• OCTOBER 5, 2000

Bajaj Auto: Fails to enthuse the bourses

Bajaj Auto's (BAL) performance in the stock markets over the past few months has been lacklustre. In the past few trading sessions too the scrip has been faced with selling pressure. The company's offer to buyback 18 m shares at a price of Rs 400 per share has failed to bring back life into the stock.

On the motorcycle front the company is doing well. For the first six months of the current year the company sold 2,02,315 motorcycles, a growth of 104% YoY. The company has become an aggressive player in this segment with new product launches. As a result its has captured a market share of 21.6%, and is now the second largest player in this segment, overtaking TVS Suzuki.

Share price performance in absolute and relative terms
 6th October'20002 weeks1 mth3 mths
Bajaj Auto Ltd (Rs)317357360357
Absolute (%) -11.2%-11.9%-11.2%
Relative to BSE Sensex (%) -14.0%-3.0%4.0%
BSE Sensex 4,173 4,032 4,606 4,886
Absolute (%) 3.5%-9.4%-14.6%

However on the scooter front the company is still facing tough times as this industry is not showing any signs of a recovery. The shift in consumer preferences is clearly towards motorcycles and mopeds. As scooters form a large chunk of the company's revenues, this continues to act as a drag on its earnings.

Besides the fact, that scooters the company's high margin business is not doing well the other factors like its surplus funds and its stock market related activities too have resulted in a de-rating in Bajaj Auto's stock. Its buoyant motorcycle volumes have failed to make up for all these.

As margins in the motorcycle and mopeds segment are lower than traditional scooters and in future a large chunk of the sales mix will be contributed by these two segments, this has resulted in a pressure on the company's margins in the current financial year.

Bajaj Auto: Valuations deserved?
Two wheeler cos.EPS (Rs)
P/E (x)
EPS growth (%)
Gross margin (%)
ROE (%)
(ROCE) %
Bajaj Auto57.65.56.0%12.5%19.2%16.7%
Hero Honda81.510.530.0%13.4%43.3%38.7%
TVS Suzuki53.83.017.0%10.4%27.4%19.1%

As BAL is still sitting on a large surplus of funds, the markets are not looking favourably towards this. Of its total balance sheet, cash, investments and loans and advances at Rs 38 billion account for 70%. The company has decided to use Rs 7.2 bn of this for buy back of shares. However it should still also consider the rest of it by increasing dividend payouts, and increasing its spends on research and development.

On the current price of Rs 317 , BAL is trading at 6.1x on its FY2000 EPS of Rs 51.4.

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