

0.0069

3000

2500

2000

1500

debt equity ratio(in times)

1000

500

0 2016

2017

2018

INTERPRETATION

The debt equity ratio is an indicator of the design of the capital structure of any company. It is calculated to measure the extent to which debt financing has been used in a business. Bajaj finserv is a financial service provider and thus may follow retrends of finance industry. It can be seen that the debt equity ratio in the first year was 0.0054 which increased to 0.0069 times in year 2017.

4.2 CAPITAL GEARING RATIO The term “capital gearing” is used to describe the relationship between equity share capital including reserves and surplus to preference share capital and other fixed interest bearing loans. Capital gearing ratio is a useful tool to analyse the capital structure of a company and is computed by dividing the common stockholders’ equity by fixed interest or dividend bearing funds.

Capital Gearing Ratio = Equity share capital+ Reserves and surplus / Preference share capital + Long term debt fixed interest OR Capital Gearing Ratio = Common Stockholders’ Equity / Fixed Interest bearing funds The gearing ratio between 25% to 50% is typically considered optimal or Ideal Ratio.

Year

Equity share capital

Total Reserve equity Prefernce Longand shares and share term surplus reserves capital debt

Total

Ratio

2016

79.56

2480.73

2560.29

0

17.34

17.34

147.65

2017

79.57

2616.41

2695.98

0

19.35

19.35

139.33

2018

79.57

2686.45

2766.02

0

19

19

145.58

3000

2500 Equity share capital 2000

Reserve and surplus equity shares and reserves

1500

Prefernce share capital

Long-term debt 1000

total ratio

500

0 2016

2017

2018

INTERPRETATION Capital gearing ratio helps to explain the relationship of net worth with respect to prefence share and long term debt. It can be seen that company is a low geared in nature but further they are trying to improve from 2013 to 2017 as in 2013 the ratio is 186.48 shifting to 145.58. the net worth of the company is highest in 2017 i.e. 2766 and lowest in 2013 i.e. 2407. So, it can also be said that there is regular increase in the net worth which shows the growth of the company.

4.3 SOLVENCY RATIO Solvency ratio is one of the various ratios used to measure the ability of a company to meet its long term debts. Moreover, the solvency ratio quantifies the size of a company’s after tax income, not counting non-cash depreciation expenses, as contrasted to the total debt obligations of the firm. Also, it provides an assessment of the likelihood of a company to continue congregating its debt obligations.

Solvency ratios are primarily used to measure a company's ability to meet its long-term obligations. ... By interpreting a solvency ratio, an analyst or investor can gain insight into how likely a company will be to continue meeting its debt obligations. A stronger or higher ratio indicates financial strength. The solvency ratio of greater then 20% is considered fianacially or Ideal Ratio.

The formula used for computing the solvency ratio is:

Solvency ratio = (After Tax Net Profit + Depreciation) / Total liabilities

Year

Profit/Loss For The Period

(After Tax Net Profit + Depreciation)

DEPRECIATION

2014

50.84

1.28

52.12

2015

83.39

1.3

84.69

2016

125.93

2.54

128.47

Total current liabilities RATIO

61.03 58.26 62.38

0.85 1.45 2.06

31.94 2017

163.13

1.38

164.51

2018

70.02

1.46

71.48

5.15 29.11

2.46

SOLVENCY RATIO 6.00 5.15 5.00

RATIO

4.00

3.00 2.46 2.06 2.00 1.45

1.00

0.00 2012.5

0.85

2013

2013.5

2014

2014.5

2015

2015.5

2016

2016.5

YEAR

2017

2017.5 RATIO

INTERPRETAION

The Ratio indicates the relationship between net profit and the total current liabilities. It can be seen that the solvency ratio is highest in the forth year i.e. 5.15. It can also be said that there is a lot of changes in the net profit from 2014 to 2018 as in 2014 and 2015, the profit for the company is quite good, which help them to pay their further debts.

4.4 FUNDED DEBT TO TOTAL CAPITALISATION RATIO The total debt-to-capitalization ratio is a tool that measures the total amount of outstanding company debt as a percentage of the firm’s total capitalization. The ratio is an indicator of the company's leverage, which is defined as using debt to purchase assets. Companies need to manage debt carefully because of the cash flow needed to make principal and interest payments.

