Tag - Bajaj Auto

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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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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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