After the September quarter earnings, the odds appear to be shortening in favour of the first outcome. Margins are improving and Bajaj Auto’s product mix is becoming decidedly richer, and market share locally is climbing as well.
The street factored in domestic motorcycles to decline 12-15% in FY21, followed by a rebound of 20-22% for FY22.
ET Intelligence Group: Will analysts upgrade Bajaj Auto? Or, will the lack of visibility on three-wheeler sales continue to weigh on the company that leads in short-haul, inner-city public transport?
After the September quarter earnings, the odds appear to be shortening in favour of the first outcome. Margins are improving and Bajaj Auto’s product mix is becoming decidedly richer, and market share locally is climbing as well.
Margins rose 110 basis points to 17.7%, while volumes shrank 10%. Margin expansion could narrow the stock’s underperformance relative to peers. In the last three months, Bajaj Auto gained 0.8%, while its peers rose 8-12%.
Record sales volumes of premium bikes, such as the range-topping Pulsar, KTM and Husqvarna improved average realization by 3.5% YoY to Rs 67,935 per unit. An encouraging response to the recently launched Pulsar 125 cc bike has supported local motorcycle volumes. The introduction of the Pulsar 125cc helped Bajaj acquire 16% market share in the 125cc category and expanded the segment to a quarter of the total motorcycle segment.
Domestic motorcycle volume grew 6% to 5.5 lakh units in the quarter. Thanks to the richer product mix in the domestic market, margins locally were at a 16-quarter high. In the last six months, the average monthly domestic volume has been 1.26 lakh units. The street factored in domestic motorcycles to decline 12-15% in FY21, followed by a rebound of 20-22% for FY22.
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In September, the domestic motorcycle volume grew 24% to 2.19 lakh units. To achieve the street’s volume estimates, monthly bikes sales should be higher than 1.7 lakh units. The monthly exit rate of September and the festival season would imply that maintaining a monthly run-rate of 1.7 lakh units may not be difficult for Bajaj.
Export volumes have been mixed, with South Asia, the Middle East and Africa reaching nearly 90% of the pre-Covid run-rate; ASEAN countries remain laggards. Exports of two-wheelers rose 16% to 185,351 units in September, but sustaining the record sales might be tough given the political protests in Nigeria.
The high-margin three-wheeler business continues to struggle. Volumes locally dropped 78% in the September quarter and 20% in the overseas market. Preference for personal transport and reluctance of financers to tender new loans could crimp growth.
The stock is trading at 17.6 times its one-year forward earnings, a 3% premium to the long-term average. The P/E will largely hinge on the sustainability of the monthly run-rate after the festival season and the ability to meet 20-22% volume growth next fiscal.
