Bajaj Auto will ride on three-wheelers for its next profit-growth phase
The company's 3-wheeler sales in the CNG and EV categories are being driven by the switch to greener fuels.
In the July-September quarter, the three-wheeler segment's share of overall sales increased to 12.5% from the previous quarter's 6.1%.
Although currency inflation and a sluggish export recovery have caused analysts to be cautious about Bajaj Auto's prospects, the company's three-wheeler division has surprised them.
In the three months ending in September, sales of 132,000 units marked the business's best-ever second quarter for the three-wheeler industry. This resulted in a rise of 34% on a quarterly basis and 81% on an annual basis, gaining 80 percent of the market in September.
Encouraged by reduced advertising costs, more affordable batteries for electric three-wheelers, and a slow but steady growth in the 3W market, the Pune-based startup thinks this is only the beginning of something great.
Check out our market blog for all the latest updates.
What's causing the expansion?
According to Rakesh Sharma, executive director of Bajaj Auto, the nation has aggressively encouraged the use of CNG. According to him, three-wheelers driven by CNG have much superior economics than those fuelled by diesel.
"CNG-powered 3W economics are far more effectively for owners versus diesel therefore the migration from diesel to CNG has been helping Bajaj ramp up market share," the investment bank's analysts said.
Every automotive industry is getting over its losses from the epidemic. Three-wheeler drivers may now make more money thanks to the return of activity, which helps them fund the purchase of new cars. Ninety percent of the cars sold during the quarter were financed by Bajaj Auto.
According to corporate statistics, Bajaj Auto has a 90–93% market share for CNG three-wheelers. In the July-September quarter, the three-wheeler segment's share of overall sales increased to 12.5% from the previous quarter's 6.1%.
How are the electric vehicles doing?
The corporation claims that since e-autos were prohibited in many areas of the nation's east and north, an e-rickshaw semi-organized industry was born. Nonetheless, there is a significant need for both intra- and intercity travel in these regions' smaller communities.
Bajaj no longer needs permits to enter with e-autos. The conversion of e-ricks to e-autos is thus quite likely, if the firm can give value performance.
"So, the entire toward the north and east is our first target and there we haven't sold too many ICE (internal combustion engine) autos which means we should be able to get the e-autos rolling over there," the business said.
In less than a year, Bajaj Auto has already taken the lead in both Agra and Pune. The company's goal in the electric three-wheeler industry is to capture a market share of between fifty percent and seventy percent, which is comparable to what it did in the internal combustion engine sector. The business intends to focus on areas where driving is prohibited.
Bajaj Auto lags behind Mahindra & Mahindra, the market leader, in this segment.
Phase two of the company's calibrated growth program, which will see it reach 40 cities in the next six months, has already begun.
"In the near future, we do not anticipate that newly introduced e-autos will have any cannibalization effects on ICE three-wheelers. Moneycontrol was informed by Unnati Bhavekar Jadhav, an auto analyst at KR Choksey, that "E-Autos and 3W CNG may continue to grow in the long-term prospects and add meaningfully to revenue and earnings growth in the short-medium term."
Electric cars don't reduce margins.
In contrast to electric two-wheelers, e-autos have positive EBITDA margins. This is because it is comparatively less expensive overall than a two-wheeler.
By the end of the year, the EV plant that Bajaj is establishing in Waluj should be operational. But the plant won't significantly increase fixed expenses, according to management. The corporation is able to spend less on advertising because of its solid market position.
According to domestic stockbroker KRChoksey, Bajaj Auto should guarantee an 80 percent market share in the industry and a continuous growth in e-auto sales in the next quarters.
According to Pramod Amthe, Head of Corporate Equity Research at InCred Capital, "Recent managerial suggestions of marginal neutrality of EV vs ICE can help drive EV penetration in 3W with no negative impact on profitability".
According to Axis Securities, revenues will increase in tandem with the market and the CNG network's growth. Analysts noted that, due to its non-dilutive operation, the firm enters a new market sector that is ASP accretive.
"Three-wheelers should not only increase volumes but also ASPs and thereby add considerably to the general profitability of Bajaj Auto in the foreseeable future" , Jadhav said.
