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The Bajaj Auto scrip was down about three per cent, due to downgrades by brokerages on falling domestic sales over few months and loss of market share. Despite launches, drop in sales continued in December as the company reported a three per cent year-on-year volume decline, largely due to a 16 per cent fall in domestic sales.
The management has indicated retail demand continues to be a weak post the festive season. While Hero MotoCorp reported flat sales growth for December, TVS Motor saw a 19 per cent year-on-year increase in two-wheeler sales. Given launches and expectations of an improvement in demand, the management says the company will do a monthly volume run-rate of 350,000 units (both two and three-wheelers), against the December number of 289,000 units in 2015.
While the company continues to do well in the over- 125 cc segment, with a market share of about 42 per cent, its effort to improve share in the sub-125 cc segment would be difficult, given stiff competition from Honda and Hero. The company has been unable to make inroads in the larger executive/commuter segment partly due to confusion in the customer’s mind over the positioning of the multiple variants of Discover. The company is looking to plug product gaps in its portfolio and regain market share by launching new models and repositioning the Discover brand. At the higher end, it will aggressively market the Avenger to gain share from Royal Enfield bikes.
In addition to this segment, its market share loss in the overall two-wheelers market has been due to a lack of presence in the high growth scooter segment.
Exports continue to be the mainstay, though sales growth moderated to 10 per cent in December, against financial year-to-date sales growth of 22 per cent. Given the continuing decline in domestic sales, the share of exports now is 57.4 per cent of overall volumes.
Exports should see added momentum with the company looking to double motorcycle sales over the next four to five years by increasing market share in existing geographies and expanding into newer markets. Sales could, however, be affected given geopolitical and currency risks in key markets such as Nigeria, Sri Lanka, Bangladesh and Egypt.
For the December 2014 quarter, the company is expected to report a year-on-year fall in net profit. This is due to lower volumes (down a per cent) and poor operating leverage and likely decline in margins on the back of weaker product mix.
While falling fuel costs and weak commodity prices are positives, any rise in prices due to excise duty rollback can be detrimental to overall sales for two-wheeler companies, including Bajaj Auto. The company, as of now, has deferred its decision to increase prices. Given the muted domestic show, a majority of analysts, according to Bloomberg, have a hold or sell rating on the stock.
