Bajaj Auto: Sales pressure continues, new launches hold key

Bajaj Auto sales continue to disappoint largely on account of its slow moving motorcycle portfolio especially the Discover brand. In addition, its sales performance in March was impacted due to a slowdown in its key export markets of Egypt and Nigeria. Africa constitutes about 46 per cent of the company's export volumes. While March volumes were down 18 per cent year-on-year, FY15 volumes were down 1.5 per cent.

Market share losses especially in the executive segment has been a major worry for the company. The launch of new Discover variants at price points close to each other has been responsible for the dramatic fall in market share in the executive segment from 14.5 per cent earlier to under 10 per cent now, believe analysts at IDFC Securities. The company's market share in the two wheeler segment is down to about 12 per cent from 19 per cent in FY12 due to volume decline for Discover, market share loss in the premium segment to players such as Royal Enfield as well as the absence from scooters, the fastest growing segment among two wheelers.

The new launches in the economy segment and upcoming launches in the sports/premium segment which will include a new Pulsar will help fortify its position in these segments. The Discover strategy going ahead, however, will be key

While analysts say market share and volumes for the company have likely bottomed out at current levels, there is some worry on the margin front. The recent launch of CT100 as well as a Platina (electric) variant while boosting overall volumes is expected to impinge on the margins front. Despite the 5-7 per cent price gap with Platina, the CT100 could also eat into some of the sales of the latter. 

IIFL analysts say the strategy (new launches in the economy segment such as CT100) seems to have been adopted to make good the market share loss in the executive segment. While the strategy may stem market share loss, it could be margin dilutive given that the economy segment makes much lower margins than the company average, they add. 

The other aspect is that weak currencies in some of its international markets is affecting volumes and analysts see margin risks as the company may be forced to cut dollar prices to make its products affordable in markets which have seen currency devaluation.

The company has, however, indicated it will be able to stick to the 20 per cent margin number despite the launches as well as the challenges it is facing on the international front where volumes have come down due to political and economic uncertainty.

While exports could get back to normal levels in the near-term, how the market reacts to its new launches will be critical for the company's domestic sales fortunes.

While most analysts have a Buy on the company, investors could seek a better entry point given the concerns.