Every business uses assets to generate sales and profits, and capitalization refers to the amount of money raised to purchase assets. A business can raise money by issuing debt to creditors or by selling stock to shareholders. The amount of capital raised is reported in the long-term debt and stockholders' equity accounts in the balance sheet.

Calculated as:

Year DEBT

2014 2015 2016 2017 2018

TOTAL CAPITALISATION 12.91 15.78 17.34 19.35 19

RATIO 2420.4

0.0053

2478.8

0.0064

2577.6

0.0067

2715.3

0.0071

2785

0.0068

FUNDED DEBT - TOTAL CAPITALISATION RATIO 0.008

0.007

0.006

RATIO

0.005

0.004 RATIO 0.003

0.002

0.001

0 2013

2014

2015

2016

2017

YEAR

INTERPRETATION

The ratio establishes a link between the long-term funds raised from outsiders and total long-term funds available in the business. As the ratio is highest in fourth year i.e. 0.0071 mean as compared to other years company owned more debt in fourth year. It can also see that the in this year the company is more dependent on outsiders funds. It was in the lowest in 2014 i.e. 0.0053 and there is inclined upto 0.0068 but again there comes the declining stage.

4.5 FIXED ASSETS TO NET WORTH RATIO The ratio establishes the relationship between fixed assets and shareholder’s funds, i.e. share capital plus reserve, surpluses and retained earnings. Measure of the solvency of a firm, this ratio indicates the extent to which the owners’ cash is frozen in the form of brick and mortar and machinery, and the extent to which funds are available for the firm’s operations. A ratio higher then 0.75 indicates that the firm is vulnerable to unexpected events and changes in the business climate and 0.75 is the Ideal Ratio.

The ratio can be calculated as follow:-

Fixed Assets to Net worth ratio = Fixed Assets (after depreciation) / shareholder’s fund

Fixed assets

Total Shareholder’s Funds

Ratio

2014

69.9

2407.51

0.029

2015

70.91

2463.05

0.029

2016

75.87

2560.29

0.030

2017

76.12

2695.98

0.028

2018

75.14

2766.02

0.027

Year

FIXED ASSET RATIO 0.030

0.029

RATIO

0.029

0.028

0.027

2013

2014

2015

2016

2017

YEAR ratio

INTERPRETATION The ratio of fixed assets to net worth indicated the extent to which shareholder’s funds are sunk into the fixed assets. It can be seen that in the third year the ratio is highest i.e. 0.030 as compared to other years. It can also be seen that on an average of five years the ratio is 0.0286. The fixed asset is highest in 2015 which means company is capable of buying their own assets. The fixed assets of the company is always in inclining position which means company is always purchasing fixed assets from 2014 to 2018 (i.e. from 60.9 to 75.15)

4.6 INTEREST COVERAGE RATIO The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period. Interest coverage ratio is also called “times interest earned.”7 The Ratio below 1.5 is the Ideal Ratio. The method for calculating interest coverage ratio may be represented with the following formula:

Year Profit/Loss Before Tax Interest expenses

RATIO

2014

79.16

0

0

2015

105.51

0

0

2016

158.1

0

0

2017

194.81

0

0

2018

104

0

0

1

INTEREST COVERAGE RATIO

0.9 0.8

RATIO

0.7 0.6 0.5 0.4 0.3

RATIO

0.2 0.1 0 2013

2014

2015

2016

2017

YEAR

INTERPRETATION Interest coverage ratio indicates the number of times interest is covered by the profit available to pay the interest charges. As it can be shown in the graph bajaj finserv is not having any burdern of interest in all the five years. The Ratio below 1.5 is the Ideal Ratio.

