The Hindu Business Line : Bajaj Auto: Hold

TAKING into account the recent run-up in share prices, fresh exposure can be avoided in the stock of Bajaj Auto (Rs 2,001). Shareholders can, however, remain invested, as the long-term prospects appear positive.

The presence in the insurance business along with plans to enter other Asian two-wheeler markets are major positives from a long-term perspective.

Bajaj Auto has turned out to be among the top performers from the two-wheeler industry. Helped by robust demand for the CT 100 and Pulsar models, the company has managed to record a steady growth in earnings in recent quarters.

The growth in earnings has, however, been stymied by the change in the product mix in favour of the lower-end CT 100 model. The premium-end model, Pulsar, was a major contributor to volume growth in the last fiscal. The recent Discover and Avenger launches have also performed reasonably well.

The recovery in the more profitable three-wheeler segment is a positive development. Helped by the growing demand for LPG- and CNG-powered models, the sales volume of three-wheelers improved in recent months. In November, the company sold 17,157 three-wheelers, representing a growth of about 9 per cent over the corresponding previous period.

Plans to hive-off the treasury operations business could also unlock value for Bajaj Auto shareholders. The growing contribution from its insurance business (both general and life) is another positive.

The company is scheduled to set-up operations in the ASEAN region that could turn out to be another growth trigger from a long-term perspective. The cooling off of steel prices this fiscal would have a positive impact on profitability. The latest launch of a 112 cc variant of the Discover model should help the company establish a presence in the executive bike segment.

On the flip side, the growing competitive pressure from peers such as Hero Honda and TVS Motor is a cause of concern. Hero Honda has launched Achiever in the premium price segment. More recently, TVS Motor launched its model, Apache, which is also positioned in the same category.

The success of these models can be a threat to the dominance of Bajaj's Pulsar in the premium motorcycle market. The proposed entry of Suzuki into the domestic motorcycle market will add to the competitive pressure.

In the entry-level segment too, Bajaj has to contend with competition from TVS Motor's Star DLX and Hero Honda's CD Deluxe.

Fresh exposure can be considered in Bajaj Auto on the evidence of pick-up in motorcycle sales volume.

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