Analysts expect Bajaj Auto to keep up its momentum in the near term with the launch of Pulsar 135 cc and Discover DTS-i in the 100 cc segment
The good news in the two-wheeler segment zoomed in with the third-quarter results of Bajaj Auto. With many firsts under its hat, like the highest-ever turnover at Rs 3,331 crore, operating profit at Rs 688 crore, net profit at Rs 475 crore and operating profit margin sturdy at 22 per cent, most analysts believe Bajaj’s results are an indication of the times to come. The Street expects the second-largest two-wheeler player to perform better than the market leader, Hero Honda, in the near future.
In a clear indication that the momentum is in its favour, Bajaj Auto’s motorcycle sales grew 72 per cent yoy during the quarter against the industry’s growth of 37 per cent. As a result, the Pune-based company’s market share increased from 22 per cent in FY09 to 27 per cent in Q3FY10, even as Hero Honda’s market share hovered at 58-59 per cent levels during the quarter.
“Hero Honda outperformed even during 2008, while Bajaj Auto did not do so well then. But in the last three months, Bajaj Auto has picked up,” points out Sejal Jhunjhunwala, analyst at Way2Wealth Securities.
The company’s strategy of focusing on sporty brand, Pulsar, in the last one year is paying off well, while the launch of its new 100cc Discover model fuelled growth in volumes. Pulsar enjoys a monthly run rate of 50,000 units, while the Discover’s cumulative sales since its launch have crossed 3.5 lakh units. Bajaj’s overall volumes grew 97.6 per cent from a low of 1.42 lakh units in December 2008 to 2.80 lakh units in September 2009. The company’s market share in the domestic 75-125cc motorcycle segment too increased from a low of 5.3 per cent in November 2008 to 23.1 per cent in October 2009.
Besides, according to Jhunjhunwala, operating margins are expected to move up from 13.6 per cent in FY09 to 19 per cent in the current fiscal, while the same for Hero Honda is expected to grow marginally from 14.2 per cent to 15.3 per cent in the current fiscal. Though rising input prices could play spoilsport, analysts expect a better product mix to keep margins healthy at 19-20 per cent levels for Bajaj. “While Hero Honda continues to be the market leader, Bajaj is showing the momentum,” adds Jhunjhunwala. Volumes are expected to be better in the fourth quarter, driven by the new 135cc Pulsar.
No wonder Abhijeet Naik and Alok Rawat of CLSA Asia Pacific Markets prefer Bajaj over Hero Honda. CLSA has maintained an outperformer rating with Rs 1,900 target price. According to analysts, the stock is currently trading between 13 and 15 times one-year price to earnings.
How global stocks fared
Around the world, most benchmark stock indices have surged in 2009, turning a corner after a global recession and credit crisis devastated the markets last year.
(As of the close of US markets on December 31, 2009; Percentage change year-to-date)
Source: Blomberg