Findings

The overall trend of 3 years shows that the company was highly dependent on equity as compared to outsiders funds which indicates that company is conservative and low geared. ➢ Bajaj finserv is the company which is able to finance its fixed assets on their own. ➢ Bajaj finserv don’t have to depend on outsiders to finance the fixed assets. ➢ Bajaj finserv has no burden of interest thus, it helps the company to don’t even think to pay the outsiders burden. ➢ Bajaj finserv is a company which doesn’t pay any interest which means the long term creditors is least interested in the company ➢ The company is considered to be more satisfactory or stable because of the long term solvency position of the firm. ➢ Bajaj finserv is a company which is low geared in nature which means company future earning is certain. ➢ As company is trying to move towards maintain gearing stage which helps them to maintain a steady rate of dividend. ➢ Generally speaking a low debt as compared to shareholder’s fund is considered as favourable from the long term creditors point of view because a high proportion of owners fund provides a larger margin of safety for them.

CONCLUSION It was a worthwhile experience working at the bajaj finserv The friendly welcoming staff and the space they have created for a trainee/intern allowed me ample opportunity to learn and know myself as an employee. This experience brought out my strength and also the areas I needed to improvise. It added more confidence to my professional approach, built a stronger positive attitude and taught me how to work in an organisation. Through this project report we get to learn that how company builds its capital structure through using various techniques. Through all the years of balance sheet we get to know how reliable company is, companies works for profit motive finance helps them to decide which is the best place to invest money so that return are expected and earned in future The concept of the optimal portfolio holds that rational investors will make decisions which maximize returns at a given and comfortable level of risk The entire month of the internship was a learning experience. A lots of ups and downs came in the path of project completion but the end results were very promising. Company seems to be doing quite well and its customers base seems satisfied. It has a lot of potential in sector only if it is able to tap the untapped market an0d do more market penetration. This can be brought about by promoting its products and services and making people more aware of the benefits of. Also it can have some flexibility in its procedure so that the consumer feel more at home with the company the company and the process of completing the file will be easier if the sales executive and the managers corporate each other in their work. I came to know about the work culture in bajaj finserve through this project. There was too many learning like how you manage your employees and manage them and help them is working.

BIBLIOGRAPHY

BOOKS REFERED ● Fundamentals Of Financial Management (by Vyuptakesh Sharan) ● Analysis of Financial Statement (by Sonali S. Shrotri & Prof. Ganesh Ramesh Teltumbade)

SITES VISITED ➢ https://www.investopedia.com/terms/c/capitalstructure.asp. ➢ https://en.wikipedia.org/wiki/Capital_structure. ➢ https://en.wikipedia.org/wiki/Financial_analysis ➢ https://www.investopedia.com/terms/r/ratioanalysis.asp ➢ http://www.yourarticlelibrary.com/financial-management/capital-structure/capitalstructure-meaning-concept-importance-and-factors-accounting/65150 ➢ https://www.investopedia.com/terms/d/debtequityratio.asp ➢ https://www.investopedia.com/terms/i/interestcoverageratio.asp ➢ https://www.readyratios.com/reference/analysis/solvency_ratio.html ➢ https://www.bajajfinserv.in/about-us-board-of-directors ➢ http://www.moneycontrol.com/company-facts/bajajfinserv/history/BF04#BF04

ANNEXURE

Profit & Loss account of Bajaj Finserv Mar 18

Mar-17

Mar-16

Mar-15

Mar-14

12 mths

12 mths

12 mths

12 mths

12 mths

Revenue From Operations [Gross]

153.9

242.32

200.24

144.49

141.47

Revenue From Operations [Net]

153.9

242.32

200.24

144.49

141.47

Total Operating Revenues

153.9

242.32

200.24

144.49

141.47

Other Income

11.1

9.13

11.42

12.81

10.78

Total Revenue

165

251.45

211.66

157.3

152.25

20.35

17.05

16.63

15.19

12.95

1.46

1.38

2.54

1.3

1.28

Other Expenses

39.19

38.21

34.39

35.3

31.86

Total Expenses

61

56.64

53.56

51.79

46.09

104

194.81

158.1

105.51

106.16

0

0

0

0

-27

104

194.81

158.1

105.51

79.16

Current Tax

35.23

32.3

30.73

20.36

27.45

Deferred Tax

-1.25

-0.62

1.44

1.64

0.87

Tax For Earlier Years

0

0

0

0.12

0

Total Tax Expenses

33.98

31.68

32.17

22.12

28.32

Profit/Loss After Tax And Before ExtraOrdinary Items

70.02

163.13

125.93

83.39

50.84

Profit/Loss From Continuing Operations

70.02

163.13

125.93

83.39

50.84

Profit/Loss For The Period

70.02

163.13

125.93

83.39

50.84

INCOME

EXPENSES Employee Benefit Expenses Depreciation And Amortisation Expenses

Profit/Loss Before Exceptional, ExtraOrdinary Items And Tax Exceptional Items Profit/Loss Before Tax Tax Expenses-Continued Operations

