‘Business to Lagos has not been impacted and there’s no reason to be circumspect’- Mr. Rakesh Sharma, executive director, Bajaj Auto

Update on the Indian Equity Market:

On Wednesday, NIFTY closed positive (+0.9%) at 12,090. NIFTY50 led by TATAMOTORS (+10.7%), YESBANK (+8.6%) and TATASTEEL (+5.8%). ZEEL (-6.4%), HEROMOTOCO (-3.6%) and DRREDDY (-3.1%) were the top NIFTY losers. METAL (+3.1%), REALTY (+2.2%) and FIN SERVICE (+1.4%) were the top gaining sectors. MEDIA (-0.8%) was the only sector that ended negatively.

Excerpts from an interview with Mr. Rakesh Sharma, Executive Director, Bajaj Auto published on Livemint on 5^th February 2020:

• There has been a ban on the movement of two-wheelers and three-wheelers on certain roads in Lagos city for quite some time. There has been a law that says two-wheelers and three-wheelers cannot ply within Lagos city on these roads.
• What has happened now is that there has been a restatement of this law and thereafter more rigorous enforcement because of congestion which they are experiencing and that is what has triggered this spate of news.
• There are some 400 roads and by lanes within the Lagos city which had been identified quite a few years ago, maybe a couple of years ago. So they are just enforcing those things that these vehicles are not permitted.
• Nigeria is a large country and motorcycles in Lagos city is probably only 6-7% of their business. Similarly, three-wheelers is also about 10% of their business so it is really not a very significant event as of now.
• One can run a motorcycle on a commercial basis in certain areas, but what happens is it becomes more inconvenient as suddenly if you have to go from point ‘A’ to point ‘B’ and in middle there is a road where it is not allowed, it becomes a problem.
• Total two wheeler exports to Nigeria are less than 30% of their exports, in the magnitude of 25% or so.
• As things stand now, they are not anticipating any major impact. In international business, this kind of things happens all the time.
• Bangladesh did it last year when they did not permit the three-wheelers so these things sort of cancel each other. So it is not a significant event from their perspective- not for Nigeria and not for the international business.
• It is difficult to imagine that this kind of thing suddenly becoming an epidemic across Nigeria. So according to him, they will wait and watch.
• At this stage, it is not even a setback. It is temporary irritation and he said he would not classify this as a setback. They encounter these things all the time in emerging markets. It does not really make them sit up and sweat.

Consensus Estimate: (Source: market screener website)

• The closing price of Bajaj Auto was ₹ 3,158/- as on 5-February-2020. It traded at 18x/ 17x/ 15x the consensus earnings estimate of ₹ 174 /183 /204 for FY20E/ FY21E/ FY22E respectively.
• Consensus target price is ₹ 3,226/- which implies a PE multiple of 16x on FY22E EPS of ₹ 204/-