A Smoother Ride Ahead
The Hindu Business Line|March 09, 2020
Focus on exports and likely recovery in domestic sales put it in a sweet spot
Parvatha Vardhini C
A Smoother Ride Ahead

Though the worst of the auto slowdown seems to be behind us, domestic auto sales may take some time to recover. In this context, Bajaj Auto, which gets a chunk of its revenues from the international markets, is in a relatively comfortable position.

Exports bring in higher margins than domestic sales on account of greater pricing power for the company in this segment. A stable business outlook for its international market places Bajaj Auto in a sweet spot. The company will begin to fire on all cylinders once domestic two-wheeler sales pick up. While the transition to BS VI emission from April 1, 2020 domestically is delaying recovery, good monsoon, higher rabi sowing, rise in crop prices and the RBI move to cut CRR requirements to make consumer/auto loans cheaper indicate that sales may pick up sooner than later.

Bajaj Auto has consciously increased its market share in the entry segment bikes over the past two years, which will help benefit from a recovery in rural markets. Its strong positioning of the Pulsar brand across executive and premium segments will also stand the company in good stead.

The stock currently trades at about 15 times its trailing 12month earnings, in comparison with peer Hero MotoCorp’s 11 times. However, the valuation is still lower than Bajaj Auto’s own three-year average valuation of 20 times. Given the recent bout of volatility in the market, the stock has corrected 11 per cent since February 20. This correction is a good entry point for long-term investors.

Promising export outlook

Denne historien er fra March 09, 2020-utgaven av The Hindu Business Line.

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Denne historien er fra March 09, 2020-utgaven av The Hindu Business Line.

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