Bajaj Auto has made significant strides in the Indian two-wheeler market, especially after deciding to focus on motorcycles with more than 125cc power post-COVID. This strategic shift has proven to be beneficial, as the demand for bikes in this category has seen remarkable growth. With a 50% share in India’s total bike sales, the 125cc+ segment witnessed a 21% growth in FY2024. Bajaj Auto, being a key player in this segment, holds a market share of 26% in bikes above 125cc. But what does this mean for investors? Let’s explore.
Surge in Demand for High-Power Bikes
Bajaj Auto has successfully captured a significant chunk of the market in the 125cc+ segment, contributing to the company’s overall success. Bikes above 400cc have shown strong growth, with Bajaj Auto’s market share reaching 19%. A decade ago, the company’s share had dropped due to increased competition from rivals like TVS and Honda. However, Bajaj Auto has made a remarkable comeback with the introduction of several new models in the internal combustion engine (ICE) segment. This move has helped the company regain its position in the high-power bike category, securing a strong footing in the market once again.
Chetak Electric Scooter: A Rising Star
When it comes to electric vehicles, Bajaj Auto’s Chetak electric scooter is performing well. Initially, there were doubts about the scooter’s success, but Chetak has now secured the third spot in the electric two-wheeler market. The company is optimistic about further improving its position and aims for the second spot soon. Additionally, Bajaj Auto is seeing solid profits in the electric three-wheeler segment, further boosting the company’s overall growth.
Expected Growth in Two-Wheeler Sales
Bajaj Auto’s EBITDA margin rose by 120 basis points to 20% in the first quarter of FY24, indicating strong operational performance. Analysts are hopeful about the company’s profitability for FY25, with expectations of a 7-8% growth in two-wheeler sales. While some risks remain, such as rising competition and potential market shifts, the overall sentiment for two-wheeler demand in India remains positive. The increasing focus on electric vehicles and rural market growth will play a crucial role in sustaining this momentum.
Uncertainty Around Exports
Despite positive growth in the domestic market, Bajaj Auto is facing challenges in its export markets, particularly in Bangladesh and Nigeria, where the situation remains uncertain. However, the company is seeing some growth in Latin America. The export sector has always been a crucial part of Bajaj Auto’s business, but the current market conditions in key regions might affect the overall profit margins. Nonetheless, the company’s domestic performance is likely to offset some of the export challenges in the short term.
Factors That Could Boost Bajaj Auto’s Growth
One major factor that could support Bajaj Auto’s growth is the improving demand in rural areas. As rural economies recover and demand picks up, two-wheeler sales are expected to rise. Additionally, falling interest rates are likely to make auto loans cheaper, making it easier for consumers to purchase vehicles. These factors, along with the company’s strong operational performance, are expected to keep investors interested in Bajaj Auto’s stock.
Is It a Good Time to Invest?
Bajaj Auto is in a strong position with its growing market share in the high-power bike and electric two-wheeler segments. The company’s improved cash flow and operational efficiency are expected to result in higher returns for investors. Analysts suggest that Bajaj Auto’s stock is unlikely to drop significantly from current levels, making it a potential candidate for long-term investment. With solid fundamentals and a promising growth trajectory, Bajaj Auto seems to be a strong player in the auto sector.
In conclusion, while there are some uncertainties regarding exports, the company’s robust domestic performance and focus on high-power and electric vehicles make it a compelling choice for investors looking for long-term growth.
