Bajaj Auto

02 May

The commuter segment has seen a slowdown over the past 3 years  – Bajaj Auto

 

 

Update on the Indian Equity Market:

The Indian indices opened the week in the red. NIFTY ended 0.2% lower at 17,069 led by INDUSINDBK (3.9%), COALINDIA (2.6%), and POWERGRID (2.1%). EICHERMOT (-3.4%), APOLLOHOSP (-3.4%), and TITAN (-2.9%) were top losers.

Among the sectoral indices, METAL (+0.6%), PRIVATE BANK (+0.5%) and MEDIA (+0.4%) were the top gainers. CONSUMER DURABLES (-2.0%), IT (-1.5%), and AUTO (-1.4%) led the sectoral laggards.

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto with CNBC-TV18 on 28th April 2022: 

  • EV transition provides the company with a huge opportunity in the scooter segment. The company is currently not present in the ICE scooter segment, ASEAN Markets are heavily skewed towards the non-motorcycle segment, so EV Scooters provide Bajaj Auto with a global opportunity.
  • The company launched has launched Chetak EV Scooter 2 years ago and will launch soon launch a new version in June-2022. The recent EV Fire incidents will impact buyer behavior in terms of safety concerns and brand preference but the transition to EV is inevitable.
  • The Mass Market segment (~100cc) has lost over 15% volume over the last 3 years due to economic slowdown in the rural parts of the country and decreased purchasing power of low-income groups due to COVID-19 and inflation.
  • The commuter segment contributes about 50% of 2 wheeler industry’s volumes, so the company is on the lookout for how the monsoon performs as it expects a revival in demand if a robust monsoon leads to a rise in disposable incomes which will be critical for the 2 wheeler industry’s turnaround.
  • The export segment has performed steadily with the company reporting the highest-ever volumes from the export segment. The company is a market leader or the runner-up in key export markets of Latin America, Africa, and ASEAN.
  • Demand will be buoyant during Q1, due to pent-up demand and marriage season in rural India, however, that cannot ve extrapolated to the outlook for FY23. Q2FY23 will be crucial to determine whether the 2 Wheeler industry is set for a turnaround after reaching a decadal low due to structural problems of inflation and unemployment across rural India.

Asset Multiplier Comments:

  • Bajaj Auto like other mass-market producers has borne the brunt of rural slowdowns and decline in demand, increasing commodity costs, and supply chain constraints but the issues seem to have bottomed out and the industry as a whole is set for a turnaround in FY23.
  • High export exposure and a robust portfolio of premium brands like Dominar, Pulsar, and KTM-Husqvarna have insulated Bajaj Auto from the slowdown in the commuter segment and made it better placed amongst the all the players in the 2 wheeler industry.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of Bajaj Auto was ₹ 3,623/- as of 02-May-2022. It traded at 19x/ 16x the consensus earnings estimate of ₹ 194/226 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,120/- implies a P/E Multiple of 18x on the FY24E EPS estimate of ₹ 226/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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03 Jan

Double-digit decline to continue in 4QFY22E as well – Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,625 (+1.6%). Among the sectoral indices, PRIVATE BANK (+2.7%), BANK (+2.7%), and FINANCIAL SERVICES (+2.5%) closed higher while PHARMA (-0.5%) and HEALTHCARE (0.4%) closed in the red. COAL INDIA (+6.4%), EICHERMOT (+4.6%), and BAJFINANCE (+3.6%) were the top gainers. CIPLA (-1.3%), DR REDDY (-1.0%), and M&M (-0.8%) were among the top losers.

Excerpts from an interview of Mr. Rakesh Sharma, Executive Director, Bajaj Auto with CNBC-TV18 dated 3rd January 2022:

