Is Bajaj Auto the Next Big Growth Story in the Indian Auto Industry?

Bajaj Auto has accelerated its sales performance considerably in the June 2023 quarter. This is due to a pick-up in demand in the domestic market.

In addition to this, in the first week of July 2023, the Pune-based company launched two locally made high-end Triumph motorcycles. The prices of these bikes are considerably higher than the current average selling price of the company.

The improved performance of Bajaj Auto has been noticed by investors. The stock ended yesterday's trade at Rs 4,823. It's not too far from its 52-week high of Rs 4,988 reached on 13 July 2023.

In the June 2023 quarter, Bajaj Auto sold over a million units, a rise of 10% year on year (YoY). Growth in the last quarter was powered by a 73% YoY rise in two-wheeler sales in the local market to 542,931 units.

The growth in unit sales reported in the June 2023 quarter was considerably higher than the near 9% YoY fall in unit sales in the financial year 2023.

Meanwhile, the company's nearest rival Hero MotoCorp reported a 2.7% YoY fall in sales to 1.4 million units in the June 2023 quarter.

To leverage the expanding growth opportunities in the premium end of the motorcycle market, Bajaj Auto had earlier launched Triumph Speed 400 with a reported price of nearly Rs 233,000. Hero MotoCorp had priced the Harley-Davidson X440 at Rs 229,000.

The pricing of the premium bikes is considerably higher than Bajaj Auto's average realisation of Rs 90,133 per unit in FY23.

Investor sentiment on Dalal Street

Investor sentiment around Bajaj Auto has also received a boost due to falling raw material prices like steel.

Raw material costs as a percentage of total operational income of Bajaj Auto was 67.9% in FY23. Bajaj Auto will declare its June 2023 quarter results on 25 July 2023.

Investors are also betting on a revival in sales of rival Hero MotoCorp. The stock ended Wednesday's trade at Rs 3,092. It's not too far from its 52-week high of Rs 3,206 reached on 6 July 2023.

Bajaj Auto has traded at a PE multiple between 11 and 22 times over the past 5 years. It currently trades at a PE multiple of 23 times. Hero MotoCorp currently trades at a PE multiple of 20 times.

Bajaj Auto enjoys superior operating profit margins vis-a-vis Hero MotoCorp. Bajaj Auto has maintained its operating margins between 17-18% for the past five years (FY23 margins at 18%) while for Hero MotoCorp, the operating margins have ranged between 11-13% (FY23 margins at 12%).

Investors should keep Bajaj Auto on their watchlist and take advantage of a revival in demand from the local market in the two-wheeler segment.

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