Bajaj Holdings & Investment Ltd Management Discussions

Background

Bajaj Holdings & Investment Ltd. (‘BHIL or ‘the Company) is registered with the Reserve Bank of India as a Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC). As per RBIs ‘Scale Based

Regulations (SBR), the Company is classified as NBFC - Base Layer (NBFC-BL).

BHIL is a part of BSE 100 and Nifty 100 index of top 100 companies listed in India. Recently, BHIL briefly crossed market capitalisation of H 100,000 crore.

BHIL is essentially a holding and investment company and does not have any other operations of its own.

The Companys investments consist of: a. Strategic investments in group companies and b. Financial investments in capital markets and investment in properties. a. Strategic investments in group companies: As on 31 March 2024, BHIL and its subsidiaries, held strategic stakes of

• 36.68% in Bajaj Auto Ltd. (BAL),

• 41.56% in Bajaj Finserv Ltd. (BFS),

• 51% in Maharashtra Scooters Ltd. (MSL), and

• other group companies such as Bajaj Electricals Ltd., Bajel Projects Ltd., Mukand Ltd. and Hercules Hoists Ltd. b. Financial investments in capital markets and investment in properties: As on 31 March 2024, the Company held investments in equity and debt securities and investment in properties to the tune of H 14,078 crore at market value.

The market value of the investment portfolio comprising of strategic and financial investments of BHIL stood at

H 210,707 crore as compared to cost of H 12,559 crore as on 31 March 2024.

BAL which manufactures and sells motorcycles and commercial vehicles, is The Worlds Favourite Indian.

It participates in the electric vehicle market through its 100% subsidiary Chetak Technology Ltd.

Through its 49.90% holding in Pierer Bajaj AG, it has a tie-up with premium European motorcycle brands KTM and Husqvarna. Further, it has a partnership with the largest British motorcycle brand Triumph. BAL recently set up a wholly owned captive finance subsidiary established exclusively for financing two and three-wheelers manufactured by BAL and its subsidiaries.

Bajaj Finserv endeavours to be a financial services lifecycle partner to every Indian. It participates in the consumer finance and lending business through its 51.34% holding in Bajaj Finance Ltd. (BFL); in the protection and savings businesses through its 74% holding in two unlisted subsidiaries, Bajaj Allianz General Insurance Company Ltd. (BAGIC) and Bajaj Allianz Life Insurance Company Ltd. (BALIC) and in the mutual funds business through its wholly owned subsidiary, Bajaj Finserv Asset Management Ltd. BFS also has other subsidiaries– a digital marketplace for loans, insurance and investments and a digital health tech venture. BFL has two subsidiaries Bajaj Housing Finance Ltd., one of the largest housing finance companies in the private sector and Bajaj Financial Securities Ltd., a digitally led stock broking company.

BFS and BFL are included in the benchmark BSE Sensex and Nifty 50 index of large cap stocks, while BAL is included in Nifty 50 index. MSL is listed too.

The two large associate companies of BHIL continue to grow resulting in a market capitalisation of

H 255,307 crore and H 262,243 crore for BAL and BFS respectively as on 31 March 2024. The annualised return of BAL and BFS since initial listing 16 years ago stood at 23.5% and 24.9% respectively as compared to 9.8% of Sensex for the corresponding period a commendable long-term growth. Notably, BAL recorded 132% return during FY2024.

As an investment holding company, BHIL seeks to reward its shareholders by distributing a large part of the dividends it receives from its associate companies while participating in their value creation. Over the last three years, BHIL has further increased the distribution of dividend to its shareholders. The strong financial position after considering various factors including investments (other than strategic investments) available with BHIL, requirements of funds for strategic purposes and performance of associates has allowed the Company to grow the dividend payouts.

BHIL has delivered significant value to its shareholders through dividend and capital appreciation over various time-horizons. Over 5 and 10 years, return is 19.4% p.a. and 23.4% p.a. respectively and further dividend yield is about 2% p.a.

