An employee refuels an auto rickshaw with compressed natural gas (CNG) at a gas station. (Photographer: Prashanth Vishwanathan/Bloomberg)

Bajaj Auto Gains After Plan To Expand Three-Wheeler Capacity

Shares of Bajaj Auto Ltd. gained the most in more than two months after the company said it will expand its three-wheeler and quadricycle capacity to one million units per year as the government plans to end mandatory permits for these vehicles.

“Our capacity was already very stretched. This was the proverbial last straw trigger for us to undertake capacity expansion,” Rakesh Sharma, president of the company, told BloombergQuint in an interview. Brokerage Axis Capital expects the vehicle maker to expand its three-wheeler capacity by 25 percent, while Centrum Broking expects a 19 percent expansion.

Nitin Gadkari, minister of Road Transport and Highways of India, announced a ‘no-permit’ regime for CNG three-wheelers at the 58th SIAM Annual Convention yesterday.

More than 50 percent of Bajaj Auto’s revenue from three wheelers comes from CNG autos. The company also holds 86 percent of the market share for the clean-fuel three wheelers, the Axis Capital report said.

To be sure, the call for cleaner vehicles is a “firm”suggestion made by the centre to the states, Sharma pointed out. “Mr. Gadkari and the transport ministry had constituted a committee about 18 months ago which comprised of several state transport minister who had recommended this announcement Gadkari has made at the convention yesterday. So it is an advisory for the states,” he said.

That said, there is no reason for the states to not welcome this “positive” step and is only a matter of time before the states adopt the policy, Sharma added.

Bajaj Auto expects to benefit from this, given that a similar announcement in Maharashtra 12 months ago led to a six-times jump in volumes for the company. The CNG three-wheeler are a “higher margin product” which should boost the segment’s growth further than the 50 percent already seen so far this financial year, he said.

The stock of the Pune-based company rose 3.3 percent to Rs 2,874 apiece in early trade.