  • On the demand environment, the company expects volume cutbacks in a variety of categories, including retail, rural, and urban.
  • The industry still facing a double-digit decline. Retail sales have dropped by 15%-17%, which is a big drop. The company does not see any bottom in sight. The management does expect the double-digit decline in volumes to continue, especially in the mass market group, in 4QFY22E as well.
  • The majority of the company’s 2-wheeler demand comes from the lower-income segment of the economy. Since the 2-wheeler industry has been affected during FY20 – FY22, and the economic recovery has not yet trickled down to this sector, the management does not see demand picking up. The COVID issue has receded and the decline in demand is driven by the economic performance.
  • Despite this, the firm has increased its market share by 3% in the previous three quarters. The business anticipates a 20% market share in the motorcycle industry by FY22E.
  • Within the EV space, the company is preparing to shift from ICE to electric with a positive outlook. The company had invested Rs 3,000 million for a capacity of 5,00,000 in their new electric vehicle plant. Their first EV will be rolled out in June-2022 from the company’s Akurdi production site.
  • The company said that the key constraint is related to the supply of EV-specific components. Supply is volatile and uncertain which makes it difficult to boldly plan bigger volumes in the immediate terms.
  • India’s two-wheeler market is still under-penetrated. The country’s demographic division, as well as the pace of urbanization and road penetration, have a direct influence on demand for two-wheelers. When compared to Southeast Asia, India lags in terms of these fundamental characteristics that influence demand. So, the demand components are in place, but there is a problem with purchasing power or the amount of money in the hands of the people. This has an impact on the ultimate demand.
  • Retail financing, which is performing significantly better than cash sales, indicates that individuals do not have enough cash in their pockets. However, as retail lending spreads into rural regions, this will be critical in fuelling demand growth.

Asset Multiplier comments:

  • Commodity inflation and a chip scarcity may continue to have an impact on margins and demand fulfillment in 2HFY22E and FY23E.
  • Strong brand image, product innovation, and expanding market share will eventually fuel Bajaj Auto’s future sales. We anticipate that the firm will benefit from the premiumization trend and export potential. Moreover, the company has the opportunity to build its EV 2-wheeler scooter market.

Consensus Estimate: (Source: Market screener website and Investing.com)

  • The closing price of Bajaj Auto was ₹ 3,274 as of 3-January-2022.  It traded at 18x/15x/13x the consensus Earnings per share estimate of ₹ 177/ 211/ 242/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 15x on FY24E EPS of 242/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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04 Oct

Mid-market segment to lead growth in festive season – Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY ended higher at 17,691 (+0.9%) as it closed near the intraday high level of 17,751. All the sectoral indices were gainers, led by METAL (+3%), MEDIA (+2.6%), and REALTY (+2.2%). Among the stocks, DIVISLAB (+7.8%), HINDALCO (+4.6%), and NTPC (+4%) led the gainers while CIPLA (-3%), GRASIM (-2.3%), and UPL (-1.4%) led the losers.

Excerpts of an interview with Rakesh Sharma, Executive Director, of Bajaj Auto (BAJAJ-AUTO) with CNBC TV18 on 1st October 2021:

  • Chip shortage is affecting the manufacturing of high-end bikes and their customers around the world are disappointed. The company is able to meet only 65% of the requirements.
  • On the export side, the company is very comfortable despite the container and chip shortage and it will do much more in October ‘21 compared to September ’21. The demand is returning well in markets like Latin America, Africa, South Asia. The company expects sales volumes through exports to remain over 200,000 vehicle per month.
  • Migration from internal combustion engine (ICE) vehicle to electric is going to continue. The company cannot determine the pace of this change as it is primarily driven by factors like overall costs coming down for customers, reassurance regarding charging infrastructure. In this phase, the company is pre-occupied with building capabilities.
  • The company’s retail outlook in the festive period is positive. The indicators like rural demand pickup, behaviour of retail finance, shaping up of enquiries, excitement at dealership level suggest a single digit to low-double digit growth during the festive season. It expects the mid-market segment to lead growth during the festive season.
  • The company plans to occupy and retain a premium position in 2-wheeler electric vehicles (EVs). It is offering the most highly priced vehicle in this segment with self-proclaimed value additions in terms of very good design, best performance, an all-steel body, and a very good customer care.

Asset Multiplier Comments

  • Bajaj Auto is planning to set up a separate subsidiary for EV. It already sells Chetak scooter and is planning to launch 3-wheeler EVs in FY22. This will help the company to build the required capabilities and cater to growth in the EV business.
  • The domestic volume figures will improve from 3QFY22 as the company plans to aggressively launch products in 125cc segment, and provide innovative offerings in the entry motorcycle segment.