Economy and markets

In Financial Year 2023-24 (FY2024) the Indian economy showed remarkable resilience and growth, amidst a challenging global landscape. The year witnessed a real GDP growth estimated at 7.6% by the National

Statistical Office, driven by robust domestic demand and substantial improvements in industrial and service sectors. Key indicators such as the manufacturing PMI reached a 16-year high at 59.1, and the services PMI also reported strong readings, enhancing economic optimism.

Fiscal management remained a priority of the Government, with a concerted focus on capital expenditures.

Real Gross Fixed Capital Formation (GFCF) observed a year-on-year growth of 10.2% for 9M FY2024, reflecting the Governments aggressive push towards bolstering infrastructure which is critical for long-term economic stability. The fiscal deficit was efficiently managed at around 5.8% of GDP, aligning with stated fiscal strategies and maintaining economic stability.

The RBI kept the repo rate steady at 6.5% throughout the year, a decision aimed at balancing inflation control with the need to support economic growth. Inflation remained at an average of 5.4% over the fiscal year, within the target range set by the RBI, demonstrating effective monetary policy management in a volatile global economic environment.

In FY2024, the Indian equity market demonstrated a cautiously optimistic outlook. The benchmark Nifty index rose by 29% while broader indices like the NSE500, and the Mid-cap, and Small-cap indices performed even better and gained 39%, 57%, and 63% respectively. This growth was bolstered by strong domestic investments and positive Foreign Institutional Investor inflows, which reinstated confidence in the Indian economys fundamentals.

Sector-wise, Real Estate led with an unprecedented growth of about 133%, followed by Utilities and PSU Banks.

Despite challenges such as budget cuts and layoffs in the tech sector, IT sector managed to grow by 22%.

The FMCG sector grew by 18%, showing resilience amid a rural demand slowdown. This broad-based growth across sectors underscores the dynamic nature of Indias equity market, which continues to attract substantial domestic and international investment.

The Indian bond markets remained stable but under pressure, amidst high government balances and negative banking system liquidity. The RBI effectively maintained tight system liquidity for a major part of FY2024 to allow monetary policy transmission of 250bps rate hikes done in FY2023.

FY2024 has been a testament to the resilience and strategic agility of the Indian economy. India has navigated the complexities of a dynamic global economic environment successfully. As we look to FY2025, we expect India to capitalise on emerging opportunities while continuing to mitigate risks through careful planning and policy measures. This balanced approach is expected to sustain Indias growth trajectory and enhance shareholder value in the coming years.

Performance Highlights

Particulars	FY2024	FY2023
Standalone
Total income	3,175.69	1,937.01
Profit for the year	2,896.46	1,711.58
Investments, at cost	12,559	10,542
Investments, at market value	210,707	132,034
Equity	18,835	15,665
Consolidated
Total income*	1,713.46	527.35
Profit for the year	7,267.21	4,850.52

* Consolidated income is lower than standalone income due to elimination of intercompany dividends.

The Company recorded an all-time high consolidated profit for the year of H 7,267.21 crore in FY2024 v/s H 4,850.52 crore in FY2023, on the back of a strong performance by the group companies.

Standalone results

BHILs focus is on earning income through dividends, interest and profits on investments held. The standalone results are given below:

Table 1: Standalone financials of BHIL

Particulars	FY2024	FY2023
[a] Statement of profit and loss
Interest on debt securities	292.66	254.77
Dividend
From associates and subsidiaries	1,503.12	1,484.02
From others	106.89	85.00
Profit on sale of debt securities (net)	35.32	30.08
Rent from investment property	20.45	18.37
Profit on buyback of equity shares	1,153.47	-
Others	63.78	64.77
Total income	3,175.69	1,937.01
Total expenses	154.87	158.16
Profit before tax	3,020.82	1,778.85
Tax expense	124.36	67.27
Profit for the year	2,896.46	1,711.58
[b] Other comprehensive income
Fair value change on equity instruments	1,864.04	135.89
Other comprehensive income, net of tax	1,642.14	68.29
[c] Total comprehensive income (a+b)	4,538.60	1,779.87

Like other shareholders, BHIL too tendered equity shares in buyback by Bajaj Auto Ltd. resulting in profit on buyback of H 1,153.47 crore. Hence total income and profit of the Company for FY2024 is significantly higher than FY2023.

