Bajaj Auto: Sales pressure continues, new launches hold key

New products may improve share in economy and sports segments

Bajaj Auto sales continue to disappoint due to its slow-moving motorcycle portfolio, especially the Discover brand. Sales performance in March was impacted by slowdown in Egypt and Nigeria, its key export markets. Africa constitutes 46 per cent of export volumes. While March volumes were down 18 per cent year-on-year, FY15 volumes fell 1.5 per cent.

Market share losses, especially in the executive segment, have been a major worry. The launch of new Discover variants at price points close to each other has been responsible for the dramatic fall in market share in the executive segment from 14.5 per cent to under 10 per cent, say analysts at IDFC Securities.

Bajaj Auto’s marketshare in the two-wheeler segment is down to 12 per cent from 19 per cent in FY12, due to volume decline for the Discover and marketshare loss in the premium segment to players such as Royal Enfield. Launches in the economy segment and upcoming launches in the sports/premium segment including a new Pulsar, will help fortify its position in these segments.

While analysts say market share and volumes for the company have likely bottomed out at current levels, there is some worry on margin. The recent launch of CT100 and a Platina (electric) variant, while boosting overall volumes might impinge on the margins front. IIFL analysts say the strategy (new launches in the economy segment such as CT100) is to make good the market share loss in the executive segment.

The company, however, says both Bajaj products address different needs and have been introduced at a time when they will possibly make the most impact due to economic stress and as customers are searching for more economical options. While the strategy might stem market share loss, it could be margin-dilutive, as the economy segment makes much lower margins than the company average, they add.

The other aspect is that weak currencies in some of its international markets are affecting volumes and analysts see margin risks as the firm might be forced to cut dollar prices to make products affordable in markets which have seen currency devaluation.

Bajaj Auto said it would stick to a 20 per cent margin despite the launches and the challenges it is facing on the international front where volumes have come down due to political and economic uncertainty.

While exports could get back to normal levels in the near term, how the market reacts to its new launches will be critical for domestic sales fortunes. While most analysts have a ‘Buy’ on the company, investors could seek a better entry point given the concerns.