Bajaj Auto Surpasses ₹2 Lakh Cr Mcap

Bajaj Auto: On January 8, 2024, Bajaj Auto Ltd’s market capitalization soared to ₹2 lakh crore, making it the third-largest automaker, overtaking Mahindra and Mahindra. With a market valuation of ₹3.13 lakh crore, Maruti Suzuki continues to be the most valuable auto stock in the country. Tata Motors ranks second with a market capitalization of ₹2.9 lakh crore.

The company’s decision to repurchase up to 4,00,000 shares, or 1.41% of the total, at ₹10,000 per share for a total consideration not exceeding ₹4,000 crores triggered the sharp surge.

While the company struggled in 2021-2022 due to high inflation, supply chain disruptions (particularly in the semiconductor industry), and economic uncertainty, the story in 2023 is quite different. The stock price has soared 105% over the past year.

Industry Overview

In fiscal 2023, business finally returned to normal as the impact of COVID-19 was significantly reduced. Meanwhile, the impact of high inflation, supply chain disruptions from China and the Russia-Ukraine conflict affecting raw material prices remain.

To counter this, the RBI has regularly increased the policy repo rate by 250 basis points from May 2022. But despite these serious obstacles, India’s major economy is growing at one of the fastest rates in the world. According to the Central Statistics Office (CSO)’s second preliminary national income estimate announced on February 28, 2023, the real GDP growth rate was expected to be 7.0% and the gross value added growth rate was expected to be 6.6%.

India’s automotive sector is expected to reach a value of USD 300 billion by 2026. A study conducted by CEEW Center for Energy Finance identified the potential market size for electric vehicles in India to be worth US$206 billion by 2030. To meet this demand, you need: $180 billion invested in both vehicle manufacturing and charging infrastructure. But the question that needs to be asked is how Bajaj Auto has fared considering this overall macroeconomic scenario.

Business sector performance

Motorcycle (domestic)

Motorcycle sales within the industry peaked at 13.6 million units in fiscal 2019, but then gradually declined to less than 9 million units each year through fiscal 2022, a 34% decline over three years.

However, 2023 finally saw some growth, with 10.2 million units, up 13.9% from the previous year’s low. Domestic sales also fell far short of the all-time high of 13.6 million units in fiscal 2019.

Source: Annual report (2023)

If we look at the dynamics of the motorcycle industry, the highest sales volume comes from the low-end products consisting of 100-110cc models. However, the sector faces competitive pricing pressures.

This led the company to decide to reduce its presence as rising raw material prices and a shortage of key semiconductors in the first half of FY2023 made pushing these products relatively meaningless in terms of profits and shareholder value. .

Bajaj Auto has therefore consciously focused on increasing sales of its more profitable models in the 125cc and above range. Making EBIDTA per unit a key variable for the company was an obvious choice.

Segment 100cc: In FY 2023, the segment grew by 6%, but the base was lower in FY 2022.

For the reasons mentioned earlier, Bajaj Auto has consciously reduced its presence here. As a result, Bajaj Auto’s average monthly sales volume reached 53,746 units and its market share reached 12.2%.

Segment 125cc: It recorded 20% growth in fiscal 2023. In this segment, Bajaj Auto’s sales grew by 38% and its market share increased by 300 basis points to 23.9%. This Pulsar 125 was first launched in FY2020, and an average of 52,439 units were sold per month until FY2023. The company expects the Pulsar 125 to deliver impressive growth in FY2024 as well.

Segment 150cc and above: Accounting for 22% of the domestic motorcycle market, this segment is the fastest growing segment. Pulsar, Avenger, Dominar, KTM and Husqvarna brands are represented by Bajaj Auto. This category grew 27% in fiscal 2023. Bajaj Auto sold an average of 41,002 units per month, recording a market share of 21.4%.

ProBiking (KTM)

The Probiking business consists of two brands including KTM and Husqvarna. While the KTM brand and its models are well known across India, the Husqvarna models are yet to gain recognition.

The semiconductor shortage had a significant impact on sales in the first quarter of 2023. However, in the second quarter, the crisis abated and sales recovered. As a result, KTM sales in FY2023 increased by 4% compared to FY2022.

Source: Annual report (2023)

Urbanite (Chetak EV)

This is a brand that has been reborn as the best electric scooter in its class in 2021. This sector was also affected in the first quarter of FY2023 due to shortage of semiconductors. Therefore, despite good market demand, the company was unable to produce the required quantities.

Afterwards, as supply-side constraints were eased, Chetak production increased. Chetak is currently sold through 105 dealers across 84 cities.

Source: Annual report (2023)

Three-wheeled vehicle (domestic)

Source: Annual report (2023)

The three-wheeler was a coming-of-age story. Bajaj Auto’s domestic three-wheeler sales also increased by 87% to 300,009 units in FY2023. Market share also steadily increased from 52.5% in fiscal 2021 to 73.0% in fiscal 2023.

international business

Financial year 2023 was a difficult year for exports due to economic challenges including geopolitical uncertainty, hyperinflation, and lack of availability of U.S. dollars in major importing countries.

Source: Annual report (2023)

As you can see from the table above, export business plays a big role. Almost half of our sales come from exports.

eyesight

But throughout the article, you might be wondering why the company acquired the stock at such a high price. This is a very bold move, as the premium is typically 25-30% higher than the original price.

Dinesh Thapar, the company’s Chief Financial Officer, told CNBC-TV18 that this bold move, which includes purchasing approximately 4 million shares, is not just a financial decision, but also reflects the company’s strong performance and optimistic business outlook. He said it reflects his confidence. .

This view of Dinesh Thapar is based on Bajaj Auto’s ability to overcome challenges in the two-wheeler industry and now see economics and market demand recovering.

Bajaj Auto has benefited from its strategic focus on specific markets such as the 125cc motorcycle segment, which has been evidenced by increased market share and rise to the top. The redesigned three-wheeler also presents new opportunities for development and innovation.

On a consolidated basis, the company’s revenue grew 10 per cent from ₹36,455 crore in FY22 to ₹33,145 crore in FY23. On the other hand, net profit declined by 1.7% from ₹6,166 crore in FY22 to ₹6,060 crore in FY23. So, fellow investors, where will you invest? Let us know in the comments below.

Written by Nalin Surya

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