Aug 16, 2002|
Bajaj Auto: Resilient performance
Over the last five years, one segment that has managed to outperform all other sectors in India is two-wheelers, especially motorcycles. Hero Honda's market leadership is being challenged by the likes of Bajaj Auto and TVS who have managed to defy odds by launching successful models in the last one and half years. Bajaj Auto's market share has been on the rise in the motorcycle segment. But the slowdown in the economy and the ongoing family tussle is likely to keep the stock price range bound in the immediate term.
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Bajaj Auto reported a sharp spurt in sales in 1QFY03. The turnover growth of 31% was primarily led by robustness in motorcycle sales, especially after the launch of 'Pulsar' that has received overwhelming response. Apart from 'Pulsar', 'Boxer' is the other key volume driver and is estimated to account for more than 50% of unit sales. 'Eliminator', the other high-end model, is also performing well. However, its contribution to overall motorcycle volumes is still insignificant. On the other hand, the company continues to face a difficult time on the scooters front, which is Bajaj's cash cow. While geared scooter volumes are lower by 31%, ungeared scooter sales have also declined, which vindicates the shift in demand pattern towards motorcycles.
The company's step-thrus has been losing sheen over the last three years and the decline in volume sales have been in line with expectations. Three wheeler sales in 1QFY03 is impressive led by two factors, higher demand from CNG based vehicles in key metropolitan cities where pollution norms have been tightened and new products in the goods-carrier segment. Despite a spurt in motorcycles, overall unit sales has gone up only by 16% in 1QFY03 due to dismal performance of its remaining divisions.
Bajaj has benefited in a large way by increasing the contribution of higher-end models like 'Pulsar' that has benefited in terms of improved realisations. We expect realisation to increase by around 3%-5% in FY03 for the motorcycle division. Profit growth at the net level is stagnant on account of higher tax outflow (effective tax rate has gone up to 35% in 1QFY03 as against 21% last year). The company received Rs 450 as premium on insurance joint venture from Allianz in 1QFY02. Excluding this adjustment, net profits have actually risen by 60% in 1QFY03.
The stock currently trades at Rs 439 implying a P/E multiple of 9.1x 1QFY03 annualised earnings. On peer valuation basis, valuations are on the lower side. We expect the company to register a 14% rise in sales in FY03 and a significant improvement in operating margins as well. But the stock has fallen notably after the recent tussle amongst select family members. Uncertainty on this front has affected sentiment and the stock could continue to remain range bound until clarity emerges on this front.
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