Bajaj Auto share can rise by 25% in a year

The BSE Sensex index closed 216 points higher at 33,462 levels on the back of exit polls, indicating the ruling BJP will win the Gujarat and Himachal Pradesh Assembly elections. Domestic and foreign brokerage houses are citing a positive outcome for the Indian stock market after the exit poll outcome with an assurance of political stability. This is very important as passing of key reforms would benefit the economy at the Central and state levels. There is expectation of fireworks in early trades on Monday next when results start pouring in on 18 December 2017. Therefore, caution is advisable in stock selection due to excessive volatility that day.

Bajaj Auto is the fourth largest manufacturer of two and three wheelers in the world and a pride in that segment for the last five decades. The domestic motorcycle industry was adversely affected from November 2016 to July 2017, due to various issues like demonetisation, change in BS4 emission regulation and implementation of the Goods and Services Tax. With the impact of these issues behind and corrective product actions taken, the company is likely to post a healthy growth of over 12% in the next one year. Bajaj Auto had lost a lot of market share over the last couple of years, since it did not have products which catered to the electric start segment. Most of its competitors had the technology and, therefore, were way ahead, hurting the sales of Bajaj Auto significantly. However, new launches by the company in the recent past have plugged the gaps and managed to lift volumes significantly in this particular segment, thereby helping regain lost ground and market share. In the executive segment, the company was losing market share due to certain issues, but now with the launch of viable products, volumes are expected to recover from the next financial

year. Similarly, the company was totally absent in the premium segment, but now with the launch of the new Pulsar motorcycle, the vacuum has been addressed. Moreover, Bajaj Auto has formed partnerships with Triumph of UK, KTM of Austria and Husqvarna of Sweden and with this the entire gamut of premium motorcycle segment should be covered, strengthening its leadership position. There have been some positive changes in the regulatory side, which should release the pent up demand in the domestic market. The release of volume cap on the number of three wheeler permits in Maharashtra, Karnataka and New Delhi augurs well for the company, as demand for three wheelers in the domestic market should boost sales to a large extent. There were various industry and company specific issues that had affected Bajaj Auto’s performance over the past few quarters, but now with adequate measures being addressed, the decline seems to have bottomed out. Most analysts expect the earnings per share for FY 2018 to be Rs 150, which is expected to grow to Rs 175 for the FY 2019. The Bajaj Auto scrip, currently trading on the Indian bourses at Rs 3,200, can appreciate by 25% in the next one-year time frame.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.