Amid muted export demand, Bajaj Auto to ride on new growth opportunities
Shares of Bajaj Auto Ltd have risen over 5% in calendar year 2023 so far. However, in the past one year, the performance of the stock, which appreciated 11.5%, has lagged the 27% return in the Nifty Auto index.
One factor weighing on investor sentiments is the weak outlook in its export markets. This high-margin segment formed about 57% of the automaker’s two-wheeler volumes in FY22 and muted demand here has dented the share of export in Bajaj’s earnings.
Analysts at Motilal Oswal Financial Services met the management of Bajaj Auto recently where the latter expects weakness in export markets to persist for a couple of quarters before recovery begins from the September quarter of FY24. Demand in Latin America is showing some signs of fatigue. Further Bajaj’s key export market, Nigeria is facing multiple headwinds, including unavailability of dollars and political uncertainty.
As such, the automaker announced production cuts in March to the extent of 25% in two-wheelers and three-wheelers. The three-wheeler ban in Egypt is also another woe.
Against this backdrop, Bajaj’s entry into Brazil and the upcoming Triumph launch are the new growth drivers, point out analysts at Motilal Oswal. Bajaj has recently set foot in Brazil and it aims to capitalize on the opportunities here.
Further, Bajaj intends to ramp-up its electric vehicle (EV) portfolio. Among listed two-wheelers, TVS Motor Co. Ltd leads the pack with respect to market share.
Increasing the market share would support investor sentiments. Bajaj aspires to expand scale in both two-wheeler and three-wheelers. “It has very recently launched two products under Yulu brand in the low-speed segments, targeting business to business and personal categories,” said the Motilal Oswal report. But rising momentum in the EV segment also means Bajaj’s portfolio is vulnerable to a potential disruption from electrification.
To be sure, Bajaj’s management cautioned on commodity costs gaining strength from the lows seen in Q3. As such, prices of raw materials necessitate closer tracking.
According to Motilal Oswal, Bajaj Auto stock trades at 15.8/14 times FY24/FY25E consolidated earnings per share. The valuation fairly reflects the expected recovery as well as the risk from EVs, they added. As things stand, shares of Bajaj are down by nearly 8% from their 52-week highs of Rs4131.75 apiece seen in September.
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