Bajaj Auto Limited (BJAUT) is an Indian two-wheeler and three-wheeler manufacturing company. It is India’s second largest motorcycle manufacturer with domestic motorcycle market share of 18 percent. BJAUT offers products in all motorcycle segments— CT and Platina in plain-vanilla category, Discover, V12 and V15 in executive range and Pulsar, Avenger and Dominar are its premium brands.
Post the demerger of the divisions in Bajaj Auto Ltd. Bajaj Holdings & Investment Limited and Bajaj FinServ Limited in May 2008, BJAUT has solely focused on automobile business - domestic motorcycle, three-wheeler and export portfolio. In the last few years, the company has shown strong growth in exports, which comprises of 40 percent of total volumes.
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Recouped domestic motorcycle market share
The motorcycle manufacturer has managed to regain domestic motorcycle market share of 18 percent in the financial year 2016-17 by a series of differentiated new launches V12, V15, Platina and Avenger 150, 220, post a five year 2011-15 loss in market share. Post a weak performance in the Discover range of products, the market share for BJAUT had hit low of 16.5 percent in fiscal 2015. The market share for Bajaj Auto would be strengthened further with upgrades in the offerings V12, Pulsar and Dominar. Given the company’s focus is on premium division - products more than 150cc, the value market share will however be higher.
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Restricted Earnings Momentum
For fiscal 2018, BJAUT has delivered of 20 percent margins and return on equity (RoE) of 25 percent, despite subdued volumes in last two years - 2 percent decline in compound annual growth rate (CAGR). The improving product mix especially the new launches should offset the short term margin headwinds such as commodity cost pressure and strengthening of the INR currency. The domestic demand for three-wheeler products will be driven by new permits.
However, the overall earnings momentum will be limited owing to lack of presence in the fast‐growing scooter segment; elusive exports market revival and recent appreciation of the INR.
Edelweiss estimates volume CAGR of 11 percent and earnings per share (EPS) CAGR of 14 percent, over the 2017‐19 period.
The major risk for BJAUT is that the manufacturer has not been able to move away from its traditional strong brand positioning especially since its transition from 150 cubic centimeters (cc) to higher 250cc brand. Given the shift in demand to more than 250cc, it is essential for BJAUT to launch credible offerings in emerging categories. Or else, its market share in the premium motorcycle market will come under threat.
Exports:
The volume recovery has been sluggish due to the weak macroeconomic variables. For double digit exports growth, increase in volume is critical for countries such as Egypt, Nigeria and Sri Lanka. Given weak demand outlook in its key traditional markets, success in new geographies becomes critical for sustainable volume growth also competition from its Indian peer group will be intensified.
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