• JULY 10, 2000

Bajaj Auto sales mix changing

The two wheeler market continues to see a decline in demand for scooters, while the motorcycle segment continues to be buoyant. As a result Bajaj Auto Ltd (BAL) has seen an erosion in its scooter volumes since the past couple of years. Even in the current financial year this trend continues and for the period April-June'2000 its scooter volumes have declined by 15% YoY to 143,300 units.

BAL has decided to take advantage of this boom in the motorcycle segment and is stepping up its capacity to 0.84 m units by July 2001. BAL has seen a huge demand for its motorcycles and for the period from April-June'2000, its Japanese motorcycle demand grew by 87% YoY to 85,274 units. The demand has been buoyant in the scooterette segment too, BAL sold 19,562 for April-June'2000, a growth of 78% YoY.

  April-June'2000 April-June'99 % change
Scooters 143,300 169,134 -15.3%
Sunny/Spirit 19,562 11,004 77.8%
Step Thrus 37,779 34,295 10.2%
Japanese Motorcycles 85,274 45,646 86.8%
Three-wheelers 39,439 37,158 6.1%
Total 325,354 297,237 9.5%

However the margins in the motorcycle and scooterette segment are lower than traditional scooters segment, which is BAL's forte. In future a large chunk of the sales mix will be contributed by these two segments, hence this would put pressure on the company's margins. Also as the company will be coming out with new motorcycle models, its marketing costs would go up.

On the positive side the company is stepping up its production capacity for motorcycles to take advantage of the increasing demand. However there are certain negativity's surrounding the company. The company has decided to use a portion of its surplus funds for buy back of shares. Inspite of this it is still sitting on a huge surplus of funds.

It could put this to use by increasing dividend payouts, invest or acquire companies where it earns a return higher than its cost of capital. However the company has plans of entering the insurance business which is entirely unrelated to its current business. Its spends on research and development are a low 1.1% of net sales as of March'2000. The company needs to step up its focus on research and development activities.

On the current price of Rs 358, BAL is trading at 7.0 x on its FY2000 EPS of Rs 51.4.

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