Bajaj Auto’s strong cash position a big positive

The company reported Rs 16,240 crore of cash and cash equivalent which is a big positive in the pandemic situation, says Mitul Shah, Head Of Research, Institutional Equity, Reliance Securities.

How does Bajaj Auto compare with its peer Hero Motors?
Certainly the performance is very strong. The EBITDA margin of 17.7% is the highest in the last two-and-a-half years, though it is below 20%. But in this situation, where the contribution of the three-wheeler segment, which is a very high margin segment, was much lower compared to normal quarters and secondly, export contribution in volume terms was slightly lower year on year.

Despite that, the sequential as well as the year on year EBITDA margin improvement is definitely commendable. Certain product mix in the export market was better with higher Pulsar sales. The American sales of the Pulsar were quite high. Provisioning wise also, the premium segment is improving and the company has done a lot of cost control on advertisement as well as other expenses. So the margin is an indication of the performance.

However, going forward, there are near term challenges. Post festival, there is a question mark on sustaining the two-wheeler demand in the domestic market as well as the export market. So this will put some pressure on the margins going forward. We would like to watch for the management guidance on the margins and exports commentary for coming quarters.

On the positive side, compared to its peers, the cash and cash equivalent is very strong. The company reported Rs 16,240 crore of cash and cash equivalent which is a big positive in the pandemic situation when most of the people are facing cash crunches. This would support the dealership network and entire value chain system for the company.