Bajaj Auto: The momentum is building

It’s been a great start for Bajaj Auto’s XCD 135cc with the motorcycle clocking volumes of more than 20,000 units each in the first two months of its launch. That has helped the Pune-headquartered firm to close 2009-10 on a better than expected note, with sales of close to 2 million bikes. With a few more launches on the cards, Bajaj Auto should be able to win back some of the share it has lost in last couple of years.

The strategy of playing the more profitable 125 cc plus segment is not a bad one because this space is expected to grow further –it currently accounts for about 30 per cent of the market. The question is how soon it will start paying off and whether volumes will sustain. Both Yamaha and Honda Motorcycles seem to be doing fairly well while Hero Honda too continues to grow, although some of its recent success is due to a large presence in the 100 cc segment.

Also Hero Honda hasn’t announced any new launches in the 125cc plus segment though that doesn’t mean there aren’t any in the pipeline.

Nevertheless, it won’t be all that easy for Bajaj Auto to make a comeback because banks still appear reluctant to fund purchases of two wheelers.

However, the company should see improved profitability this year because it will sell fewer of the small bikes and besides, raw material prices have eased. Since January, the stock has rallied 57 per cent but at Rs 642, it trades at around 10.5 times estimated 2009-10 earnings and near term upsides appear to have been factored in.