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Bajaj: December sales fail to deliver

Jan 3, 2001

Bajaj Auto Ltd (BAL), India's largest two wheeler company has reported dismal sales volumes for the month of December 2000. Overall volumes in December 2000 at 73,000 units fell by 45% YoY (year on year) and 32% MoM (month on month). The fall in December over November implies that things are only getting worse. For the period April -November 2000 the company's volumes fell by 2% YoY but as the decline was steeper for the month of December, its volumes for the period April-December 2000 have declined by 7% YoY.

Some of the major reasons for this decline is the fact that the scooter market continues to dwindle, and the economy too has slowed down. But one thing should be noted that as the company is gearing up for its new products launches in January 2001, hence dealers have been working on clearing the stocks already lying with them.

On the motorcycle front the company continues to do well. However on a month on month basis, for December its Japanese motorcycles have reported a decline of approximately 25% due to stiff competition from Hero Honda. Though on a YoY basis it continues to do well and has reported a growth of around 50%. BAL's market share in the motorcycle industry has gone up to 21.6% for the period April-October 2000, displacing TVS Suzuki from its second spot. BAL has been quick to take advantage of the shift in consumer preferences to motorcycles over scooters. It has stepped up its capacity in motorcycles and introduced new products aggressively.

BAL's segments, which have lost ground, are scooters and Indian motorcycles. The company is now gearing up for the launch of its low cost scooter model in the second week of January 2000. This will cater to the lower end of the market and the company is hoping for a revival in this segment of the scooter market.

We do not feel that this revival in the scooter segment will happen only by the launch of lower priced scooters as the consumer preferences for motorcycles over scooters is very clear. BAL's operating margins continue to be under pressure as its motorcycles have a lower margin as compared to the company's traditional scooters. Its sales mix is tilting towards a larger chunk of motorcycles as compared to scooters.

The company's share price too has been weak in the past one month on the expectations of lower volume numbers for December 2000 and the shares have come off by around 15% since beginning of December 2000. On the current price of Rs 226 it is trading, BAL is trading at 6.6x on its FY01E EPS of Rs 34.5.

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