Looking at Bajaj Auto shares?
- 1. The Winning Lead that May Not Be Enough
- 2. This Segment is #1 on Bajaj Auto’s Wishlist
- 3. Single Biggest Weight on Auto Stocks
- 4. The Unwanted War Bajaj Auto Will Fight
- 5. This Missing Balance Sheet Item is Good News
- 6. How Bajaj Auto Plans to Survive the War
- 7. The Key Trick Rajiv Bajaj Has to Repeat
- Bonus: Value Investing Principle that Fits the stock
Let’s dive right in.
1. The Winning Lead that May Not Be Enough
If you look at Bajaj Auto’s FY19 annual report, it says:
- In FY15, 46% of its sales were from exports,
- In FY16: 44%,
- In FY17: 37%,
- In FY18: 39%, and
- In FY19: 40%.
Now, if you think about it, there are 2 great things you’ll find about this situation:
- The exports markets (Africa, Middle East, South Asia and Latin America) are far less competitive than in India. So, that’s great.
- And, as a shareholder, the future prospects of your company (and the fate of its stock) is diversified and is not only tied to the Indian auto sector.
And yet, if you again think about it, there are 2 key concerns here:
- Can you be sure, Bajaj Auto’s free run won’t end in these export markets? Don’t you think competition will catch up, sooner or later?
- And more importantly, the question you must still ask is: “Is that enough?”
Because you see, the big prize in the two-wheeler market remains India. The world’s largest market.
It is here that you eventually want Bajaj Auto to finally win big.
And speaking of the big prize…
2. This Segment is #1 on Bajaj Auto’s Wishlist
Here’s something you’ll find interesting:
Who would have thought even five years ago that premium sports bikes costing over Rs 1.5 lakh a piece would … enjoy a growing market in India…Bajaj Auto, FY19 Annual Report, P15
These expensive bikes are becoming quite popular in India, aren’t they?
And Bajaj Auto is doing quite well here.
In fact, if you look at it, here’s how the company is doing in its various segments:
- Entry-level: 35% market share with CT100 and Platina
- Sports: 44% market share with Pulsar and Avenger
- Super-sports: 7% market share with KTM, Pulsar RS200 and Dominar 400
Really good right?
But there is one segment Bajaj Auto wants real bad.
Can you guess which segment that is?
That’s right – the biggest motorcycle segment in India – the commuter segment.
Yes, the one where fuel efficiency is most important.
And where, more importantly, Hero MotoCorp dominates.
It is this all-important segment that Bajaj Auto wants the most
Moving on the next point…
3. Single Biggest Weight on Auto Stocks
The auto sector in India is in funk right now.
I mean, it’s all over the news.
Sales declining. Workers being laid off. Production being cut.
The double whammy of the NBFC crisis and tough government regulations (higher insurance premium, BS 6) has made buyers taciturn.
And while exporting vehicles overseas is great, the big prize, especially with two-wheelers remains Asia.
If auto demand continues to remain anemic, auto companies. And auto stocks will face the heat.
4. The Unwanted War Bajaj Auto Will Fight
5. This Missing Balance Sheet Item is Good News
6. How Bajaj Auto Plans to Survive the War
7. The Key Trick Rajiv Bajaj Has to Repeat
Bonus: Value Investing Principle that Fits the stock
- You shouldn’t be trying to guess whether, you know, one drug company has a better drug pipeline than another.” – Charlie Munger, Berkshire AGM, 2007
- Exports: 5/10. Too difficult for the common value investor to predict if Bajaj Auto will continue to lead in the export markets, or if competition catch up.