Bajaj Auto shrs down 1%; strike continues at Chakan plant
Anand Rathi downgraded the stock to "sell" and said short-term turbulence could ravage valuations.
July 03, 2013 / 15:26 IST
Moneycontrol Bureau
Bajaj Auto's shares declined more than 1 percent on Wednesday morning as investors remained concerned as the strike at its Chakan plant shows no signs of ending and the company is losing market share amid a sluggish demand for two-wheelers.The company had said on Tuesday that it lost 20,000 units of production in June due to the strike, and its total motorcycle sales declined 20 percent last month, partly due to the loss of production and more so as domestic demand remains sluggish across most of the two-wheeler sector.A report in Business Standard newspaper on Wednesday indicates that the company is planning to shift the production of its Pulsar range of motorcycles to its Aurangabad plant in order to break the strike.The production of 70,000 Pulsars per month will now be at Aurangabad, while 10,000 units - of the Avenger, KTM and the Kawasaki - will continue to be made at the troubled Chakan factory near Pune. The decision could be implemented by the end of the month, the paper reported quoting sources.Rajiv Bajaj, the company's MD had told CNBC-TV18 on Tuesday that more and more people had started reporting to work at Chakan and its production was close to 50 percent of normal on Monday. However, still less than half of the total workforce has reported to work and only about 1,000 motorcycles were actually produced at Chakan on Monday, and an additional 400 odd from Chakan were made at its Aurangabad plant. The company normally produces 3,000 motorcycles at Chakan every day.Workers at the Chakan plant have gone on a strike seeking hike in wages and workmen are also demanding 500 equity shares at a cut price of Re 1 each.The strike alone has hurt Bajaj Auto's market share close to 3 percent.Brokerage Anand Rathi on Wednesday downgraded the stock to "sell," saying short-term "turbulence" could "ravage" valuations."The demand outlook for FY14 is dim, both for domestic as well as exports. The key positive for the company is better export realisations, and the low base of the healthy-profitability three-wheeler division...However, demand weakness and keener competition would result in market-share loss (in motorcycles) and cost pressures, ultimately weighing on profitability," said analyst Rohan Korde, who has a target price of Rs 1,721 on the stock.Korde has lowered estimates on Bajaj Auto to factor in the weak two-wheeler demand and lower EBITDA margin, and expects lower sales volume will result in a PE de-rating in the short-term.At 10:45hrs, Bajaj Auto was down 1.6 percent at Rs 1,882.40 on NSE.Also Read: RBI issues draft guidelines to hike provns on unhedged cos Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
