It is a company that has been representing the aspirations of India’s rising middle class for decades. Bajaj Auto provides mobility to families, and also represents the ‘can do’ spirit of consumers.
And as the economy slowly recovers from the twin shocks of Covid and rising fuel prices related to the Russia-Ukraine war, investors have been trending on this auto stock.
No wonder then that Bajaj Auto ended last week at Rs 3,894 in Friday trade, not far from its 52-week high of Rs 4,130 hit on September 1, 2022.
Bajaj Auto Share Price – 1 Year Performance
Data Source: Ace Equity
This bullish sentiment comes at a time when Bajaj Auto’s core operating performance is sluggish.
For example, Bajaj Auto’s total vehicle sales (two-wheelers and commercial vehicles) declined 21% year-on-year (YoY) to 285,995 units in January 2023, and this was largely due to a 46% decline in two-wheeler exports . 100,679 units in the month under review.
Moreover, during April-January of FY23, the Pune-based company’s total vehicle sales declined by 9% to 3,353,929 units owing to weak demand conditions in the overseas markets for its two-wheelers.
Meanwhile, nearest rival Hero MotoCorp saw its sales decline by 6.2% to 356,690 units in January 2023.
However, during April to January of the current financial year, the New Delhi-based company’s total vehicle sales grew by 6.7% to 4,414,744 units.
Smaller rival, TVS Motor Company reported a sales growth of 3% YoY to 275,115 units in January 2023.
Bajaj Auto reported the highest operating profit margin in the two-wheeler segment in the December 2022 quarter.
The company’s operating margin increased by 370 basis points to 21.9% in the quarter under review. Tight control on costs helped the Pune-based company grow its standalone net profit by 22.8% YoY to ₹14.9 billion (bn), while revenue from operations rose only 3.3%.
In the case of Hero MotoCorp, its operating profit margin was broadly flat at 13.8% on a year-on-year basis in the third quarter of the current fiscal.
Similarly, TVS Motor’s operating profit margin for the December 2022 quarter was broadly flat at 10.1% on a YoY basis.
Investors are hopeful that the government will soon accede to the two-wheeler industry’s demand to reduce GST from 28% to 18%.
Also, signs of softening in raw material prices have boosted investor sentiment for the sector.
As a result, TVS Motor ended Friday’s trade at Rs 1,104 and was not far away from its 52-week high of Rs 1,177 hit on October 19, 2022.
Hero MotoCorp ended Friday’s trade at Rs 2,534, down from its 52-week high of Rs 2,939 reached on August 18, 2022.
Bajaj Auto is trading at 18.5 times FY23 estimated earnings and 16 times FY24 estimated earnings.
Meanwhile, Hero MotoCorp is trading at 18 times March 2023 estimated earnings and 17 times March 2024 estimated earnings.
And TVS Motor is trading at 36 times March 2023 estimated earnings and 29 times March 2024 estimated earnings.
Bajaj Auto is trading at a price to earnings (PE) multiple roughly at par with its nearest rival Hero MotoCorp.
However, until sales pick up in overseas markets, the growth opportunities for Bajaj Auto appear limited in the near term.
Instead, investors can look at other two-wheeler stocks with a strong focus on the domestic market.
Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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