Bajaj Auto posted a 4% Y-o-Y drop in it's Q4-FY'15 Total Income and a 19% drop in it's Net Profit. Upfront the numbers look bad. But consider this: Bajaj Auto's Motorcycle sales were down over 18%, while 3-wheeler sales were almost flat during Q4 of this year compared to last year. The company's sales dropped a whopping 20% in the domestic market, while even it's Exports dropped 11% during the quarter. Exports for Bajaj Auto were going from strength to strength over the recent years. So this sudden dip was very disturbing. But there were valid reasons for us to believe that this dip was a temporary phenomena and the Exports should be back to strength, which they have shown in April & May of this year. Considering all this, the 4% drop in Total Income seems to be primarily because of increase in Average Unit Price for Bajaj Auto, which is a positive sign. That means the sales of lower priced 100cc to 125cc products dropped much more during the period and may be the company posted steady or small growth in sales of 150cc & higher vehicles.
( Click here for Bajaj Auto's Easy Results Summary page. )
Now look at the following chart which shows the monthly numbers Bajaj Auto has been doing in the Domestic market & the Export numbers. The numbers are combined numbers for both Motorcycles & 3-wheelers.
Look at the period between Jan-14 to Aug-14. Bajaj's domestic sales during this period averaged at about 1,75,000 every month. But during the period between Nov-14 to Mar-15, the same averaged at less than 1,40,000 per month. (Sept-14 & Oct-14 were festival months & hence excluded in the general calculations) Even on the Exports front, Bajaj's monthly numbers averaged at about 1,68,000 units for the 2nd Half of year 2014. But the same dipped sharply during the Jan-Mar'15 period to an average of 1,18,000 units. The primary reason for the sharp fall in Export numbers was that 2 of Bajaj's biggest export markets went through Elections & Change of Govt during that period, which created a temporary delay in approvals. The reasons given by the company seem to be very genuine because the Export numbers have bounced back sharply during April & May'15 to about 1,60,000 units each.
Bajaj Auto smartly used the lean quarter to introduce a few new products, both in the domestic as well as Export markets. First one was the new Platina, which is a volume product. It may not be as profitable as the Pulsar range of bikes, but will bring in good volumes. It has already started showing results with Bajaj Auto's domestic sales improving sharply over the last 3 months, primarily because of the new Platina and the Discover150, which was launched late last year. Over the last 3-4 weeks, Bajaj Auto unleashed 3 new bikes in the Pulsar range. The RS200 is the most hi-tech & most expensive Bajaj bike to have been launched till date at a price of around Rs.1,25,000/-. And the demand for this bike too has surpassed the company's expectations. The monthly volumes will be just around 2000 to 4000 units, but this one should be highly profitable for the company and also boosts the company's image in the market. The next 2 products were the Pulsar AS150 and AS200, a new segment of Adventure Sports bikes. The AS150 has a newly developed 150cc engine, which will be used in more Pulsar bikes in the coming months. These 2 bikes are priced between Rs.80,000 to Rs.1,00,000/- and will be doing good volumes.
Bajaj Auto has another few launches planned in the second half of this year. And then there is the possibility of the Quadricycle segment getting a Green signal from the Govt. Bajaj Auto is the only company with a product ready for launch, but the competition has been successful in delaying the Govt's decision making, giving themselves enough time to prepare their products. The Quadricycle segment will be interesting to watch out for. One cannot right away predict a huge success for this segment, but going by the way the small 4-wheeled CVs did in the market, we could see the Quadricycles too being well accepted in the market. But at the same time the 3-wheeler sales could be impacted because of it.
Valuations: Bajaj Auto's EPS for FY'15 stood at Rs.97, compared to about Rs.112 in FY'14. With volumes bouncing back and more new launches being planned, we can expect Bajaj Auto to post more than 5% growth in Total volumes during FY'16 and over 10% growth in the company's Total Income & Net Profit. At the current share price of about Rs.2250/-, Bajaj Auto's Market Cap stands at about Rs.65,000 crores and trades at a P/E ratio of 23. This cannot be termed cheap or expensive. A lot depends on how Bajaj's monthly numbers perform going ahead, especially the Export numbers. If Bajaj Auto manages to take it's average monthly Exports number to about 1,80,000 units for FY'16, which will be about 20% higher than the 1,50,000 it did for FY'15, then the stock's Fair Value will be raised substantially. During FY'15, Bajaj's domestic sales averaged at about 1,65,000 units every month. I am expecting the same to rise to about 1,75,000 units every month for FY'16. Anything more will be very positive for the company. But going by the expectations of lower Monsoon and increasing competition, expecting Domestic sales to grow by anything more than 5% will be being too optimistic. Even if Bajaj manages to meet the expectations I have put up here, we could see Bajaj Auto's stock hitting the Rs.3000/- mark over the next 12-18 months.