BALANCE SHEET OF BAJAJ FINSERV Balance Sheet of Bajaj Finserv

------------------- in Rs. Cr. -------------------

Mar 18

Mar 17

Mar 16

Equity Share Capital

79.57

79.57

79.56

79.56

Total Share Capital

79.57

79.57

79.56

79.56

Revaluation Reserves

12.03

6.30

3.70

0.00

Reserves and Surplus

16,058.7 3

13,512.63

11,005.79

7,895.98

Total Reserves and Surplus

16,070.7 6

13,518.93

11,009.49

7,895.98

Total Shareholders Funds

16,150.3 3

13,598.50

11,089.05

7,975.54

Minority Interest

7,200.83

5,876.68

4,225.54

2,898.92

39,384.6 2

30,523.60

17,931.01

7,360.58

9.49

10.74

11.36

8.82

22,102.9 0

21,040.60

16,697.16

9,794.29

375.48

266.22

174.37

83.91

61,872.4 9

51,841.16

34,813.90

17,247.60

EQUITIES AND LIABILITIES SHAREHOLDER'S FUNDS

NON-CURRENT LIABILITIES

Long Term Borrowings

Deferred Tax Liabilities [Net]

Other Long Term Liabilities

Long Term Provisions Total Non-Current Liabilities CURRENT LIABILITIES

Short Term Borrowings

8,897.42

5,538.49

4,313.90

2,080.14

Trade Payables

7,670.32

5,950.09

5,360.82

4,562.96

Other Current Liabilities

21,832.0 3

17,380.27

25,512.80

28,542.59

Short Term Provisions

4,993.85

3,259.84

2,952.41

2,071.13

Total Current Liabilities

43,393.6 2

32,128.69

38,139.93

37,256.82

Total Capital And Liabilities

128,617. 27

103,445.03

88,268.42

65,378.88

Tangible Assets

875.55

798.59

793.64

754.96

Intangible Assets

80.51

45.92

38.00

23.88

3.54

10.76

2.76

1.79

959.60

855.27

834.40

780.63

9,397.07

14,732.16

13,261.53

9,249.25

Deferred Tax Assets [Net]

433.39

343.44

257.55

131.22

Long Term Loans And Advances

413.29

422.52

329.77

214.70

59,051.0 6

42,891.68

34,267.56

21,877.31

ASSETS NON-CURRENT ASSETS

Capital Work-In-Progress Fixed Assets

Non-Current Investments

Other Non-Current Assets

70,943.7 5

59,674.10

49,379.84

32,682.14

Current Investments

4,164.96

2,167.82

1,737.87

686.65

Trade Receivables

1,253.12

677.86

541.45

353.02

Cash And Cash Equivalents

1,529.39

2,297.52

1,399.58

1,603.14

678.21

615.14

439.91

371.05

Other Current Assets

50,047.8 4

38,012.59

34,769.77

29,682.88

Total Current Assets

57,673.5 2

43,770.93

38,888.58

32,696.74

Total Assets

128,617. 27

103,445.03

88,268.42

65,378.88

1,671.24

381.19

367.96

117.62

256.46

5,673.68

13,261.53

9,249.25

376.17

2,068.36

1,737.87

686.65

Total Non-Current Assets

CURRENT ASSETS

Short Term Loans And Advances

OTHER ADDITIONAL INFORMATION CONTINGENT LIABILITIES, COMMITMENTS Contingent Liabilities BONUS DETAILS NON-CURRENT INVESTMENTS Non-Current Investments Unquoted Book Value CURRENT INVESTMENTS Current Investments Unquoted Book Value