Consensus Estimate: (Source: market screener website)

  • The closing price of BAJAJ-AUTO was ₹ 3823/- as on 04-Oct-2021. It traded at 21x/17x/15x the consensus earnings per Share estimate of ₹ 186/221/248 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4232/- implies a PE multiple of 17x on FY24E EPS of ₹ 248/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Mar

The rise in raw material cost may hit margins – Bajaj Auto

Update on the Indian Equity Market:

On Monday, Nifty closed in the red at 14,736 (-0.05%). Among the sectoral indices, Realty (+2.70%), FMCG (+1.70%), and IT (+1.85%) closed higher. PVT Bank (-1.70%), Bank (-1.63%), and Financial Services (-1.15%) closed in the red. Adani Ports (+5.17%), Britannia (+2.63%), and TCS (+2.58%) were the top gainers. Indusind Bank (-4.19%), Power Grid (-3.17%), and ICICI Bank (-2.20%) were among the top losers.

Excerpts from an interview of Mr Soumen Ray, CFO, Bajaj Auto with CNBC-TV18 dated 19th March 2021:

  • Speaking on the new dividend distribution policy, Mr Soumen Ray says, The Company will give up to 90% pay-out provided that the company has surplus funds in tune of Rs 150 bn or more.
  • He says, It also depends on Capex plans. The company is having surplus cash of Rs 180 bn.
  • The average annual Capex is around Rs2.5- 3bn and the company is using its assets effectively. The company is planning to put 1 factory in Chakan and cost is near $100mn.
  • The earlier policy was a 50% dividend pay-out.
  • On EV space, he says, The Company has strong EV plans but Capex required for EVs doesn’t need a large amount of money. It is important to sell the vehicle initially with lower profit and later scale-up that segment.
  • The EBITDA space of Bajaj Auto gives adequate ammunition to sell EV’s initially at not a great profit and later scale it up.
  • Speaking about raw material costs, he says, between Q4FY21E and 1QFY22E the industry will see a significant rise in raw material prices. This will lead to a hit on margins.
  • To avoid a dip in consumer sentiment the company will gradually increase its product prices.
  • Speaking on the Export market, he says, the demand continues to be healthy and INR has not depreciated as compared to other countries. The price of oil going up is positive for some African, and Latin American markets.
  • The container issue has improved from what it was in December 2020.
  • The company is giving discounts to some segments.

 

Asset Multiplier comments:

  • We believe the increase in dividend payout ratio will result in an effective capital allocation thereby improving the return of equity ratio (ROE).
  • We believe the gradual rise in product prices to offset higher raw material cost, high fuel prices, and rising cases of covid-19 might impact the near-term demand of 2 wheelers in the domestic market.

 

Consensus Estimate: (Source: Market screener website and Investing.com)

  • The closing price of Bajaj Auto was ₹ 3,667 as of 22-March-2021.  It traded at 23x/19x/17x the consensus Earnings per share estimate of ₹ 158/193/221 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 18x on FY23E EPS of 221/-.
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02 Mar

Expect 400,000 + volumes in March 2021– Bajaj Auto

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed 1.1% higher at 14,919. Within NIFTY50, TATAMOTORS (+5.1%), M&M(+4.6%), and WIPRO(+4.5%) were the top gainers, while ONGC (-2.6%), HDFC(-1.2%), and DRREDDY (-1.1%) were the top losing stocks. Among the sectoral indices, AUTO (+3.2%), IT (+3.0%), and FMCG (+1.4%)were the top gainerswhile PSU BANK (-0.2%) was the only sector to end with losses.

 

Expect 400,000 + volumes in March 2021– Bajaj Auto

 

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto, aired on CNBC-TV18 on 1st March 2021:

  • Bajaj Auto reported total wholesale volumes of 375,017 units for February 2021, a growth of 6% YoY. According to Mr. Sharma, there was a shortfall in the volumes due to several factors.
  • Domestic 2-wheeler retails were higher than wholesale as Bajaj Auto was deliberately clearing stock. February onward, Bajaj Auto has started to focus aggressively on the entry-level segment.
  • The 2nd big shortfall was in exports, as there was a big spill over due to shipping container schedule. Bajaj Auto also lost some volumes in premium segment in domestic as well as exports market.
  • As all the above factors go away, Mr. Sharma expects monthly volumes to again go beyond 400,000 units in March 2021.
  • A 4% hit from raw material inflation is expected in 4QFY21. Bajaj Auto’s response to this will be after a very careful view of the fragile demand recovery.
  • Sharma estimates that the domestic 2-wheeler industry retails had a YoY decline in February 2021.Bajaj Auto saw a YoY retail growth. But a decline in retail volumes is not a good sign for the industry.
  • Bajaj Auto has taken a price hike in 3QFY21, but that has not impacted the customers significantly. The strategy is to increase the prices and simultaneously improve the product proposition for the customer. Further hikes will have to be taken in fragments, and cannot be taken at once.
  • Bajaj Auto is seeing a steady increase in 3-wheeler sales which is an important segment for the company. This is the tipping point for Bajaj to reach out to the customer with innovative financing schemes.
  • As Bajaj Auto was gaining market share in above 125 cc segment, they were losing in the below 125 cc segment. To address this, Bajaj Auto has now taken some initiatives which will help them grow both the segments. But for the industry, the below 125 cc segment has suffered.

 

Asset Multiplier Comments:

  • For the month of February 2021, Hero Motocorp has reported domestic 2-wheeler wholesales of 484,433 units, a growth of 0.8% YoY. For the same period, TVS Motors has reported 195,145 units, a growth of 15% YoY. Against this, Bajaj Auto’ s domestic 2-wheeler segment reported 1% YoY growth.
  • For domestic 3-wheelers in February 2021, Bajaj Auto reported a 27% YoY decline in wholesales while TVS Motors reported a 24% YoY decline.
  • Sales in the 3-wheeler segment saw steeper declines since the covid-19 pandemic on account of lower mobility. Several banks and NBFCs had taken a very cautious approach to auto lending. As 3-wheelers are predominantly purchased through loans, low finance availability put a roadblock in 3-wheeler volume recovery.

 

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of BAJAJ-AUTO was ₹ 3,950as of 2-March-2021. It traded at 25x/ 20x/ 18x the consensus EPS estimate of ₹ 158/193/221 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 3,950/- implies a PE multiple of 18x on FY23E EPS of ₹221/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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29 Dec

Seeing a sharp fall in demand after Nov; will invest Rs 650 cr in a new plant at Chakan, says Bajaj Auto.

Update on the Indian Equity Market:
On Monday, Nifty ended 0.9% higher at 13,873 supported by the metal & financial stocks. The top gainers for Nifty 50 were JSW Steel (+5.8%), Tata Motors (+5.6%), and SBI (+3.3%) while the losing stocks for the day HUL (-0.5%), Sun Pharma (-0.5%), and Cipla (-0.4%). Top gaining sectors were PSU Bank (+2.7%), Realty (+2.6%), and Metal (+2.6%) while Pharma (-0.3%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Rajiv Bajaj, MD, Bajaj Auto dated 24th December 2020 from CNBCTV18:

The demand in the auto sector is back to last year levels which are not a good sign. Mr Bajaj also sees a sharp fall in demand after November although he expects December 2020 sales to be slightly higher on YoY.
Things have panned out as Mr Bajaj thought they would which is that there has been a demand peak as is the case every year around the festive time.

According to him, what the company has recorded in October and November has been good because of the festive season. In December last year, the company did a total of 335,000 units roughly between domestic and exports. He thinks the Company will be a little ahead of that in December 2020.

According to him, on the domestic front, the Company will be on par with last year for motorcycles. The Company has almost doubled the EBITDA of the domestic motorcycle portfolio, which has been positive for them.

Bajaj Auto has a 90% market share in the three-wheeler market primarily in major metros.

In terms of exports, Mr Bajaj mentioned that the reason the overall numbers will be in-line with or a bit better than last year is that exports have been going like gangbusters. Demand seen is good.

On the product front, the Company has a huge task before them for the next 24 months which is
a) to renew their entire motorcycle portfolio especially on the premium brands,
b) There is a humongous amount of work to do on the EV front.

On the market front, Bajaj Auto has to continue to push to improve domestic share and having consistently now been at over 200,000 units exported every month their next goal has to be to move from 2 million exports to 3 million exports on an annual basis. For that, they need to successfully and effectively enter the Brazilian market.

Talking about the new manufacturing facility at Chakan, he said that the Company has signed up for a second plant in Chakan. The new plant was in the works for some time. This is for the expansion in premium motorcycles KTM Husqvarna, and the introduction of Triumph. Bajaj Auto may also expand the electric vehicle portfolio in the new facility.

