Bajaj Auto: A Risky Ride, May Be

After demonetisation, the BS IV norms have been adversely impacting Indian automobile industry.

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The sales of the auto sector got affected due to demonetisation move by the government to curb the black money menace. The cash transactions from sale of two-wheelers also slowed down in H2FY17. We feel valuations of the auto sector would remain under pressure till some signs of demand normalisation are visible. Here we are analysing Bajaj Auto (BAL) to decode the implications of these factors for the company and the course of action investors should take for their equity holdings in the company.

ABOUT INDUSTRY

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country's gross domestic product (GDP). The two-wheeler segment with 81 per cent market share is the leader of the Indian automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall passenger vehicle (PV) segment has 13 per cent market share.

India is also a prominent auto exporter and has strong export growth expectations for the near future. Several initiatives by the Government of India and major automobile players in the Indian market are expected to make India a leader in the 2W and Four- Wheeler (4W) market in the world by 2020.

The sales of PVs, CVs and 2Ws grew 9.17 per cent, 3.03 per cent and 8.29 per cent, respectively, in H1FY17 in the period April-January 2017.

ABOUT BAJAJ AUTO