Even as the Nifty is just a few per centtage points away from record highs, there are some Nifty stocks that have just fallen sharply owing to a host of factors. One such stock is the stock of Bajaj Auto, which has dropped 24% from 52-week highs. Let's tell you if you should buy the stock now.
How the stock of Bajaj Auto has moved?
|Current market price||52-week high||Fall from 52-wee high in %||52-week low price|
|Rs 3341||Rs 4361||24.0%||Rs 3027|
The stock has dropped consistently from its 52-week high and is now down 24% from those peak levels. In fact, it is just 10% away from its 52-week lows.
What has impacted the stock price of Bajaj Auto?
A fall in the stock price is not typical to Bajaj Auto. We are also seeing stocks like HeroMoto Corp, another 2-wheeler maker also falling. In fact, auto and auto ancillary stocks have come off a bit in the last few trading weeks. There are two major reasons for the fall in stock prices. The first of this is the margins being impacted by a sharp increase in inputs costs, due to price pressures. The second is that there has been no great increase in volumes as such. Apart from this curfews and lockdowns are not helping at all. It's going to be a while before it gets back to business as usual, so one may have to be content with tepid growth rates.
Quarterly results ending December 2021
For the quarter ending December 31, 2021, the numbers of Bajaj Auto were not great, which is reflecting in today's share price drop of 2%. Net profits dropped from Rs 1556 crores in the Dec 2020 quarter to Rs 1214 crores in the Dec 2021 quarter. The EPS for the period ending Dec 31, 2021 is Rs 42, while the EPS for the nine month period ending Dec 31, 2021 is Rs 122.8.
We believe as curfew restrictions are lifted and Covid and Omicron is behind us, we might see a much better performance in the coming quarters.
Valuation and reasons to buy the stock of Bajaj Auto
if you buy the stock at the current market price of Rs 3343 and hold you are likely to get a good dividend yield. The company last declared a dividend of Rs 140 per share, which means a dividend yield of 4.2%, assuming that Bajaj Auto will maintain the same dividend.
The company is cash rich with zero debt, so there maybe no difficulty in retaining the same dividends. We believe that the stock offers good value for money at the current levels. If we assume the company can get back to normal growth a Rs 200 EPS is possible. If you discount the same 20 times, which is the average p/e of Nifty companies, we should get a price of Rs 4000 for the stock of Bajaj Auto.
Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article. The author and his family do not hold any shares in Bajaj Auto.