The Company will be building this plant for a total capacity of a million units to start with. They have estimated an investment of about Rs 650 crore and perhaps the employment of a little over 2,000 people.
On the partnership front, the Company’s goal with KTM Husqvarna is to almost double the business soon.

In terms of production-linked incentive (PLI), Mr Bajaj said that it would be very beneficial to a company like Bajaj Auto. From the Merchandise Exports from India Scheme (MEIS), the Company had a benefit of 2% on exports.

Consensus Estimate: (Source: market screener website)
The closing price of Bajaj Auto Ltd was ₹ 3,420/- as of 28-December-2020. It traded at 22.8x/ 18.8x/16.5x the consensus EPS estimate of ₹ 149/180/206 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 3,316/- implies a PE multiple of 16.1x on FY23E EPS of ₹ 206/.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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26 Oct

Difficult to predict festive season sales – Bajaj Auto

Update on the Indian Equity Market:
On Friday, Nifty ended 0.3% higher at 11,930 led by the auto stocks. The top gainers for Nifty 50 were Maruti (+4.3%), M&M (+3.3%), and Tata Steel (+3.3%) while the losing stocks for the day were Ultra Cement (-2.4%), HCL Tech (-1.6%), and HUL (-1.6%). Top gaining sectors were Auto (+2.9%), Media (+0.7%), and IT (+0.5%) while top losing sectors are Realty (-1.1%), Pharma (-0.4%) and Pvt Bank (-0.04%).

Edited excerpts of an interview with Mr Rakesh Sharma, ED, Bajaj Auto Ltd; dated 22nd October 2020 from CNBC TV18:

The geographical mix & the business unit mix have a very big impact on the blended margins of Bajaj Auto. Last year the Company faced many headwinds in maintaining the margins. The Company is optimistic about maintaining the margins reported in 2QFY21 despite raw material cost increases seen.
There has been a marginal improvement in walk-ins, enquiries & sales over the beginning of the festive period last year.

Bajaj Auto is optimistic about maintaining margin despite raw material cost increase and they have streamlined low margin products.

The Company recorded the highest ever sales of Pulsar in 2QFY21. This impacted margins in a positive way during the quarter.

The Company had the highest ever exports in September-20 and October performance will beat September performance according to Mr Sharma. If the Company does not have any supply chain issues and transport interruption, then in November they will beat October exports.

The Company saw a smart recovery in domestic performance. They aim to improve the domestic market share from 18.2% in H1 to 20% in H2. There is a huge scope for expansion in market share but the Company does not want to compromise the margins and profitability for gaining the market shares.

It is very difficult to make predictions about the festive season sales as of now. The industry is seeing a slight improvement in enquiry and sales in this festive season. Post festive where all pent up demand is exhausted, it is interesting to see how the industry and demand responds. This will be the most important thing to be considered.
125cc segment is more profitable than 100cc and thus Bajaj Auto has expanded this market segment.

The ultra-premium segment (KTM/ Dominar) has clocked 10,000-12,000 units run rate per month currently.

The underperforming models/ low margin products of the Company have been stream-lined and prices have been increased during 2QFY21.

Bajaj Auto has passed on cost increases from September-20 onwards in the majority of the International markets. It had been a very difficult exercise for the Company as the Chinese & Japanese brands which has seen a huge revival, the company had to face intense competition.
The Company hopes the three-wheelers will start performing well with support from the Government initiatives.

Consensus Estimate: (Source: market screener website)
The closing price of Bajaj Auto Ltd was ₹ 3,090/- as of 23-October-2020. It traded at 20.7x/ 17.2x/15.0x the consensus book value estimate of ₹ 149/180/206 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 3,088/- implies a PE multiple of 15.0x on FY23E EPS of ₹ 206/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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30 Sep