As required by Ind AS, equity investments in associates and subsidiaries are carried at cost.

Considering the Companys business model, mark to market gain/loss on other equity investments and a significant part of debt securities of BHIL are reflected in other comprehensive income and not in statement of profit and loss.

BHILs mark to market gain on equity investments for FY2024 stood at H 1,864.04 crore as compared to mark to market gain of H 135.89 crore forFY2023.Thisgainisreflected in other comprehensive income.

Realised profit on sale of equity investments was H 352.77 crore in FY2024 as compared to H 238.39 crore during FY2023.

Investments

Over the years, BHILs investments have reached a significant size.

Its strategic shareholdings in BAL, BFS and MSL have increased from 30%, 30% and 24% to 36.68%, 41.56% and 51% respectively over last 16 years.

Its financial investments have crossed H 14,000 crore at market value. It does not have significant liabilities and has no constraints of Asset Liability Management.

Over last three years,ithasdistributedsignificant part of its profits. From this position of strength, BHIL seeks to gradually grow its portfolio with long-term orientation in its investments.

The objective of BHILs financial investments portfolio is to balance risk whilst maximising return. The Company has a Board approved investment policy prescribing that a minimum of 35% of surplus funds at cost (excluding strategic investments) is to be invested in debt instruments and a maximum of 65% of surplus funds at cost (excluding strategic investments) is to be invested in equity and equity linked instruments. For maximising return in line with market movements, the Company monitors these limits at market value, too.

The investment portfolio is managed by an Investment Committee comprising the members of the Management. The Committee meets at least once a month. The Company also has a professional team of fund managers, research and credit analysts, that is led by the Chief Investment Officer. Research analysts are devoted to various sectors in listed space and separately for private equity. Risk Management Committee too has oversight over the investment portfolio of the Company.

The investment portfolio of the Company is set out in Table 2.

Table 2: Position of investments held by the Company

	FY2024			FY2023
Particulars	Cost	Market value	% to Total surplus (At cost)	Cost	Market value	% to Total surplus (At cost)
a. Strategic investments - equities	3,150	196,629		3,173	121,204
b. Financial investments
b.1. Investments in equity instruments
Other listed equities	3,075	6,671	33.28	2,282	4,841	31.71
Unlisted equities and AIFs	512	1,462	5.54	669	1,512	9.30
subtotal	3,587	8,133	38.82	2,951	6,353	41.01
b.2. Investments in debt instruments
Debentures and bonds	2,246	2,229	24.31	1,880	1,856	26.13
Government securities	473	465	5.12	673	656	9.35
Mutual funds	1,207	1,225	13.08	1,199	1,184	16.67
Certificate of deposits	1,725	1,725	18.67	492	492	6.84
subtotal	5,651	5,644	61.18	4,244	4,188	58.99
Total (b.1.+b.2.)	9,238	13,777	100.00	7,195	10,541	100.00
c. Investment in properties (cost net of depreciation)	171	301		174	289
d. Grand total (a+b+c)	12,559	210,707		10,542	132,034

Investments in equity instruments

Strategic/group investments

BHIL holds strategic/group investments, as set out in Table 3.

