BAJAJ AUTO LTD-OVERPRICED
Bajaj Auto Ltd, the 2nd largest manufacturer of two-wheelers in India,
reported less growth compared to its peers and its production
constrains, decreasing brand image, market acceptance.
Its not far that within 6 months Bajaj will downgrade to 4th position
from its 2nd position in two wheeler giving its way to Honda & TVS in
Indian market.
In Indian market, growth for the period of April to August 2011 as
compared to same period in 2010, Bajaj Auto sales has been 5% as
compared to Hero MotoCorp sales - 21%, Honda sales – 8%, Yamaha sales
- 36%, Suzuki sales - 42%, which clearly indicates the downgrade in
Bajaj Auto.
FIERCE COMPETITION:
Honda, who has newly emerged in the Indian market, is presently
producing 1.62 lacs units /month it is further increasing its capacity
to produce 2.5 lacs units /month, while its second plant in Alwar
(Rajasthan) has producing capacity of 6 lacs units /annum. The company
is now looking to double the production capacity in that plant to 12
lacs units /annum by March 2012. It is also planning to set up a new
third plant in Bangalore, which will help to reduce the delivery
waiting period from 6 to 8 months. The operations for the third plant
are reported to be commencing in the first half of 2013 with a
capacity of 12 lacs units /annum. Therefore by the end of the first
half of 2013, Honda's total production capacity will be 40 lacs units /
annum.
Hero MotoCorp, the market leader in this sector is continuously
posting double digit growth with robust sales each month. It is
currently producing 60 lacs units /annum and increasing its production
capacity to 72 lacs units /annum. In addition to this they are also
planning for 100% export oriented plant in Sanand, Gujarat
The TVS Motors is pushing well on moped front. It is also bullish on
export front and exploring new opportunities to expand its export
market. The company presently producing 25 lacs units /annum and
further increasing its production capacity to 35 lacs units /annum.
Mahindra, an established auto player has newly entered two and three
wheeler market. It is vigorously making a mark in this new segment
with its strong rural hold (it enjoys a good brand image because of
its tractors) and marketing strategies. They are coming up with
capacity of 70000 units per month soon.
Suzuki is all set to rage on the Indian market by increasing its
production capacity to 5.4 lacs units / annum from the current 2.5
lacs units / annum by the year 2012.
While Yamaha currently produces 6 lacs units /annum, it is looking to
raise this production capacity to 10 lacs units / annum by 2013 and
also aims to sell out up to 8,00,000 units in domestic markets
together with 2,00,000 exports.
Bajaj is not in any process of increasing its capacity. They are
facing constraints to sell off their current capacity to the fullest.
Bajaj is not introducing any of its new variant as well. And there is
no news of any other new plant as the competitors.
In three wheeler, Mahindra & Mahindra, Piaggio, TVS are capturing
market firmly. TVS is tripling its capacity to 8000 units / month for
three wheelers. Italian based Piaggio is increasing its capacity to
40000 units / month.
This fierce competition in two and three wheeler sector is affecting
Bajaj's survival in industry.
MARKET RESEARCH ON TWO WHEELER SECTOR IN INDIA:-
According to market research performed on consumers, the most
preferred brand of two-wheelers is Honda, followed by Hero MotoCorp,
Suzuki and then followed by Bajaj and TVS.
In Indian two wheeler market, Bajaj Auto's market share has been
decreasing from 35% in 2006 to 16.5% in August 2011. The increasing
expansion of competitors, fuel price hike, increase in prices of two
wheelers, unsatisfactory quality of product and negligible marketing
promotion strategy of Bajaj with decreasing market share signifies its
downfall in auto industry.
On the domestic front, Bajaj Auto sold 2 lakh units of two wheelers.
Consolidating the overall two wheelers sold in August 2011 by all the
players, we can sum upto 12 lakh units have been sold in India for
this month(Hero MotoCorp - 5,03,654, Bajaj – 199829, TVS- 1,63,705,
Honda- 1,60,666, Suzuki- 26,897,Yamaha- 39,490, Mahindra- 15,120,
Others like LML, Kinetic, Yo bikes- 90000) . This signifies the market
share of Bajaj to be 16.5% in domestic market. Bajaj's market share
has been decreasing tremendously over the years and picturing the
current scenario, it is further expected to fall to 15% in next 6
months and less than 10% in one year, due to Honda's Alwar plant.
We interacted with Bajaj Auto dealers and as they said, Bajaj is
increasing inventory with their dealers and distributors. Thus the
sales recorded by Bajaj in last 5 months are not consumer sale but the
inventory sale of dealers and distributors. Hero MotoCorp & Honda has
waiting period ranging from 4 - 8 months whereas Bajaj's bikes are
overstocked with the dealers. A dealer's sale ranges from 150- 500
units per month depending on the area, but the inventory stock is
300-1200. Acceptance of Bajaj in market has gone for a toss. Dealers
have reported dissatisfaction for Bajaj. They say Bajaj have been
compromising on quality to reduce cost in order to face competition as
they can't further increase their price. They have reduced their
marketing promotion to this level that dealers are not provided with
sufficient marketing accessories like brochures and pamphlets.
OPM PRESSURES TO INCREASE SEQUENTIALLY :-
Input costs have increased recently following the spurt in steel,
rubber and aluminum prices. Thus, Margins of Auto universe is expected
to contract sequentially to reflect higher input costs. This will
result in very high operating margin pressure.
The leader in this segment Hero Honda is a better performer with
increasing market share in last 1 year. Its share price rose by 15 %
whereas Bajaj 's share price rose by 300% in last one year i.e. Bajaj
Auto is only operated base not fundamental.
2 years back Bajaj was trading at 300 share price. On August, 2011 the
stock touched 1650 after 1:1 bonus i.e.3300 which is more than 1000%
increase in price. This is not fundamentally or technically justified.
Fundamentally, Bajaj is losing its ground by decreasing market share
and expecting it to fall further.
Thus studying the fundamental and technical aspect of Bajaj Auto, it
is trading at its highest level and we recommend a STRONG SELL on
Bajaj Auto at CMP 1600 with target it falling down to 1100 soon.
DISCLAIMER:- Smart Profit has taken due care and caution in
compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
from the use of such information. CEO, Directors and staff may have a
position in the recommended stock.
FOR FUTHER DETAILS CONTACT:-
DIPAK MANGELA
(Research Analyst)
+919820260291
Email: dipak.mangela@smartprofit.in
MANSINGH RAI
(Sr. Executive)
+919320907684
Email: mansingh.rai@smartprofit.in
SHAILESH GOWDA
(Sr. Executive)
+919967394114
Email: shailesh.gowda@smartprofit.in
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