India’s second-largest two-wheeler company, Bajaj Auto (NS:) Ltd will announce its second-quarter results on October 27 after market hours. The company will hold an earnings conference call for investors and analysts on October 28 at 10:00 AM. Currently, the stock trades at a 13.7% discount to its 52-week high of Rs 4,361.4. The scrip returned 30% in a year and 8.2% year-to-date. However, the stock has been showing weakness in the last six months. In fact, it plummeted 3.8% in a month and 4.6% in the last five days.

Q2FY2022 revenue and ahead

The Indian 2-wheeler market is highly competitive with 12 players. Major competitors of Bajaj Auto Ltd include Honda Motorcycles & Scooters India Pvt Ltd (or HMSI), Hero Motocorp (NS:) (or HMCL), and TVS Motor Company Ltd. (NS:). BAL has maintained its healthy market share through the development of niche products and a diversified product portfolio. Like many automobile companies, Bajaj Auto also provides monthly and cumulative sales stats for 2-wheelers and commercial vehicles. While it posted decent year-on-year growth in total sales for July and August 2021, the sales figure declined 8.9% for September 2021 over the same month in 2020. Although sales of commercial vehicles jumped 10% y-o-y in the month, they declined 10.8% y-o-y for 2-wheelers in September 2021.

Compared to FY2021, overall revenue is anticipated to grow in higher single digit in fiscal 2022. Bajaj Chetak e-scooter has been doing better in terms of percentage growth in year-on-year sales. However, it has been lagging behind its arch-rival TVS iQube in terms of total units sold per month. For consecutive two months ending September 2021, TVS iQube has been ahead of Chetak e-scooter in terms of the number of units sold. Investors should note that Bajaj Auto’s management expects a noteworthy volume of electric vehicles only after five years. It is due to the significant acquisition cost between internal combustion and electric vehicles. As a result, the management intends to focus on rendering service and increasing network to build its EV platform.  

Bajaj is ahead of the curve with model launches under the KTM, and Husqvarna brands in the premium segment. Although the interest rates scenario favors higher sales, sky-rocketing fuel prices may prove an obstacle for the high-margin premium segment’s sales growth going forward. BAL has also a decent market share with CT, Platina, and Pulsar brands in the economy and executive segment. The company’s share in the 125cc motorcycle market has increased from 2% in FY2019 to 19% in FY2021. In Q1FY2022, the same was 28%. BAL is the single-largest contender in the domestic three-wheeler segment, with around 50% market share in FY2021. A recovery in the 3-wheeler vertical, higher price realization, premiumization, diversified geographic profile with presence in 70-plus countries, and export momentum should drive the revenue growth in FY2022. On the export front, the company will have to cover the lost ground to Chinese competitors during pandemic times in the African continent.
Q2FY2022 operating margins and ahead

BAL will likely feel the heat on the operating margins front. The rising cost of inputs such as steel and aluminum will be a key hurdle for EBITDA/operating margin expansion. The company will be able to mitigate it through calibrated price hikes and cost-saving measures. However, it’s important to be seen how it is consumed by the market in terms of changes in market share. The company’s operating margin is expected to remain in the 15%-17% range for FY2022. Near zero debt levels and improvements in the collection cycle should act as a tailwind for EPS growth in the second quarter and ahead.  

Analysts’ price target
Centrum Broking’s Nilesh Jain has a target price of Rs 4,150 on Bajaj Auto stock. Sumeet Bagadia of Choice Broking has a short-term target price of Rs 3,900 on the scrip. Emkay Global has a ‘buy recommendation on the stock with a one-year target price of Rs 4,420.

In the September 2021 quarter, mutual funds have increased their holding in Bajaj Auto by 1.23%. However, the scrip doesn’t look favorable based on major technical indicators such as RSI, Momentum, MACD, and 20-day/50-day/100-day EMA.  

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