Shankar Sharma has always been a fan of Bajaj Auto. He identified it in May 2010 when it was quoting at Rs. 1047 (adjusted for bonus) and called it a stock with “extremely cheap” valuations. He gave solid reasons in support of his buy call. He pointed out that it was one of the two major players in an ever-expanding market, it had huge ROE/EBIDTA, was generating huge amounts of free cash, had no borrowings and had management of impeccable reputation. Even when Bajaj Auto was quoting at Rs. 1300, Shankar called it a stock with “terrific value“. If you had acted on Shankar Sharma’s advice and bought Bajaj Auto (we did!!), today, at the CMP of Rs. 1695, you would have been staring at a cool 62% return on your investment.
Shankar Sharma hinted, a little diffidently, that Bajaj Auto could reclaim its position of Rs. 2,500. If that happens, investors are looking at a return of nearly 50%.
Incidentally, Bajaj Auto is also a part of Rakesh Jhunjhunwala Model Portfolio.
Another of Shankar Sharma’s favourite stocks is Tata Motors which has also given a solid return. Interestingly, Shankar was diffident about Maruti Suzuki on the ground that as it was already a market leader, outperformance would be difficult. In retrospect, Shankar was right, though for different reasons. Maruti’s labour problems have crippled it, at least in the short-term.