Tag - cost

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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05 Aug

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

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

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

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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