Table 3: Position of strategic/group investments held by the Company as on 31 March 2024

	FY2024		FY2023
Equity shares held in	Cost	Market value	Cost	Market value
[a] Bajaj Auto Ltd.	1,906.25	87,408.06	1,929.79	37,576.05
[b] Bajaj Finserv Ltd.	743.82	102,435.22	743.82	78,920.95
[c] Investments in other group companies
Bajaj Auto Holdings Ltd.	0.25	0.25	0.25	0.25
Maharashtra Scooters Ltd.	239.49	4,179.28	239.49	2,467.43
Bajaj Electricals Ltd.	143.92	1,736.96	214.58	2,013.00
Bajel Projects Ltd.*	70.66	411.82	-	-
Mukand Ltd.	32.98	120.99	32.98	114.73
Hercules Hoists Ltd.	12.34	336.90	12.34	111.52
Subtotal	499.64	6,786.20	499.64	4,706.93
Total	3,149.71	196,629.48	3,173.25	121,203.93

* Demerged from Bajaj Electricals Ltd.

Other equity investments

BHIL invests in equities normally with a 5-year holding horizon or longer, based on its views on future growth potential from public equity markets as well as opportunities in the private equity space. This helps in managing the liquidity risk while generating adequate returns.

At cost, BHILs exposure to other equities has increased to 44% by end of FY2024 from 41% in FY2023 of the surplus funds. At market value, exposure to other equities was around 65%. The numbers for FY2024 are after adjusting for proceeds on buyback of equity shares, which were received in March 2024.

BHIL has made gross equity purchases of H 1,000 crore in FY2024. Subject to the views on equity market valuations, it intends to increase allocation to equites to the limit as per Investment Policy.

Chart A below shows the sector specific stock allocation as on 31 March 2024.

BHILs other equities portfolio comprises of its investments in listed and unlisted entities. Investments in listed entities dominate the pie with an 86% share of other equity investments, at cost.

The unlisted entities wherein BHIL continues to remain invested are National Stock Exchange (NSE) and Fabindia Ltd.

BHILs other equities portfolio generated a return of 24% for FY2024, almost in line with the Sensex.

BHILs unlisted equity investments and PE Funds delivered lower than Sensex returns. The situation was quite the opposite in the last year, when unlisted equities delivered higher returns than listed equities. This underpins the rationale of investing in both listed and unlisted equities.

BHILs other equities portfolio has a track record of outperforming the Sensex over multi-year horizons (3/5/10 years) by 3 to 5% p.a.

Investments in debt instruments

At BHIL, we have made our debt investments using the philosophy of optimising risk-adjusted returns by investing in high quality credit assets, managing interest rate risk, and minimising liquidity risk.

Inflation has remained under control with supply chain issues being addressed by the Government, demand side issues being tackled by RBI through tight liquidity and high repo rates for majority of FY2024.

Fiscal consolidation is improving at a much faster pace than anticipated, as the Government aims to adhere to revised fiscal deficit target of 5.8% for FY2024. Indias current account deficit has schemes like Production Linked Incentive (PLI) have improved exports and reduced dependency on imports. In the backdrop of this macro-economic stability, duration spreads and credit spreads were thin.

Due to above market factors, some of BHILs funds were incrementally invested in the 3-year segment to capture higher yields, through AAA private credits. The strategy was to gain higher accruals in the portfolio through interest income while remaining protected from probable hardening of yields.

For FY2024, BHILs total return (realised and unrealised) was 7.7% compared to CRISIL Bond Index return of 8.3%. At the year-end FY2024, BHILs portfolio yield was 7.2% with average maturity of 2.0 years.

Consolidated results

Consolidated financial results include consolidated results of the companies shown in Table 4.

Table 4: Consolidated entity Bajaj Holdings & Investment Ltd.

Name of the company	% shareholding and voting power of BHIL and its subsidiaries	Consolidated as
a. Bajaj Auto Ltd. (BAL)	36.68%*	Associate
b. Bajaj Finserv Ltd. (BFS)	41.56%	Associate
c. Bajaj Auto Holdings Ltd. (BAHL)	100%	Subsidiary
d. Maharashtra Scooters Ltd. (MSL)	51%	Subsidiary

* Equity pickup of BHIL share in BALs profit is net of elimination of cross-holding of BAL in BHIL of 3.14%

Bajaj Auto consolidates its 49.90% stake in Pierer Bajaj AG.

