Ride On The Investment Highway With 'Hamara Bajaj'

Remember the tag line “Hamara Bajaj” which was once on the mind of many of us in the early '80s till the beginning of '90s. Bajaj has definitely come a long way since then. Bajaj Auto which was the market leader of scooter in those days, was largely identified for its scooter brands Vespa and Chetak. Bajaj Auto is the part of multi-diversified Bajaj Group which was founded by Jamnalal Bajaj in Rajasthan in 1940. Today, the company has more than 25 products in two wheelers and three wheelers segment put together. The company remains India’s largest exporter of both motorcycles and three-wheelers and enjoys significant market share. It has also entered the sports bike segment and the brand Pulsar and Avenger are the stars in this segment. Till Q4FY16, the company sold 729,304 bikes improving its market share from 41 per cent in Q4FY2015 to 49 per cent in Q4FY2016. CT 100 and Platina are the star performers as far as the utility segment is concerned as the company was successful in selling 865,366 bikes in FY2016 and ended the year with a healthy market share of 35 per cent. On the other hand, the company has recently entered the niche super sport segment. KTM and Pulsar RS 200 which were introduced in March 2015 have fair well rapport amongst the consumers. The company saw a great demand and was able to sell almost 2900 bikes per month during last year. Share in this super-sports segment of the market has increased from 35 per cent in FY2015 to nearly 60 per cent in FY2016. In February 2016, Bajaj Auto launched the V15, a 150 cc model to create a new, differentiated and more powerful engine category within the mass commuter segment that is presently dominated by 100 cc and 125 cc motorcycles. Though early days yet, the company is confident that the V15, whose fuel tank assembly contains metal from India’s flagship aircraft carrier, the INS Vikrant, will occupy a white space. Total three-wheeler sales of the company, which includes domestic and exports, was its highest ever, at 534,995 units in FY2016 which has increased by 3.1 per cent as compared to FY2015.
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Indian Auto Industry:

The Indian auto industry is one of the largest ones in the world. The two wheelers segment with 81 per cent market share is the leader of the Indian automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the two wheeler market in the world by 2020. The industry has attracted Foreign Direct Investment (FDI) worth US$ 14.32 billion during the period of April 2000 and December 2015, according to data released by Department of Industrial Policy and Promotion (DIPP). Motorcycle sales in the past four to five years had increased at less than 4 per cent.

July Sales Number:

Bajaj Auto's total motorcycles sales rose 1 per cent to 2.85 lakh units in July 2016 over July 2015. Domestic motorcycle sales rose 21 per cent to 1.74 lakh units in July 2016 over July 2015. Motorcycle exports fell 20 per cent to 1.11 lakh units in July 2016 over July 2015. Total sales of motorcycles and commercial vehicles in the domestic market rose 20 per cent to 1.98 lakh units in July 2016 over July 2015. Combined exports of motorcycles and commercial vehicles fell 20 per cent to 1.31 lakh units in July 2016 over July 2015.
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Financials YOY:

On a CAGR basis, the net sales of the company from March 2012-16 grew by 5 per cent on an annual basis. EBITDA and net profits have grown by 7 and 6 per cent in the last 5 years. On the other hand, the company has managed to post impressive profits in the year ended March 2016. On a (YoY) basis, its net income from operation stands at RS 23448.93 crores which has increased by 5 per cent as compared to the previous financial year 2015. EBITDA too remained strong at RS 4781.08 which has jumped by 7 per cent as compared to the year ended March 2015. Net profits stood at RS 3839.8 crores which has increased by 37 per cent as compared to the previous year ended March 2015.

The balance sheet of the company looks quite strong. The total current liabilities of the company on March 2016 stands at RS 428 crores, which has decreased by 34 per cent as compared with the previous year. However, the total noncurrent liability of the company in the year ended 2016 stands at RS 428.08 crores which has increased by 9 per cent as compared to the previous financial year. Bajaj Auto has outlined a capital expenditure of RS 575 crores for 2016-17. For the year ended March 31,2016, its exports accounted for 41 per cent of total revenue.

Financials Q1FY17:

Bajaj Auto on July 27, 2016 declared its Q1FY17 results. The company has managed to post marginally better results. Total income from operation stands at RS 6088.75 crores, which has increased by 4 per cent, in Q1FY17. Total income from operation stands at RS 5881 crores. Net profit stands at RS 978.37 crores in Q1FY17 which has increased by 2 per cent. In Q1FY17, domestic motorcycle sales of the company has grown by 13 per cent as against industry growth of 9 per cent. Pulsar and Avenger combined together have recorded a growth of 20 per cent while the segment growth for the industry stands at 13 per cent. KTM has registered a growth of 23 per cent. The company in a media release said that exports of Bajaj Auto have grown from 3,32,500 units in the last quarter of FY16 to 3,70,600 units in Q1FY17. The company has exported 4,76,000 units in the first quarter of the previous financial year i.e. Q1FY16.

Peer Comparison:

Hero MotoCorp, Eicher Motors, TVS Motors, Mahindra Scooters are the major competitors of the company. However, the company enjoys highest market capitalisation and dividend yield. Dividend yield of the company is 1.93 per cent and highest amongst its peer. Company P/E stands at 21.97 which is considerably lower as compared to Eicher and TVS Motors which have a P/E of 46.84 and 30.18. The company’s P/ BV stands at 6.23 which is marginally less than Hero Motors, TVS, and Eicher. P/BV of Hero Motors, Eicher Motors, TVS Motors stands at 6.74, 6.85, 15.40.
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GST:

After a long lasting debate over 16 years, the GST has been passed and the auto industry is the biggest beneficiary of the GST. Currently the auto industry pays tax of around 27 to 47 per cent, depending upon the segment in which it is operational i.e. (two wheelers, three wheelers, cars, luxury cars). The two wheeler segment in which Bajaj Auto is operational will also benefit. GST is expected to be in the range of 18 to 20 per cent. If the rates are finally decided at this prospective range, then the prices of the automobile products especially two wheelers will go down thus increasing the demand by making the product available for the larger audience. GST is the biggest booster to Bajaj Auto not only from the sales prospective but also it will increase the reserves for the company.

Future:

With softening fuel prices and a steady interest rates, fundamentals are already in place to drive demand. Two-wheeler sales last grew in double digits in fiscal 2012, when the increase was 14 per cent. Since then, the growth has been between 3 per cent and 8 per cent. India's two-wheeler industry is set to record its fastest growth in fiscal 2017.Looking at the recent developments like salary hike and the passage of GST Bill in the Raj Sabha, the sentiments in the stock looks quite vibrant. Normal monsoon will certainly increase the spending capacity of rural population which is a positive for the company. On the whole taking into account the company financials and sales numbers, we suggest BUY at the current level.