Bajaj Auto Ltd has maintained the momentum in its sales even after the festive season. Total sales stood at 278,000 units, just 1% lower compared with sales in October. The company has been enjoying good demand for its newly launched Discover 100 and the refurbished Pulsar models. The Discover sold as many as 94,265 units last month and Pulsar sales remained above the 50,000 mark. At first glance, the marginal slowing of around 1% in sales numbers compared with October may seem a dampener when compared with Hero Honda Motors Ltd, the market leader in two-wheelers. Hero Honda’s November sales grew 7% to 380,000 units compared with October. But this is because Hero Honda’s sales volumes were low in October due to a strike at one of its suppliers. This got rectified last month, leading to an increase in sales.
Bajaj’s exports, which account for 35% of total volumes, also did well and were higher by 46% over the previous corresponding period. Bajaj Auto is due to launch its new 150 cc Pulsar soon and this is expected to add to volume growth from January.
The company, meanwhile, has the benefit of a low base in the previous year—it had been underperforming till last year. Not surprisingly, its sales are 73% higher compared with the year-ago period. Hero Honda’s sales grew by a more modest 32%. According to Umesh Karne, analyst with BRICS Securities Ltd, “Bajaj Auto should post faster earnings growth during the year since it was badly hit during the recession and is now riding on successful product launches.” In fact, the company’s robust sales volumes coupled with improvement in its operational efficiencies had led to a revision in analysts’ estimates following the September quarter results. The company’s net profit had jumped by 117% to Rs403 crore even though sales had risen by only 15%.
Operating profit margins expanded from around 13% to 22%, a historic high, and compares very well with Hero Honda, which has maintained margins around 14%. A relatively higher proportion of Bajaj Auto’s volumes are in higher-margin motorcycles that have a capacity of above 100cc. It also gets some of its revenue from the high-margin three-wheeler segment.
While the company’s shares have gained from earnings revisions this year, it now trades at around 14 times estimated earnings for 2010-11. Given that the market is in a highly valued zone and that the stock reflects market sentiment too, it quotes at a fair valuation.
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