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BAL & Piaggio - a fight for share in scooter market - Views on News from Equitymaster
 
 
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  • Mar 21, 2000

    BAL & Piaggio - a fight for share in scooter market

    Bajaj Auto (BAL) plans to take a 20% stake in the Italian based Piaggio's Indian subsidiary have fallen through as Piaggio does not need funding. BAL is believed to have offered a stake in order to be able to have a say in the Italian company's entry strategy into the Indian scooter market.

    Bajaj Auto is the world's third and India's largest two wheeler manufacturer. The company commands a 57% market share in scooters, 7% in mopeds and 22% in motorcycles. BAL reported a turnover of Rs 35.3 bn for FY99.

    This is a major disappointment for BAL as its share in the falling scooter market stands further threatened by the entry of Piaggio through a 100% subsidiary. Piaggio is aiming on aggressively reviving back interest into the scooter market in India. However it is not going to be easy for Piaggio to make an entry into the Indian scooter market as in the last few years there has been a shift from scooters to motorcycles.

    The share of motorcycles in India's two wheeler segment has been growing. As of FY99 this stands at 41% as compared to 33% in FY98. Strong rural demand (55%-60% of total motorcycles demand) has contributed to the spurt in demand in this segment. In the last two years the rising agricultural incomes has lead to an increase in demand for motorcycles. The slowdown in industrial production has lead to a fall in demand for scooters as these are mainly sold in urban areas. Scooters share fell to 39% of the two wheeler segment in FY99 as compared to 44% in FY98.

    Piaggio will have to offer superior and more fuel efficient products in the Indian scooter market to revive it. As Piaggio claims to have a more superior product, Bajaj Auto needs to get its act together.

    It is not yet clear whether Piaggio's efforts in the scooter segment will pay off. If demand for scooters continues to fall which is likely, BAL and Piaggio will fight over the falling pie of the scooter market.

    Piaggio's 100% subsidiary will drive all future investments into the ailing state owned Scooter India Ltd (SIL). Currently, Piaggio has a 30% market share in the two wheeler segment in Europe. BAL also wanted to get into the European scooter market via its interest in Piaggio, however Piaggio does not seem interested in having any tie-up with Bajaj Auto at this stage.

    Market View:
    BAL has been rated a "BUY" by many analysts due to the pick up in two wheeler demand. However some analysts and fund managers have not been very positive on the company as it is sitting on a huge pile of cash and investments without any clear plans about its usage.

     

     

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