Bajaj Auto: Riding on a single engine

Company hopes new launches will boost its domestic sales

Bajaj Auto is the only company in the listed large-cap automobile space to record a fall in volumes for September, quarter as well as year-to-date period. Weak exports have been impacting the sales for the company. Exports have accounted for 33-40 per cent of overall volumes of Bajaj Auto in recent times.

The slowdown in exports is unlikely to change in the near-term, which explains why the stock has underperformed its peers over the past month. This trend could continue.

For September, while the two-wheeler space recorded a growth of 20 per cent year-on-year, Bajaj Auto’s overall sales fell two per cent. This is despite domestic growth coming in at a strong 21 per cent led by higher volumes for V15 and Avenger models as well as positive sentiment due to the ongoing festive season.

However, analysts at Credit Suisse believe that retail growth is likely to be much lower due to channel filling ahead of the festive season and, hence, there could be a more moderate December quarter. Thus, a pick-up in demand in the festival season would be critical for the fortunes of the two-wheeler makers as muted demand would lead to high dealer inventory. While the jury is out on this, new launches over the next couple of months including a 400cc motorcycle which will compete with Royal Enfield, could help the company.

Over the next two years, given its focus on100cc segment coupled with new launches in the executive segment, Bajaj Auto could increase its market share from 18 per cent to 20 per cent in the domestic market, say analysts at Bank of America Merrill Lynch. Further, given the 35 per cent share of premium motorcycles, it stands to benefit as this segment is growing much faster than overall two-wheeler sales growth.

The worry, then, is primarily exports, falling 30 per cent year-on-year in September and down 25 per cent year-to-date. In Nigeria, one of Bajaj Auto’s key markets, volumes have come down from 40,000 to 15,000 units a month. Lack of dollar availability has been hurting exports to African countries. Share of year-to-date exports is 37 per cent of overall volumes and it stood at 32 per cent in September. The company is shifting part of its export capacity to domestic markets, given the higher demand in the segment.

Investors could await for clarity on the export outlook before taking fresh exposure to the stock.