The Bajaj Auto stock was under some selling pressure, losing about 2.7 per cent or Rs 40 a share today. All eyes are on the AGM, slated for Wednesday, as investors await the company’s outlook for the fiscal. What could be of concern to the market is the fact that much of the loss the stock has suffered has come in the past few months.

In fact, it touched its 52-week high of Rs 1,843.35 only on February 29. Since then, the stock has been witnessing sustained pressure and closed today at Rs 1,446 on the NSE.

In today's trade, it dipped to a low of Rs 1,431.70 before making a mild recovery and is just about Rs 75 higher than its 52-week low of Rs 1,356 that it reached on August 9 last year.

Like many players in the interest-sensitive sector, Bajaj Auto is also feeling the pinch of high interest rates. The competition is also gnawing at its market share. In June 2012, while Bajaj Auto’s motorcycle sales declined 1 per cent compared to the same month the previous year, the sales of commercial vehicles fell 39 per cent. Exports too fell sharply by 18 per cent during the same period. Bajaj Auto has said that “three-wheeler sales to Sri Lanka and Egypt were disrupted and will normalise from July”.

Sales under pressure

During April-June, the company’s motorcycle sales grew just 2 per cent compared to the same period in 2011 and the total sales and exports were marginally down.

Explaining the reasons for the Bajaj Auto stock showing greater vulnerability than its peers, Mr Yaresh Kothari, Research Analyst-Automobile, Angel Broking, Mumbai, said sales volumes were under pressure over the last few months, “because of the slowdown in demand in the domestic motorcycle segment and increasing competition, particularly from Honda Motorcycle and Scooters India Ltd”.

Moreover, after the increase in import duty on two-wheelers and three-wheelers in Sri Lanka, Bajaj Auto “has seen negligible sales to that country” since April 2012 (against normal average of nearly 20,000 units/month), causing export volume to slide. Production disruption in Nigeria, too, has hit exports.

Rupee impact

Mr Kothari did not expect any appreciation in the value of the rupee to impact the company’s performance "in a major way" as it has fully hedged its exports revenue for FY2013 in the range of Rs 50-52/dollar.

Mr Kothari, however, said: "Monsoon failure will definitely be negative for the entire two-wheeler pack and is likely to restrict volume growth in FY-2014 as well’.

On the factors that were specific to Bajaj Auto, he said the "higher share of exports in the volume-mix (nearly 30 per cent of total sales) which has seen headwinds in the form of higher import duty in Sri Lanka". Moreover, the product mix also could be a factor as Bajaj Auto has a significant presence in the 125cc plus segment.

Mr Kothari felt that the stock was trading at attractive valuations of 12x FY-2014E earnings. But he had a word of caution: "Any delay in ramp-up of exports to Sri Lanka and lower-than-expected sales of the newly launched vehicles (Pulsar 200NS and Discover 125ST) may pose a threat to company’s FY2013E volume estimates of close to 5 million units which may lead to further decline in stock prices".

On tomorrow’s AGM, he said: “The company guidance on volume growth and operating margin in FY2013E and delay in revival in exports coupled with outlook on the domestic motorcycle demand scenario would be the things to watch out for”.

The markets also would eagerly wait for the Q1 results of 2012-13 that the Bajaj Auto Board of Directors would consider tomorrow to know the course of performance this year.

(This article was published on July 17, 2012)
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