Bajaj Auto: On January 8, 2024, Bajaj Auto Ltd’s market capitalization surged ₹2 lakh crore to become the third largest automobile company, surpassing Mahindra and Mahindra. With a market valuation of ₹3.13 lakh crore, Maruti Suzuki continues to be the most valuable auto stock in the nation; Tata Motors is second with a market capitalization of ₹2.9 lakh crore.

The company’s decision to repurchase up to 4,000,000 equity shares, representing 1.41% of the total, at ₹10,000 per share, for a total consideration not exceeding ₹4,000 crores, triggered the sudden surge.

Although the company struggled in 2021-2022 due to high inflation, supply chain disruptions (specifically in the semiconductor industry), and economic uncertainty, the story in 2023 is quite different. The share price over the past year has surged 105 percent.

Industry Overview

In FY2023, the effects of COVID-19 decreased significantly, with business finally coming back to normalcy. On the other hand, the impact of high inflation, supply chain disruptions emerging from China, and the Russia-Ukraine conflict impacting commodity prices remained.

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Starting in May 2022, the RBI increased the policy repo rate on a regular basis by 250 basis points in order to counteract this. But in spite of these serious obstacles, India’s major economy is expanding at the fastest rate in the world. According to the Central Statistics Office’s (CSO) second advance estimate of national income, which was released on February 28, 2023, real GDP growth is predicted to be 7.0%, while gross value added growth is predicted to be 6.6%.

The Indian automotive sector is projected to achieve a valuation of US$ 300 billion by 2026. A research study conducted by the CEEW Centre for Energy Finance identified a potential market worth US$206 billion for electric vehicles in India by 2030. Meeting this demand will require an investment of US$ 180 billion in both vehicle manufacturing and charging infrastructure. But the question that needs to be asked is how Bajaj Auto fared given this overall macroeconomic scenario.

Performance of Business Segments

Motorcycles (Domestic)

Domestic motorbike sales for the industry peaked in FY2019 at 13.6 million units, but they then gradually declined year over year until FY2022, when they were less than 9 million units, a 34% decline over three years. 

However, FY2023 saw some growth at last, rising to 10.2 million units, or 13.9% more than the previous year’s low point. Even domestic sales remained substantially below the all-time high of 13.6 million units in FY2019.

Year ended 31 MarchIndustry Domestic salesBAL’s Domestic SalesBAL’s market share
201913,599,6782,541,32018.7%
202011,214,640 2,078,13618.5%
202110,019,8361,807,98018.0%
20228,984,186 1,632,89718.2%
202310,230,5021,769,57517.3%

Source : Annual Report (FY2023)

When you look at the dynamics of the motorcycle industry, the greatest volume of sales occurs at the lower end, comprising 100-110 cc models. However, this segment faces competitive price pressures. 

Due to this and because of increasing commodity prices and shortages of key semiconductors in the first half of FY2023, the company decided to reduce its presence, as it made relatively less sense from the point of view of profits and shareholder value to push for these products.

Therefore, Bajaj Auto consciously focused on growing the sales of its more profitable models in the 125 cc range and above. It was a clear choice where, per unit, EBIDTA became a key variable for the company.

Segment 100cc: In FY2023, this segment grew by 6%, but over a lower base in FY2022. 

For reasons mentioned earlier, Bajaj Auto consciously curtailed its presence here. Consequently, Bajaj Auto’s sales were an average of 53,746 units per month, with a market share of 12.2%.

Segment 125cc: 20% growth was recorded in FY2023. In this segment, Bajaj Auto’s sales increased by 38%, and its market share increased by 300 basis points to 23.9%. This Pulsar 125 was first released in FY2020, and through FY2023, it sold an average of 52,439 units monthly. The company anticipates that the Pulsar 125 will grow impressively in FY2024 as well.

Segment 150cc and up: With 22% of the domestic motorcycle market, this is the fastest-growing segment. The Pulsar, Avenger, Dominar, KTM, and Husqvarna brands are here to represent Bajaj Auto. This category had a 27% growth in FY2023. With a 21.4% market share, Bajaj Auto sold 41,002 units on average each month.

Probiking (KTM)

The Probiking business comprises two brands, which include KTM and Husqvarna. Although the KTM brand and its models are well known across India, the Husqvarna models are yet to gain recognition.

As a consequence of the shortage of semiconductors, sales in Q1 FY2023 were badly affected. But the crisis reduced in the second quarter, and sales picked up. Consequently, the volume of KTM sales for FY2023 grew by 4% over FY2022.

YearSales in India
FY201950,705
FY202064,058
FY202163,187
FY202250,948
FY202352,981

Source : Annual Report (FY2023)

Urbanite (Chetak EV)

This brand was re-introduced as a best-in-class electric scooter in FY2021. This segment was also affected in the first quarter of FY2023 due to the semiconductor shortage. So, despite good market demand, the company wasn’t able to produce the quantity needed.

Thereafter, supply-side constraints eased, and manufacturing of Chetak increased. The Chetak is currently sold through 105 dealers present across 84 cities.

YearNosGrowth
2020212
20211,395558%
20228,187487%
202336,260343%

Source : Annual Report (FY2023)

Three-Wheelers (Domestic)

FY2023FY2022FY2021
Industry sales411,093234,047208,091
BAL’s share300,009160,599109,304
BAL’s market share73.0%68.6%  52.5%

Source : Annual Report (FY2023)

Three-wheelers have been a growth story. Bajaj Auto’s domestic sales of three-wheelers also grew by 87% to 300,009 units in FY2023. The market share also increased consistently, from 52.5% in FY2021 to 73.0% in FY2023.

International Business

Due to geo-political uncertainties as well as economic challenges like hyperinflation and scarcity in the availability of US dollars for key importing nations, FY2023 turned out to be a difficult year for exports.

UnitsFY2023FY2022Change
Motorcycles1,636,9562,195,772-25.4%
Commercial Vehicles184,284310,854-40.7%
Total numbers  1,821,240 2,506,626 -27.3%
Exports in ₹ (crore)14,45816,934-14.6%
Export (% of sales)40.9%52.7%-28.8%

Source : Annual Report (FY2023)

As you can see from the above table, the export business plays a major role. Almost half of the revenue comes solely from exports.

Outlook

But, throughout the article, you might be wondering why the company acquired the stock at such a high price. This is such a bold move because premiums usually range between 25-30% over the prevailing price.

The company’s Chief Financial Officer, Dinesh Thapar, told CNBC-TV18 that this audacious move, which involves the purchase of roughly four million shares, is not just a financial decision but also a reflection of the company’s confidence in its strong performance and optimistic business outlook.

This viewpoint of Dinesh Thapar is based on Bajaj Auto’s ability to bounce back from setbacks in the two-wheeler industry and now witness a recovery in affordability and market demand.  

Bajaj Auto has benefited from its strategic focus on certain markets, such as the 125cc motorcycle segment, as evidenced by its growth in market share and rise to the top. Redesigned three-wheelers also present new opportunities for development and innovation.

On a consolidated basis, the revenue of the company increased by 10 percent, from ₹36,455 crore in FY22 to ₹33,145 crore in FY23. On the other hand, the net profit decreased by 1.7 percent, from ₹6,166 crore in FY22 to ₹6,060 crore in FY23. So, my fellow investors, where is your bet? Let us know in the comments below.

Written By Nalin Suriya

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