Bajaj Auto: Exports improve, but domestic recovery more crucial

The Bajaj Auto stock was up four per cent on Friday after the company reported year-on-year (y-o-y) growth in sales for the first time in six months. Led by seven per cent growth in exports, overall volumes in August were up three per cent to 335,000 units compared to the year-ago month. Commercial (three-wheeler) vehicle sales, which accounted for 15 per cent of overall volumes, continued to do well both in the domestic as well as export markets, posting a growth of 12-13 per cent in both markets. But, for the Street’s sentiment to improve further, it is crucial that domestic volumes pick up for Bajaj Auto as it constitutes makes up 60 per cent of the volumes.

What, according to analysts, has stood out is the recovery in two-wheeler (motorcycle) exports. Two-wheeler exports, which have been under pressure over the past few months, were up nearly seven per cent. Two-wheeler exports have fallen in each month from May to July and the fall has been in the range of 5-10 per cent. The company had indicated a new strategy of expansion into newer geographies to overcome the weakness in traditional markets such as Nigeria and Sri Lanka. 

Commercial vehicle sales continue to be robust, where the company had given a guidance of 20,000-21,000 domestic three-wheeler sales for the second half of CY17 on the back of Maharashtra opening up auto-rickshaw permits, release of 10,000 permits by the Delhi government and mandatory conversion of 2-stroke to 4-stroke vehicles in Karnataka and the ban on diesel vehicles in Bengaluru.

The Street will, however, look at the traction the company is getting for newer launches. Bajaj Auto expects the Avenger and V series to generate monthly sales of up to 15,000 units and 25,000 units, respectively, and gain traction as the festival season progresses. As against 170,000 motorcycles sold in August, the company estimates that its motorcycle volumes will hit the 200,000-mark this month. 

On the product front, in addition to the electric-start version of CT100, the company is also looking at launching variations of the Platina and V. While Pulsar and Discover continue to be the core brands, the company will also look to increase the sales of recently launched premium bike Dominar (400 cc), which is doing about 3,000 units a month currently. After lagging peers, the company expects to grow the domestic portfolio by 10 per cent in the second half of FY18, compared to the estimated segment growth of seven per cent. 

Though the recovery in two-wheeler exports is a positive, investors should await a consistent improvement in domestic sales and recouping of the market before contemplating an investment in the stock