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B. Krishnakumar

TAKING into account the change in product mix in favour of higher value products and a good track record with respect to new product launches, long-term investors could take equity exposure in the Bajaj Auto at the current price of Rs 820.

Bajaj Auto has successfully transformed itself from a scooter to a motorcycle company. Motorcycle sales now account for over 55 per cent of the turnover, while scooters chip in with a 21 per cent contribution.

After targeting the lower end entry-level segment, Bajaj made a successful foray into the higher end of the price spectrum in the last couple of years. Aided by the successful launch of the Boxer model and its variants, the company secured a strong presence in the lower end of the motorcycle market.

Though Boxer raked in volume growth for Bajaj, it did not have a major positive impact on the financial performance owing to relatively low profitability and growing competitive pressure. After Boxer's success, the company targeted the higher end of the market through the launch of the Pulsar model, which again turned out to be a huge success.The growing proportion of higher end models — Pulsar, in particular, in the total product mix is a positive feature. This would result in higher realisation and an improvement in profit margin. The sale of vehicles with engine capacity in excess of 125 cc almost doubled to 1.08 lakh units during April-August 2003. Besides, the more recent launches, including Caliber 115 and Wind 125, are also faring well. Taking into account these factors, the performance of the company is likely to improve further in the near term.

On the financial performance front, the company reported a turnover of Rs.1207.72 crore (Rs.1202.62 crore) while post-tax earnings increased by 32 per cent to Rs.161.06 crore. Much of the growth in the bottomline was on account of the increase in dividend income and profit on sale of investments.

In a recent development, there were reports that the company would hive off the investment activity into a separate company. But with the modalities of the proposal yet to become clear, the impact of such a move could be discerned only if the scheme of de-merger gets finalised.

The improvement in economic fundamentals and the normal monsoon this year are likely to spur demand for two-wheelers.

Taking into account the strong fundamentals, increase in motorcycle sales volume and huge cash reserve, long-term investors could contemplate equity exposure in the company.

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