( Click here for Bajaj Auto's Easy Results Summary page. )
Now look at the following chart which shows the monthly numbers Bajaj Auto has been doing in the Domestic market & the Export numbers. The numbers are combined numbers for both Motorcycles & 3-wheelers.
Look at the period between Jan-14 to Aug-14. Bajaj's domestic sales during this period averaged at about 1,75,000 every month. But during the period between Nov-14 to Mar-15, the same averaged at less than 1,40,000 per month. (Sept-14 & Oct-14 were festival months & hence excluded in the general calculations) Even on the Exports front, Bajaj's monthly numbers averaged at about 1,68,000 units for the 2nd Half of year 2014. But the same dipped sharply during the Jan-Mar'15 period to an average of 1,18,000 units. The primary reason for the sharp fall in Export numbers was that 2 of Bajaj's biggest export markets went through Elections & Change of Govt during that period, which created a temporary delay in approvals. The reasons given by the company seem to be very genuine because the Export numbers have bounced back sharply during April & May'15 to about 1,60,000 units each.
Bajaj Auto smartly used the lean quarter to introduce a few new products, both in the domestic as well as Export markets. First one was the new Platina, which is a volume product. It may not be as profitable as the Pulsar range of bikes, but will bring in good volumes. It has already started showing results with Bajaj Auto's domestic sales improving sharply over the last 3 months, primarily because of the new Platina and the Discover150, which was launched late last year. Over the last 3-4 weeks, Bajaj Auto unleashed 3 new bikes in the Pulsar range. The RS200 is the most hi-tech & most expensive Bajaj bike to have been launched till date at a price of around Rs.1,25,000/-. And the demand for this bike too has surpassed the company's expectations. The monthly volumes will be just around 2000 to 4000 units, but this one should be highly profitable for the company and also boosts the company's image in the market. The next 2 products were the Pulsar AS150 and AS200, a new segment of Adventure Sports bikes. The AS150 has a newly developed 150cc engine, which will be used in more Pulsar bikes in the coming months. These 2 bikes are priced between Rs.80,000 to Rs.1,00,000/- and will be doing good volumes.
Bajaj Auto has another few launches planned in the second half of this year. And then there is the possibility of the Quadricycle segment getting a Green signal from the Govt. Bajaj Auto is the only company with a product ready for launch, but the competition has been successful in delaying the Govt's decision making, giving themselves enough time to prepare their products. The Quadricycle segment will be interesting to watch out for. One cannot right away predict a huge success for this segment, but going by the way the small 4-wheeled CVs did in the market, we could see the Quadricycles too being well accepted in the market. But at the same time the 3-wheeler sales could be impacted because of it.
Valuations: Bajaj Auto's EPS for FY'15 stood at Rs.97, compared to about Rs.112 in FY'14. With volumes bouncing back and more new launches being planned, we can expect Bajaj Auto to post more than 5% growth in Total volumes during FY'16 and over 10% growth in the company's Total Income & Net Profit. At the current share price of about Rs.2250/-, Bajaj Auto's Market Cap stands at about Rs.65,000 crores and trades at a P/E ratio of 23. This cannot be termed cheap or expensive. A lot depends on how Bajaj's monthly numbers perform going ahead, especially the Export numbers. If Bajaj Auto manages to take it's average monthly Exports number to about 1,80,000 units for FY'16, which will be about 20% higher than the 1,50,000 it did for FY'15, then the stock's Fair Value will be raised substantially. During FY'15, Bajaj's domestic sales averaged at about 1,65,000 units every month. I am expecting the same to rise to about 1,75,000 units every month for FY'16. Anything more will be very positive for the company. But going by the expectations of lower Monsoon and increasing competition, expecting Domestic sales to grow by anything more than 5% will be being too optimistic. Even if Bajaj manages to meet the expectations I have put up here, we could see Bajaj Auto's stock hitting the Rs.3000/- mark over the next 12-18 months.
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