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BAJAJ AUTO

Proxy Advisory Report

BSE: 532977 | NSE: BAJAJ-AUTO | ISIN: INE917I01010 MARKET CAP: Rs. 44,075 Cr | SECTOR: AUTO - 2 & 3 WHEELER

Email: [email protected] www.sesgovernance.com

Publication Date: 11 July 2012

MEETING DETAILS

Type: Annual General Meeting (AGM) | Date: Wednesday, July 18, 2012 at 11:30 am Venue: Bajaj Auto Limited Complex, Mumbai-Pune Road, Akurdi, Pune 411 035 AGENDA ITEMS & RECOMMENDATIONS

Item Proposals

Page Number Recommendation

1

Adoption of accounts

5

FOR

2

Declaration of dividend on equity shares

6

FOR*

3

Reappointment of D S Mehta as director

7

AGAINST*

4

Reappointment Kantikumar R Podar as director

9

AGAINST*

5

Reappointment Shekhar Bajaj as director

11

FOR

6

Reappointment D J Balaji Rao as director

13

AGAINST*

7

Appointment of Auditors

15

AGAINST*

Result #

# to be updated after the results are announced *Please see detailed analysis SES is a not for profit initiative of like-minded people with a vision to achieve a corporate governance state where all stakeholders are treated in just and fair manner. We believe that this journey can be possible only with active participation of all stakeholders. Our objective is to work in the interest of all stakeholders without creating any disruption anywhere. In our opinion, Corporate Governance is governed by the principles of ethical conduct, honest demeanour and impeccable integrity for which various benchmarks and regulations have evolved over time globally. SES encourages corporates to follow the best practices. However, global best practices and voluntary recommendations on corporate governance have not yet been internalized. Therefore, even though we have analysed proposals based on mandatory guidelines and global best practices, our recommendations are mainly based on mandatory practices. We have highlighted global best practices, giving an opportunity to shareholders to initiate discussions with board/ management on the same. Eventually, we plan to evaluate all the resolutions based on global best practices from financial year 2012-2013. Shareholders may please note that the present board strength is 16 of which 9 are independent directors. SES has recommended that shareholders vote against three independent directors for the reasons explained in the report or to vote for these directors as non–independent directors. In case the directors are elected as non-independent, the board will be left with only 6 independent directors (in a board of 16 directors) which will not be in compliance with listing agreement (clause 49).

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Page 1 of 20


COMPANY PROFILE SOURCE: REUTERS, MONEYCONTROL, BSE, BUSINESSWEEK

BAJAJ AUTO Mumbai-Pune Road, Akurdi, Pune Maharashtra 411035

Ph: +91 20 2747 2851 / +91 20 2740 6063 Fax: +91 20 2740 7380 Email: [email protected] Website: http://www.bajajauto.com

Bajaj Auto On BSE As On 10 Jul 12: 1523.15 INR 52 Week High: 1839.00 INR 52 Week Low: 1351.25 INR

Key ratios (Standalone) (As on 10 Jul 12) P/B: 7.30 P/E: 14.67 Industry P/E: 15.55

P/E Ratio (As on 10 Jul 12)

Dividend (FY 11/12) Dividend per share: 45.00 Earnings per share: 103.80 Dividend payout ratio: 43.35%

Stock Performance (CAGR) 100%

Mahindra & Mahindra

15.65

76%

80% 60%

Maruti Suzuki

21.58

40% 20%

Hero MotoCorp

17.34

14.67

21%

15%

9%

0% -20%

Bajaj Auto

49%

-11% 1 Year Bajaj Auto

Graph1: Peer comparison of Price/ Earnings ratio

3 Years SENSEX

BSE AUTO

Graph 2: Equity Share Performance vs. Broad Indices

COMPANY DESCRIPTION Bajaj Auto Limited manufactures and sells scooters, motor cycles, three-wheeler vehicles, and spare parts in India and internationally. The Company operates in two segments: Automotive and Investments. The company offers its two-wheeler products under the Avenger, Pulsar, Discover, Platina, and Ninja brands. Its commercial vehicles range include goods carriers, such as GC Max Diesel, GC Max CNG, RE600, and passenger carriers, such as RE 2S, RE 2S CNG, RE 2S LPG, RE 4S and RE 4S CNG. The company sells its products and services through a network of two-wheeler and three-wheeler dealers. Bajaj Auto Limited was founded in 1945 and is headquartered in Pune, India. Bajaj Auto's has in all three plants, two at Waluj and Chakan in Maharashtra and one plant at Pantnagar in Uttarakhand. Its subsidiaries include PT. Bajaj Auto Indonesia and Bajaj Auto International Holdings BV.


