Rising market share may rev up Bajaj Auto stock

Bajaj Auto, the maker of Platina and Pulsar motorcycles, is focusing on basic and premium bikes that are unaffected by the overall decline in two-wheeler sales. This is the main reason why the company's stock is outperforming its peers over the past two months. The stock has gained 12% as against 3% and 10% drop in shares of Hero MotoCorp and TVS Motors, respectively. The Street is betting on Bajaj Auto to gain market share in FY16 and ship more exports.

Analysts in the past have been wary of market share guidance of Bajaj Auto due to wide gaps between the forecast and actual numbers. However, the company's management has regained some of the confidence with high sales in April and three percentage points rise in market share, thanks to higher sales of bikes like Platina, CT100 and Pulsar -a segment where Bajaj is the leader with 44% market share.

The company claims it would increase its share in the overall motorcycle market from 19% to 23-24% next March. Since there is low demand for its mid-segment offering, Discover, a higher market share could be achieved by pushing sales of basic and premium bikes. The company has doubled its sales of Platina and CT100 in a year and its share in the market for basic bikes is about 40% -up from 23% a year ago.



Similarly, in the premium segment, it introduced more variants of its premium offering Pulsar. What also helped Bajaj is the expansion in the market for basic and premium bikes. These two segments constitute 44% of the total motorcycle market against 34% a year ago -a reason why investors consider the Bajaj stock as a proxy play for urban consumption, even prompting some of them to shift from Hero MotoCorp, which derives almost half of its sales from villages and small towns. There are signs that exports, comprising 45% of sales, may look up after a sharp slowdown in the quarter ended March 2015. The company is trying to export 2-2.1 million units -bikes and three-wheelers -by next March against 1.8 million units sold in FY15. While this could result in the stock's earnings upgrade, the current valuation -trading at 19 times of this year's projected earnings -will keep upside limited.