Recommendation From Wheelers Sectors
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year
Bajaj Auto
POISED TO MOVE INTO THE FAST LANE
HERE IS WHY
Growth in 3W
Exports Growth
Penetrating new markets
Bajaj Auto Limited is an Indian manufacturer of motorcycles, three-wheelers and auto parts. The company has a growing presence in the international markets as well. It has a presence in over three continents and is the world’s third largest bike manufacturer.
The company had recorded a growth of over 7 per cent in motorcycles and 20 per cent growth in commercial vehicles in the international business during the first half of FY18, despite headwinds in several international markets. The company’s new markets’ contribution to its total volume has significantly increased to 16 per cent during the period, as against a humble 6 per cent in FY16. The company’s export revenues also grew by 19 per cent during the corresponding period. It exports to over 60 countries and had derived about 45 per cent of its volumes from exports in May 2018. During FY18, about 39 per cent of its revenue was sourced from exports. Its profits in the fourth quarter of FY18 was largely driven by exports and 3W volumes. The company recorded a 27 per cent hike in its sales volume up to May 2018 on a year-on-year basis. For the month of May 2018, the company recorded a growth of over 29 per cent in its sales on a yearly basis.
On the financial front, Bajaj Auto posted a 29.88 per cent increase in its net sales to Rs 6,650.81 crore in the fourth quarter of FY18 as against Rs 5,120.54 crore in the same quarter of the previous fiscal. The PBIDT of the company increased by 45.17 per cent to Rs 1,315.24 crore in the fourth quarter of FY18 as against Rs 905.98 crore in the same quarter of the previous year. The net profit of the company increased by 34.68 per cent to Rs 1,079.87 crore in Q4FY18 as compared to Rs 801.82 crore in the same quarter of the previous fiscal.
On the annual front, the net sales of the company increased by 10.59 per cent to Rs 25,098.64 crore in FY18 as against Rs 22,694.87 crore in FY17. The PBIDT of the company rose by 8.16 per cent to Rs 4,783.43 crore in FY18 as compared to Rs 4,422.35 crore in FY17. The net profit of the company grew by 6.28 per cent to Rs 4,068.10 crore in FY18 as against Rs 3,827.56 crore in FY17.
On the valuation front, the company posted a PE of 20.67x as against an industry PE of 26.09x. The company’s peers such as Eicher Motors and TVS Motor recorded a PE of 48.07x and 42.87x, respectively. The company has maintained a steady debt-to-equity ratio of 0.01x over the years. Banking on India’s consumption story, the company is likely to witness notable growth in its sales in the coming quarters.
It is expected to benefit from recovery in 3W segment due to removal of permit cap in Maharashtra, new permits in Delhi and transition from 2-stroke to 4-stroke 3Ws in Bangalore. The import share of the company is also expected to rise in the coming quarters The company has also received approval for quadricycle, which boosts the positive sentiment around it. In recent times, the company's share price has also corrected and seems to have bottomed out. Thus, we recommend our reader-investors to HOLD the stock.
