Bajaj Auto has gone from $7 billion to $13 billion in market value — and is now hoping for export sops

Bajaj Auto has gone from $7 billion to $13 billion in market value — and is now hoping for export sops
BCCL
  • Bajaj Auto market cap crossed ₹1 trillion mark ($13 billion) when the Indian exchanges opened on December 29.
  • This makes it India’s second most valuable auto company after Maruti Suzuki.
  • The government announced a ₹2 lakh crore production-linked manufacturing scheme in November, of which the auto sector is poised to receive incentives worth ₹57,000 crore over five years. Brokerages believe Bajaj Auto could be a potential beneficiary.
  • So far in this fiscal year, the Bajaj Auto stock has gained over 70% of its value. And analysts believe that there is more room for a rally ahead.
  • Check out the latest news and updates on Business Insider.
Bajaj Auto crossed a new milestone as its market capitalisation crossed ₹1 trillion mark ($13 billion) when the Indian exchanges opened on December 29, strengthening its place in the elite club as India’s second most valuable auto company after Maruti Suzuki.

However, the euphoria was short-lived. By afternoon trade, the stock dipped nearly 0.42% to ₹3,442 from an all-time high of ₹3,459. This has brought its valuation back down to ₹996.02 billion.

Bajaj Auto has gone from $7 billion to $13 billion in market value — and is now hoping for export sops

While Mahindra & Mahindra Ltd, and Tata Motors have also achieved the milestone earlier — they are still some way behind Bajaj Auto for now.
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CompanyMarket Cap
Maruti Suzuki₹2.25 trillion
Bajaj Auto₹993 billion
Tata Motors₹607 billion
M&M₹841 billion
*Market cap value as of 1:30 pm on December 29

So far in this fiscal year, the Bajaj Auto stock has gained over 70% in value, and analysts believe that there is more room for rally ahead. A significant spike in its rally came in the past one week led by various developments, including its recent pact with the Maharashtra government to set up a ₹650 crore manufacturing unit in Chakan. The automaker also filed for a trademark for the Excelsior-Henderson name in Europe, hinting at a possible entry in the retro-motorcycle segment.

In November this year, the government announced a ₹2 lakh crore production-linked manufacturing scheme to encourage various industries to boost local manufacturing and boost exports. The auto sector is poised to receive subsidies worth ₹57,000 crore; and Bajaj Auto could be a likely beneficiary of this scheme.

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This has been a tough year for the automotive sector as well with the pandemic-led lockdown. However, domestic volumes have been on steady mend in the months' post lifting of the restrictions and sales have seen some uptick as well.

Here’s why analysts believe Bajaj Auto is still an attractive bet

A potential beneficiary of Production-Linked Incentive (PLI) scheme

Bajaj Auto can be a potential beneficiary of the recently announced PLI scheme for the auto sector given its positioning as India’s leading exporter. The PLI scheme includes incentives of ₹57,000 crore over five years and focuses on making Indian companies globally competitive by driving exports.

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In FY20, nearly 40% of Bajaj revenues came from auto exports, and the company accounts for 4% of the total exports in the Indian auto industry, according to the Nomura report dated December 28. It also pointed out that the eligibility criteria are likely to be such that companies with high export revenue could be the key beneficiaries. Bajaj Auto and peers like TVS Motor, Ashok Leyland, and others are likely to meet the eligibility requirements. It is pertinent to note that Nomura has assumed the benefits under the Merchandise Exports from India Scheme (MEIS) to continue until FY22.

Bajaj Auto has gone from $7 billion to $13 billion in market value — and is now hoping for export sops

Morgan Stanley too expects Bajaj Auto’s FY22 EBITDA to increase by 5-7%, given the push from PLI scheme.

However, we still await for more details from the government on the eligibility criteria to understand who makes the cut and the quantum of incentives that the auto players will receive.
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Strong recovery in international markets and rupee depreciation benefits

Bajaj Auto is witnessing a faster recovery in key international markets of Africa, Latin America and others. Being the largest exporter in the three-wheeler category, the company is deemed to grow, according to ICICI Securities report dated December 16. Bajaj Auto has also been a beneficiary of rupee depreciation, with reported operating margins at industry-leading levels.

“With urban economic activity gaining traction, recent demand challenges faced by the higher-margin 3-W segment on account of apprehensions over social distancing are likely to fade away leading to a sharp rebound in 3-W sales volume, going forward,” the report said.
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Investors ready to pay more for its shares

According to ICICI Securities, Bajaj P/E stood at 18.6 as of FY20 and is expected to grow to 22.9 by FY 21. Price-to-earnings (P/E) ratio is a metric used to value businesses, and it shows how much an investor is willing to pay for a share in future profit. It rises when the profits are more certain and are likely to be high.

Higher the P/E ratio, more valuable the company is. It is usually very high, sometimes as high as 70, for auto giants like Maruti or M&M.

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Here’s what the top brokerages recommend

BrokerageRecommendationTarget Price
Motilal OswalBuy₹3500
ICICI SecuritiesBuy₹3920
Axis SecuritiesBuy₹3500
NomuraNeutral₹3437

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