Page 2 of 20


SH AREHOLDING PATTERN SOURCE: BSE

Trends in shareholding pattern

Shareholding pattern (March 2012) Institutions Total public 25% shareholding: 100%

100% 25%

26%

27%

80% 10%

8%

8%

14%

16%

16%

60%

Noninstitutions 25%

40% 50%

50%

50%

Mar-09

Mar-11

Mar-12

20% 0%

Indian Promoters 50%

Promoter

Graph 3: Shareholding pattern as on 31st, March ‘12

FIIs

DIIs

Other

Graph 4: Variation of Shareholding pattern of the company.

Top Public Shareholders (More that 1% shareholding in the company) (Mar 12)

Shareholding Percentage

1

Jaya Hind Investments Pvt Ltd

3.54%

2

Maharashtra Scooters Ltd

2.34%

3

Life Insurance Corporation Of India

1.79%

4

Sikkim Jansewa Pratisthan Pvt Ltd

1.26%

Promoter Group shareholders (More that 1% shareholding in the company) (Mar 12)

Shareholding Percentage

1

Bajaj Holdings And Investment Ltd

31.49%

2

Jamnalal Sons Private Limited

8.97%

3

Bajaj Sevashram Private Ltd

1.56%

4

Bachhraj And Company Private Limited

1.29%


Page 3 of 20


BOARD PROFILES SOURCE: MONEYCONTROL, BUSINESSWEEK

Name Rahul Bajaj

Up*

Director Classification

Current Other Other Committee Other Committee Pay Tenure Directorships Memberships** Chairmanships (Rs. lakh)

Stock ownership

Executive (Chairman)

47

6

-

-

1108.34 Not Disclosed

Madhur Bajaj

Executive (ViceChairman)

17

6

-

-

834.89

Rajiv Bajaj

Executive (MD)

10

5

1

-

1016.88 Not Disclosed

Sanjiv Bajaj

Non-executive

9

10

6

1

105.87

-

D S Mehta

Independent

14

4

5

-

6.00

15,980

Kantikumar R Podar

Independent

29

5

-

-

4.80

-

Shekhar Bajaj

Non-executive

-

-

6.00

5,03,880

D J Balaji Rao

Independent

19

10

13.20

-

J N Godrej

Independent

14

9

0.00

-

S H Khan

Independent

13

8

15.60

-

Ms Suman Kirloskar

Independent

10

-

7.20

-

Naresh Chandra

Independent

9

1

15.60

-

Nanoo Pamnani

Independent

9

22.00

-

Manish Kejriwal

Non-executive

7

-

7.20

200

Independent

5

10

3

4.80

-

Non-executive

5

11

-

7.20

22,64,476

P Murari Niraj Bajaj

Average tenure of independent directors

17

8

10

4

3

1

10

2

5

-

12

10

4

7

2

5

2 7 1

Not Disclosed

2

13.56 years

11 directors

Excessive directorships :

3

4

Excessive committee memberships 5 directors Excessive committee chairmanships 3 directors * Directors up for reappointment in the AGM **Committee memberships exclude committee chairmanships 2 Excessive directorships : Executive – more than 3 outside boards, Non-executives – more than 6 outside boards 3 4 Excessive committee memberships : more than 6 outside committees; Excessive committee chairmanships : > 3 outside committees BOARD COMMITTEES SUMMARY

Members

Chairman

Independence

Meetings

Attendance 1 Cr and < 2%

9 years or above > 2% Options granted Relationship exists

Not aligned Not aligned

Shareholders should note that Mr Mehta has been a director at the company for the last 14 years. In line with Corporate Governance guidelines, we believe that tenures of more than 6 years may affect the independence of independent directors. Further, the listing agreement recommends that tenure of independent directors should not be more than 9 years. Therefore, we do not consider directors with tenure of more than 9 years as independent directors. Shareholders should also note that Mr Mehta holds 15,980 stocks of the company which amounts to Rs 2.43 Crores. We believe that large shareholdings in the company’s stock may affect the independence of the directors. Further, Mr Mehta was an executive director at Bajaj Auto Ltd until 31 July 2007. He has been a non-executive director since his resignation as an executive director. He has been associated with the Bajaj group of companies since 1966. We believe his long association with the promoter group and executive directorship at the company until 5 years ago may impact his independence (even though a cooling period of 3 year, as required by law, has passed) Overall, we classify Mr Mehta as a non-independent non-executive director. Analysis of director’s performance: NO CONCERN Parameters Used

Value

Attendance in board meetings last year < 75% attendance in last 4 years Attendance in Audit Committee Attendance in Nominating Committee Attendance in Remuneration Committee Attendance in Investor Grievance Committee

83% 0 years NA NA NA NA

Reference – Range of parameters used No concern

Moderate Concern

High Concern

75% or more 0 years 75% or more 75% or more 75% or more 75% or more

50% to 75% 1 to 2 years 50% to 75% 50% to 75% 50% to 75% 50% to 75%