Bajaj Auto – Is the demand recovery around the corner?Aniket Khanolkar
Update on the Indian Equity market:
On Thursday, NIFTY closed 0.4% lower. Among sectoral indices NIFTY Metal (-3.0%), NIFTY Financial services (-1.2%), NIFTY BANK (-1.1%) closed lower while NIFTY Media (+2.5%), NIFTY PSU Banks (+0.2%) NIFTY Auto (+0.2%) ended on a positive note. The biggest gainers were Yes Bank (+33.6%), Bharat Petroleum (+7.5%), Zeel (+6.5%) whereas Vedanta (-4.7%), Hindalco (-4.0%), Coal India (-3.5%) ended with high losses.
Bajaj Auto – Is the demand recovery around the corner?
Excerpts from an interview with Rakesh Sharma – Executive Director, Bajaj Auto
- Mr Sharma says that in the current situation retail numbers are the most important ones to look at. It was very difficult to manage the supply chain and putting it in line with demand fluctuations in the past few months.
- He says retail demand is showing signs of a pickup.
- Speaking about the September month specifically, he says, retails in the second half of September have started to look up.
- Though the company volumes are marginally lower as compared to last year, it is a good improvement in the prevailing scenario.
- Speaking about exports he says that the global picture is pretty much stable. Africa is doing very well. The company gets 40%-45% of its business from Africa. Latin America continues to show muted growth caused mainly by the slowdown in Argentina and Mexico.
- The Philippines is a market which the company is looking for.
- Mr Sharma says, after a bit of a decline in 1Q FY20 the current quarter is looking much better.
- He says the uptrend is visible in 125cc segment, mainly because of the anti-lock braking system (ABS) which increased the prices of 150cc plus segments.
- Before the launch of Pulsar125, Bajaj Auto had a 1% market share. After its launch, it is in the range of 10%-12%.
- Speaking about further discounts he says, they are not going to add much because the company had already announced festive schemes.
Consensus Estimate (Source: market screener website)
- The closing price of Bajaj Auto was ₹ 2910 /- as of 03-October-19. It traded at 16.3x /15.0x the consensus EPS for FY20E/ FY21E of ₹ 178/193 respectively.
- Consensus target price of ₹ 2832/- implies a PE multiple of 14.6x on FY21 EPS of ₹193/-