Bajaj Auto, the Pune-based two and three-wheeler maker has once again pipped diversified auto major Mahindra & Mahindra to become the country's second most valuable automaker. The shares of the Rajiv Bajaj-led auto company, which prides in its industry-beating 20 per cent operating margin, has been consistently above M&M’s since December 11 last year.
On Friday, Bajaj Auto had a market capitalisation of Rs 59,420 crore against M&M’s Rs 54,395 crore, as per the closing price on the Bombay Stock Exchange.
In terms of revenue, Bajaj Auto is still the smallest among India’s big five auto makers.
Analysts attribute Bajaj Auto’s smart performance in the stock markets to the company’s differentiated product and growth strategy. While most of its automotive peers are trying to throw their net as wide as possible, Bajaj is playing to his strengths and has remained focused on segments where it can dominate the market.
“The Company owes success to its differentiated product portfolio. It has a niche business in three wheelers which faces little competition and in motorcycles it follows a different brand positioning than competitors. Margins also get a boost from exports, which are now a sizeable part of its revenues,” says an auto analysts with a leading brokerage firm in Mumbai. Bajaj Auto has appreciated by nearly 30% in the last 12-months but he still has a buy rating on the stock.
The company's market share in the 150cc and above segment (but below 250cc), where it sells Pulsar, Avenger and KTM bikes, stands at 54%, as per December data released by the Society of Indian Automobile Manufacturers. In contrast, its volume share in the entire motorcycle market (excluding exports) is less than 30%. This helps the company to make for profits per unit of than competitors. According to industry estimates, Bajaj Pulsar range for instance has operating margin of 20% against 15-16% in the sub 125cc segment.
Bajaj’s singular focus on branding and product differentiation has also helped the company to maintain margins even in the face of stagnant volumes in the current financial years. In the first nine months of the current fiscal, Bajaj Auto reported operating margins of 22.6%, the highest among all auto majors in India.
The biggest cash cow for company is, however, its three-wheeler business where operating margins are reported to be around 25% with steady volume growth with insignificant marketing and product development cost. The segment comprising goods and passenger carriers faces much less competition than the two-wheeler business with Piaggio and Mahindra being the only competitors.
In addition, Bajaj Auto is the second largest automobile exporter from India in terms of value after Hyundai Motor India though it remains the largest automobile exporter in volume terms. Every third bike the company produces in India is exported to markets such as South East Asia, Africa and Latin America. During the first nine-months of the current fiscal, Bajaj Auto’s export revenues was Rs 5152 crore and it accounted for a third of its total revenues.