The company will be evaluated considering a group of 5 peer companies according to the market classifications. Bajaj Auto shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.
- Bajaj Auto
- Hero Motocorp
- Scooters India
- TVS Motors
- Royal Enfield
About the Company:
Bajaj Auto is the flagship company of the Bajaj Group which is amongst the top 10 business houses in India. Bajaj Auto is presently ranked as the world’s 3rd largest three and two-wheeler manufacturer. In 2005, Rajiv Bajaj became the Managing Director of the company and steered the organization to become a global automobile behemoth. He also introduced the Pulsar range of bikes, that revolutionised the two-wheeler market in India.
The company operates in an asset-heavy industry where market dominance is achieved through scale, innovation, branding and distribution. The company has 3 large manufacturing facilities in India with a total capacity of 6.4+ million motorcycles per annum. The Waluj plant manufactures commercial vehicles like 3- wheelers, passenger carriers and good carriers and has a capacity of 9.3 lakh units a year. Bajaj is a market leader in its commercial vehicle segment with a market share of 58% in India. The company also has a dedicated R&D unit which focuses on efficiency improvements and new models. The new launches, CT 110, Platina 110 H and Pulsar 125 have been received well in the domestic market.
Read More Here: Bajaj Auto Fundamental Analysis and Future Outlook
Get the Excel Dashboard used for this analysis from below:
1. Market Capitalization (★ ★ ★ ★ ★)
Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Bajaj Auto has the highest market capitalization followed by Scooter’s India, Hero Motocorp, Eicher Motors and TVS Motor co. This shows the highest Enterprise Value amongst the peers. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
2. Price/Earnings Ratio (★ ★ ★ ★ ★)
The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Bajaj Auto shares have the lowest P/E and its way below the industry average, so its shares are undervalued on this parameter. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
3. Price/Book Value Ratio (★ ★ ★ ★ ★)
The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows undervalued and higher P/B shows overvalued. Bajaj Auto shares have the lowest P/B amongst the competitors. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
4.Dividend Yield (★ ★ ★ ★ ★)
The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out. Dividend yield above-average line is considered good and vice versa. Bajaj Auto has the highest dividend yield amongst its competitors. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
5.Price/Sales Ratio (★ ★ ★ ☆ ☆)
The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Bajaj Auto has the third-highest P/S ratio amongst the competitors which makes its shares undervalued on this parameter. Therefore this category gets 3 stars in Bajaj Auto shares relative valuation.
6.ROCE (★ ★ ★ ★ ★)
ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Bajaj Auto has the highest Positive ROCE amongst its competitors and it is also above the average line. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
7. Return on Assets (★ ★ ★ ★ ★)
The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Bajaj Auto has the highest ROA amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Bajaj Auto shares relative valuation.
8. Price/ FCF Ratio (★ ★ ★ ☆ ☆)
This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Bajaj Auto has the second-highest positive Price/FCF ratio amongst its peers and its way above the Industry average line. This shows that Bajaj Auto shares are slightly overvalued on this parameter. Therefore this category gets 3 stars in Bajaj Auto shares relative valuation.
9. Earnings Per Share (★ ★ ★ ★ ★)
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Bajaj Auto is in the 1st position with EPS also higher than the industry average. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
10.Return on Equity (★ ★ ★ ★ ★)
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Bajaj Auto has the highest ROE amongst the Peers and its also above the industry average. Therefore this category gets 5 stars in Bajaj Auto shares relative valuation.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.
Overall Relative Rating:
BAJAJ AUTO SHARES (4.6/5)
This means the stock is Highly Undervalued at the current price levels for FY 2021.
★ ★ ★ ★ ★
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|Relative Valuation Summary|
|Market Capitalization||★ ★ ★ ★ ★|
|Price/ Earnings Ratio||★ ★ ★ ★ ★|
|Price/ Book Value Ratio||★ ★ ★ ★ ★|
|Dividend Yield||★ ★ ★ ★ ★|
|Price to Sales||★ ★ ★ ☆ ☆|
|ROCE||★ ★ ★ ★ ★|
|ROA||★ ★ ★ ★ ★|
|Price/ Cashflow||★ ★ ★ ☆ ☆|
|Earnings Per Share||★ ★ ★ ★ ★|
|ROE||★ ★ ★ ★ ★|
|Overall Peer Rating||★ ★ ★ ★ ★|
(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)