This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]
Last quarter of FY 2015 was a nightmarish quarter for Bajaj Auto. It faced all kind of problems related to its product sales in India as well as exports outside India to countries like Nigeria, Egypt and Sri Lanka. The Company witnessed a double-digit decline in motorcycle sales in all three months of Q4, 12.24% decline in January, 20.94% in February and 22.41% in March.
While domestic motorcycle sales were down due to rural slowdown and in anticipation of new launches, commercial vehicle sales were down due to a subdued economic growth. Exports were badly hit due to an extremely violent situation in Nigeria due to elections, an order cancellation by the new Sri Lankan government and inadequate availability of dollars with Egypt & Nigeria due to a sharp fall in oil prices.
Subsequent to this extremely poor quarter, several brokerages downgraded the stock to ‘Sell’ or ‘Reduce’ or ‘Hold’ at the best. Research analysts were expecting another bad month for its sales in April and its stock price hit a 52-week low of Rs. 1912.50 on the NSE on April 30.
But, when everyone was questioning its product & sales strategy, Bajaj Auto management worked harder to improve the sales volume by reintroducing its phased out model CT100 and repackaging its popular brand Platina. This strategy worked wonderfully well for Bajaj Auto as the company started posting decent sales numbers March onwards. Since then its stock price recovered to move beyond Rs. 2600 before it became ex-dividend on July 9, a gain of around 35% in less than 50 trading days.
I think such returns are great from a large cap company like Bajaj Auto and if all goes well, there is a room for further upside in its stock price from hereon. Here I try to list some reasons which have helped and should continue to do so in moving its stock price up this month.
- Higher June Sales Numbers – After a negative growth for eight months in a row, the company registered a growth of 9.68% in its motorcycle sales in June. Though it was still below some analysts’ expectations, the numbers looked decent given a series of poor sales numbers by the company in the first three month of the current calendar year.
- Higher Expected July Sales Numbers – The Company expects its sales momentum to continue in July as well with exports & domestic sales number to be higher than June.
- Dividend of Rs. 50 – Though I personally never buy a stock to get its dividend, I have observed many investors do so, not only individual investors, but even institutional investors. The Company announced a dividend of Rs. 50 in May and its stock price went ex-dividend on 9th of July. The dividend will get credited into shareholders’ accounts on July 27th or 28th after the company’s AGM on July 23rd.
- Supreme Court Verdict on Quadricycle RE 60 – Legal tussles take very long to get resolved here in India. Such a matter involving Bajaj’s unique product, Quadricycle – RE 60, is pending with the Supreme Court and is now posted again for hearing before the court today i.e. July 15. Bajaj has high expectations that the court will clear its hurdles today and the product would soon hit the Indian roads giving the commuters a long overdue alternate to auto rickshaws. A favourable verdict would provide a very big boost to Bajaj Auto’s stock price in the short term and its financials in the long term.
- Rupee Fall & Highest Ever Quarterly Profit on July 23 – On the back of a recovery in its exports & domestic sales in the April-June quarter, Bajaj Auto is expected to announce its highest ever quarterly profit in excess of Rs. 1,000 crore on July 23. To give further strength to its already strong sales, US dollar appreciated considerably against the Rupee in the last quarter. Bajaj expects a higher realisation and forex gain due to such a weakness in INR.
- Bonus Expectations – Bajaj Auto last announced a bonus of 1:1 on July 22, 2010. With a strong quarterly show and brighter times ahead, some analysts are speculating that the Bajaj management might announce a surprise bonus issue on July 23rd as well, after a gap of 5 years. This move will provide more liquidity to the stock and the investors would definitely consider it to be a strong signal about management’s confidence in the company’s future profitability & growth.
- Repackaged Discover 150 – One factor, which has been hurting Bajaj’s motorcycles sales badly for quite a long period now, is the poor show by its Discover brand. The management of the company was very confident about its revival when they launched Discover 150 last year. But, it again failed to impress a large number of prospective buyers.
The management of Bajaj Auto recently announced that they have already taken some corrective measures regarding the product and they will soon launch a repackaged Discover 150, which they hope to do well this time around.
- Initiating Pulsar Exports – In the past 6-8 months, Bajaj has launched many variants of its most popular & profitable brand Pulsar. All its variants are getting a very good response from the customers and there is a waiting period of 1-2 months for a couple of its variants. Bajaj would also initiate the exports of its Pulsar variants this month, which could again boost its monthly exports and hence its realisations & profitability.
Though stock prices move well ahead in anticipation of an event and probably Bajaj Auto’s stock price has also moved up well in advance in anticipation of a good quarter, I think the company is standing on a very strong footing now and the factors mentioned above should further aid its stock price touch all time highs in the coming weeks and months.
Thanks Shiv. I have always liked Bajaj as a company and would want them to do well. The cheap car they have come out with could really be a good alternative to 2-wheelers.
Hi Harinee,
Though it would look like a car, Quadricycle RE 60 is not exactly a car. It would carry a smaller engine like a bike has and could be a replacement to auto rickshaws and not 2-wheelers. Lets see how Supreme Court takes the matter and how Bajaj is able to work on that. Bajaj Auto has a good management at work which carries a dynamic vision for the company’s future growth.