Premium brands witnessing a growth of 50% – Bajaj Auto

Update on the Indian Equity Market:
On Tuesday, NIFTY closed in minor red at 11,222 (-0.05%). Top gainers in NIFTY50 were Hindalco (+5.3%), ULTRACEMCO (+3.3%) and HERO MOTOCORP (+2.8%). The top losers were UPL (-3.5%), ONGC (-3.5%), and INDUSIND (-3.4%). Top sectoral gainers were METAL (+1.9%), AUTO (+0.3%), and IT (+0.2%) and sectoral losers were PSU BANKS (-2.2%), FMCG (-1.5%), and PVT BANK (-1.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, Managing Director – Bajaj Auto with CNBC -TV18 dated 28th September 2020:
● Bajaj Auto has partnered with KTM, Husqvarna and Triumph. So Bajaj Auto cannot engage with Harley due to these partnerships.
● Harley Davidson has decided to end India operations on account of low sales and a global rewire strategy. The company which sold over 58,000 units in North America in the first six months of this year has sold just over 25,000 units in India in a ten year period.
● Bajaj agreed that Harley could never really take off in India due to the high price point but said that Bajaj Auto’s partnership’s with KTM and Husqvarna show how brands like Harley can succeed in India.
● Bajaj Auto tied up with KTM in 2007 when the latter was selling 65,000 motorcycles a year and struggling and today KTM has surpassed Harley with a sale of three hundred thousand units a year.
● This year they should make close to two hundred thousand KTM’s & Husqvarna’s for global sales including India. These bikes between 125-400 cc are very competitively priced and KTM has distribution all over ASEAN and Latin America which KTM could not do before. This should be the goal of brands like Harley Davidson also.
● Distribution is about demand fulfilment and will not generate demand. If Harley is looking at making a 300-400cc motorcycle then they must get it absolutely right. The Street 750 did not succeed as it was considered a poor man’s Harley.
● Q2 is in line with July projections. Projected 1 mn motorcycle & 3W sales if supply chain supports. They can reach 2.5 mn in October if production supports. 3W sales are moving up too.
● Pulsar sales are expected to be at an all-time high of 2 lakh units in October. Exports have seen an all-time high in September-October.
● Premium segments like KTM, Dominar have seen close to 50% growth. KTM exports in the US, EU & Australia see 30-100% growth.
● They see no obvious evidence of a shift to COVID linked personal mobility pick up.
● They have re-engineered CT and Platina portfolio for a profitable share gain.
● Lockdown has destroyed Tier 1 & 2 suppliers. Tier 1 suppliers facing labour issues.
● Bajaj Auto can see sales of 4 lakh units in the month of September.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of Bajaj Auto was ₹ 2,901/- as of 29th September 2020. It traded at 19x/ 16x/ 14x the consensus earnings estimate of ₹ 149/ 179/203 for FY21E/22E/23E respectively.
● The consensus price target is ₹ 3,010/- which trades at 15x the earnings estimate for FY23E of ₹ 203/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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06 Jul

Resurgence of demand across India, exports to take a little longer – Bajaj Auto

Update on the Indian Equity Market:

On Friday, the Indian market ended higher, making it the third straight week to end with gains. The Indian government’s approval of the acquisition of missiles, ammunition, and weapon systems worth Rs 38,900 crores led to the rally in defense stocks’ shares. Nifty ended 0.5% higher at 10,607. EICHERMOT (+4.2%), ADANIPORTS (4.1%), and BHARTIARTL (+4.1%) were the top gainers, while JSWSTEEL (-1.8%), TATASTEEL (-1.8%), and INDUSINDBK (-1.5%) were the top losers. Among the sectoral indices, IT (+1.1%), REALTY (+1.0%) and AUTO (+0.9%) ended in the green, while PSU BANK (-0.9%), PRIVATE BANK (-0.5%) and BANK (-0.5%) ended in the red.

Mr. Rakesh Sharma, Director, Bajaj Auto discussed the June auto sales data with CNBC TV18 on July 2nd, 2020. Here are the edited excerpts of the interview:

  • A lot of pent-up demand was witnessed in the past month wherever the dealer network was opening up.
  • In the last couple of weeks, they have noticed even spread of resurgence in demand. Initially, it was thought to be a semi-urban, and rural area phenomenon. Now, it is the urban areas that are responding and coming back extremely well.
  • There is optimism in the rural areas driven by the agricultural sector. In the urban areas, there is a revaluation of the mode of transport and a lot of the urban areas are driven by the need to adopt a safer mode of transport. In the last 10-15 days, demand has returned on both, the urban and rural sectors. Bajaj Auto is hopeful that this will continue into the next quarter.
  • Talking about production, he said there was a little bit of turbulence towards the end of June. Otherwise, production including their vendors and plants is completely geared up. In the niche areas of high-end bikes and electric scooters, their response rate was lower. Overall, they have responded to 90-95 percent of the market demand.
  • Had the logistical disturbances not existed in the last days of June, they could have catered to about 100 percent of the demand, except for the niche products.
  • The June story is a ramp-up story of the vendors, of the plant and of the dealers. Bajaj Auto has been able to increase their market share and share of exports. It can be said the June story is not so much of the demand coming up but the supply side coming up to speed to a very different situation.
  • Taking into consideration the fact that more Covid cases could break out, in the dealerships, and at the back end, Bajaj Auto is much better prepared and would not face any restraining issue going forward.
  • At the Aurangabad pant, there have been 40 cases and 3 casualties and there is no escalation. There is a constant effort for testing and contact testing. Production had gone way down to ensure rigorous contact testing, reporting, and sanitization. Now, production is back to normal, people are reporting to work.
  • Moving to exports, Africa has come back well and running at about 80 percent levels. ASEAN is slightly behind, at about 65 – 70 percent. Latin America is a bit of a concern as the recovery is only at 50 percent level. From shipment point, the return to normalcy will most likely be by August or September, as in transit stocks in exports are much higher and have to be calibrated with the low demand of the first quarter. Now that calibration is continuing to occur and is expected to be completed by August and expect to see some kind of normalcy in shipments coming back.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Bajaj Auto was ₹ 2,935 on 03-07-2020. It traded at 20x/ 17x/ 15x the consensus EPS estimate of ₹ 147/175/198 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 2,774/- implies a PE multiple of 14x on FY23E EPS of ₹ 198/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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05 May

Will resume operations at plants only when dealerships open up – Rajiv Bajaj, Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in red at 9,292 (-5.7%). Top gainers in NIFTY50 were Cipla (+3.7%), Bharti Airtel (+3.3%) and Sun Pharma (+0.3%). The top losers were Hindalco (-10.7%), ICICI Bank (-10.6%) and VEDL (-10.4%). Top sectoral gainer was PHARMA (+0.4%) and sectoral losers were PVT BANKS -8.6%), FIN SERVICES (-8.4%) and BANKS (-8.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, managing director – Bajaj Auto with CNBC -TV18 dated 29th April 2020:

  • He expects the two-wheeler manufacturer to operate at about 50 percent capacity next month.
  • Prime Minister Narendra Modi on Monday told states that India has to work on restarting the economy as well as continue the fight against COVID-19. Several states are keen to extend the lockdown in hotspots.
  • In the last one week itself they have seen some positive developments, specifically their Pantnagar plant has been given approval progressively to operate at full capacity, which they cannot till their dealerships open up.
  • They have that approval on the supply side. Progressively they are getting the same approval for their Aurangabad plant.
  • The Chakan plant outside Pune has not received a nod for production, which is unfortunate as that is the company’s main export plant. On 28th April, they received permission to shift goods from there.
  • He said, “In the month of April, fortunately because we do export, we will see sales of something like 30,000-35,000 numbers. In May, we are looking at operating at about 50 percent of capacity across all our plants put together which points to about 200,000 vehicles. Again the majority would be for exports.
  • In June, we are hoping – subject to how things are unlocked – to record something in excess of 250,000 vehicles, which means we are about our two-third capacity. So from this point of view, it is not so bad for us but that is again because half of what we make is exported,”he added.
  • They have already implemented almost all of the cost cutting measures. It will save them somewhere between Rs 150 crore and Rs 200 crore this year.
  • What they have continued to clearly communicate to people is that there are no plans to cut jobs and they are not going to cut jobs at this stage.
  • He said, “I would make only one recommendation which is we cannot save ourselves out of this crisis. We have to sail ourselves out of this crisis. If the government cannot reduce goods and services tax (GST), there are other suggestions I had made with respect to the insurance, with respect to the absurd safety norms that were brought in last year. If those things are corrected at the front end and there is some liquidity brought in the NBFCs etc, the demand side will be fine.”

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Bajaj Auto Ltd was ₹ 2,433/- as of 4-May-2020.  It traded at 14x/ 15x/ 13x the consensus earnings estimate of ₹ 169/ 163 / 185 for FY20E/21E/22E respectively.
  • The consensus price target of Bajaj Auto Ltd is ₹ 2,998/- which trades at 16x the earning estimate for FY22E of ₹ 185/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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