While low-hanging fruits have been absorbed in domestic and export markets, we believe the management still retains unwavering focus on market share.
We are upgrading Bajaj Auto (BJAUT) to ‘buy’ as we believe it is better positioned than peers to handle the BS-VI transition as ~40% of its exports will be immune to the change and domestic 3W cargo segment will also benefit; perceptible change in the management’s approach — focusing on softer aspects of the business (sales, after sales, etc) rather than just products; and focus on addressing ‘high-cost of service’ perception —actively engaging with smaller mechanics, which the management envisages to propel market share gain momentum. These factors, along with a huge cash pile and strong FCF, prompt us to raise the multiple 20% to 19x (in line with 5-years’ average) though demand remains hazy.
BJAUT is relatively better placed than peers to tackle BS-VI transition, as: a) ~40% of its business (exports) will remain unaffected by the price hike; b) demand for 3W diesel cargo vehicles can rise at the cost of small commercial vehicles, given the lower price rise in the former; c) ability to pass on the cost hike in case of Pulsar will be better than entry/mid-level bikes; and d) potential disruption by BJAUT with the launch of ‘e-carburettor’ in 100/110cc options.
This can further aid market share gain. While low-hanging fruits have been absorbed in domestic and export markets, we believe the management still retains unwavering focus on market share. We attribute this to new senior-level hirings. Recent additions — Sarang Kanade, Samardeep Subandh, Ravi Kyran Ramaswami and Soumen Ray — across functions are from outside the automotive industry, bringing in wider business perspectives.
We upgrade recommendation/ rating to ‘buy/SO’ from ‘hold/SU’ with SOTP-based revised TP of Rs 3,651 (earlier Rs 3,162), valuing the stock at 19xMarch 2021E core EPS and Rs 866 cash per share.