Mid-market segment to lead growth in festive season – Bajaj AutoTanmay Gadre
Update on the Indian Equity Market:
On Monday, NIFTY ended higher at 17,691 (+0.9%) as it closed near the intraday high level of 17,751. All the sectoral indices were gainers, led by METAL (+3%), MEDIA (+2.6%), and REALTY (+2.2%). Among the stocks, DIVISLAB (+7.8%), HINDALCO (+4.6%), and NTPC (+4%) led the gainers while CIPLA (-3%), GRASIM (-2.3%), and UPL (-1.4%) led the losers.
Excerpts of an interview with Rakesh Sharma, Executive Director, of Bajaj Auto (BAJAJ-AUTO) with CNBC TV18 on 1st October 2021:
- Chip shortage is affecting the manufacturing of high-end bikes and their customers around the world are disappointed. The company is able to meet only 65% of the requirements.
- On the export side, the company is very comfortable despite the container and chip shortage and it will do much more in October ‘21 compared to September ’21. The demand is returning well in markets like Latin America, Africa, South Asia. The company expects sales volumes through exports to remain over 200,000 vehicle per month.
- Migration from internal combustion engine (ICE) vehicle to electric is going to continue. The company cannot determine the pace of this change as it is primarily driven by factors like overall costs coming down for customers, reassurance regarding charging infrastructure. In this phase, the company is pre-occupied with building capabilities.
- The company’s retail outlook in the festive period is positive. The indicators like rural demand pickup, behaviour of retail finance, shaping up of enquiries, excitement at dealership level suggest a single digit to low-double digit growth during the festive season. It expects the mid-market segment to lead growth during the festive season.
- The company plans to occupy and retain a premium position in 2-wheeler electric vehicles (EVs). It is offering the most highly priced vehicle in this segment with self-proclaimed value additions in terms of very good design, best performance, an all-steel body, and a very good customer care.
Asset Multiplier Comments
- Bajaj Auto is planning to set up a separate subsidiary for EV. It already sells Chetak scooter and is planning to launch 3-wheeler EVs in FY22. This will help the company to build the required capabilities and cater to growth in the EV business.
- The domestic volume figures will improve from 3QFY22 as the company plans to aggressively launch products in 125cc segment, and provide innovative offerings in the entry motorcycle segment.
Consensus Estimate: (Source: market screener website)
- The closing price of BAJAJ-AUTO was ₹ 3823/- as on 04-Oct-2021. It traded at 21x/17x/15x the consensus earnings per Share estimate of ₹ 186/221/248 for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 4232/- implies a PE multiple of 17x on FY24E EPS of ₹ 248/-.
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