Bajaj Finservs consolidated results include results of its lending arm Bajaj Finance Ltd. (BFL) and its two insurance subsidiaries – Bajaj Allianz General Insurance Company Ltd. (BAGIC) and Bajaj Allianz Life Insurance Company Ltd. (BALIC).

On a consolidated basis, BHIL recorded an all-time high profit for the year of H 7,267.21 crore v/s H 4,850.52 crore, on the back of a strong performance by the group companies. More specifically, it was aided by excellent performance of BFL and BAL. The intercompany dividends received by BHIL and its subsidiaries, are eliminated in the consolidated results.

Table 5: Consolidated financials of BHIL

		(H In Crore)
Particulars	FY2024	FY2023
Total income	1,713.46	527.35
Share of profit of associates	5,955.30	4,667.01
Profit before tax	7,492.51	5,011.51
Profit for the year attributable to BHIL	7,267.21	4,850.52
Other comprehensive income, net of tax	3,653.89	(1,436.61)
Total comprehensive income attributable to BHIL	10,921.10	3,413.91

Results of subsidiaries and associates

Subsidiaries

Bajaj Auto Holdings Ltd. (BAHL)

The financials of BAHL are given below:

Table 6: Financials of BAHL

Particulars	FY2024	FY2023
Total income	2.23	1.41
Profit before tax	2.21	1.39
Profit for the year	1.82	1.15
Profit attributable to BHIL (100%)	1.82	1.15

Maharashtra Scooters Ltd. (MSL)

The Financials of MSL are given below:

Table 7: Financials of MSL

Particulars	FY2024	FY2023
Total income	223.54	217.75
Profit before tax	202.16	193.08
Profit	199.31	195.29
Profit attributable to BHIL (51%)	101.61	99.60

Associates

Bajaj Auto Ltd. (BAL)

The consolidated financials of BAL are given below:

Table 8: Consolidated financials of BAL

		( H In Crore)
Particulars	FY2024	FY2023
Total income	46,306.45	37,642.90
Profit before tax	10,040.04	7,841.98
Profitfor the year	7,708.24	6,060.21
Profit attributable to BHIL (36.68%*)	2,567.32	1,997.40

* Equity pickup of BHIL share in BALs profit is net of elimination of cross-holding of BAL in BHIL of 3.14%.

Bajaj Finserv Ltd. (BFS)

The consolidated financials of BFS are given below:

Table 9: Consolidated financials of BFS

		( H In Crore)
Particulars	FY2024	FY2023
Total income	110,383.00	82,072.01
Profit before tax	21,375.03	16,811.13
Profit for the year	8,147.79	6,417.28
Profit attributable to BHIL (41.56%)	3,387.98	2,669.61

Significant ratios

The key financial ratios and details of significant changes in these ratios, to the extent applicable, as required by

SEBI (LODR) (Amendment) Regulations, 2018 are given below:

Table 10: Significant ratios BHIL standalone

Particulars	FY2024	FY2023
Current ratio	2	2
Operating profit margin %	95.1%	91.8%
Net profit margin %	91.2%	88.4%
Return on equity %	16.8%	11.0%

Internal control systems and their adequacy

The Company has effective internal control systems, which have been found to be adequate by the Management of the Company. The internal auditors periodically bring to the attention of the Audit Committee any deficiencies and weaknesses in the internal control systems, if any. The Audit Committee reviews and monitors the remedial actions to ensure its overall adequacy and effectiveness.

Cautionary statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward looking within the meaning of applicable laws and regulations.

Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include global economy, political stability, stock performance on stock markets, changes in government regulations, tax regimes, economic developments and other incidental factors.

Except as required by law, the Company does not undertake to update any forward-looking statements to reflect future events or circumstances. Investors are advised to exercise due care and caution while interpreting these statements.