Bajaj Auto, Honda Slip On Rural Concerns

Shares of Bajaj Auto and Hero Honda had a poor run today as market players accelerated the selling pressure on expectation of lower sales due to deficient monsoons.

Bajaj Auto was down 2.94 per cent to Rs 401.50 while Hero Honda was down 2.17 per cent to Rs 267.95. A total of about 1.20 lakh Bajaj Auto shares and about 2 lakh Hero Honda shares were exchanged on BSE and NSE combine.

In the 18 sessions between August 21 and September 17, Bajaj Auto shed 7.66 per cent and Hero Honda lost 7 per cent, respectively. Analysts said that the market is concerned over whether the two companies will maintain their growth track-record in the near future. The two companies are likely to be impacted by the fallout of the deficient monsoon and this will be pronouncedly felt in the third quarter (October-December 2002).

Rural demand has been driving sales volumes of the two-wheeler majors. The two-wheeler sector derives 60-65 per cent of its revenue growth from rural areas. But with the scanty rainfall this year, there are fears that rural incomes may decline, and it may have an adverse impact on demand for vehicles of the two largest makers of two-wheelers.

Analysts say, recent hike in petrol and diesel prices will add to the woes. Petrol and diesel prices were hiked for the second time in barely a month on September 15. Petrol prices have gone up by 47 paise per litre and that of diesel by 35 paise per litre.

Analysts say with cut-throat competition in the two-wheeler segment, resulting in automobile companies offering steep discounts, things look pretty bad for manufacturers. If these huge discounts are maintained, then margins are likely to take a beating.

Bajaj Auto is also being affected by fears that promoter sibling Shishir Bajaj may sell his holding in the company in the open market. If he does sell his stake, the stock may slip further from sudden oversupply.

Shishir Bajaj, the youngest of the five Bajaj brothers, earlier expressed his intention to exit from Bajaj Auto (and in place wanted full control over companies under his management). The Bajaj family and trust together hold 51 per cent of the voting rights in Bajaj Auto, while Shishir's family holds 6 per cent.

Meanwhile, there have been reports that Bajaj Auto may launch its sub 100cc motorcycle this month, catering to the 16 to 21 year-old segment, and a variant of the Saffire in October 2002 called the Saffire Zero-I.

Hero Honda, earlier this month, launched its new 133cc motorcycle named Ambition, which is said to be aggressively priced at Rs 45,551 per unit. The bike has a fuel efficiency of 79 km per litre of petrol under test conditions.

Analysts said the vehicle, which is being placed in the higher end segment to provide an alternative to Bajaj's Pulsar, may not be able to erode Pulsar's market share.

For August 2002, Bajaj Auto registered a 36.4 per cent rise in motorcycle sales to 65,475 units (48,015). Hero Honda's motorcycle sales jumped 26.6 per cent to 1,37,264 (1,08,369).

For the first quarter ended June 30, Bajaj Auto registered a 1 per cent rise in net profit to Rs 121.81 crore compared to Rs 120.77 crore in the corresponding period last year.

Sales increased 31 per cent to Rs 1,059.60 crore, from Rs 808.18 crore in JQ 2001. Hero Honda reported a sharp 77 per cent growth in net profit to Rs 139.16 crore on a top line growth of 34 per cent to Rs 1,274.37 crore.