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Bajaj scooter shares soar; too early for joy ride?

Bajaj Auto's shares surged 9.4 per cent on Monday after India's largest scooter maker reported its scooter sales doubled in January from the previous month.

But analysts warned that it was too early to tell if the company's January sales marked the reversal of a trend, or merely a blip in a long-term decline in scooter sales.

Bajaj on Saturday reported it sold 32,622 scooters in

January, nearly twice the 16,761 sold in December. However, sales were still down 55 per cent compared to a year earlier, when Bajaj sold 73,040 scooters.

R L Ravichandran, vice-president of marketing and business development at Bajaj Auto, said that January sales were boosted by the success of a cheaper model of its Chetak scooters.

"We have introduced an economy version of the Chetak in January in the northern markets of Punjab, Delhi and Haryana, with an ex-showroom price of Rs 23,500," he said.

That compares with Rs 27,000 for a regular Chetak.

The company is targeting buyers looking for second-hand scooters by offering them a new scooter at an economical price, Ravichandran said. Bajaj Auto expects 15-20 per cent growth in its scooter sales from the economy version of the Chetak, which will be sold nationwide by March, he added.

However, analysts said sales comparisons to December could be misleading and it was not clear if there had been a change in sales trends.

"December is also usually a month for low sales as year-end registrations have lower resale value," said Ashish Jignani, analyst at Batliwala & Karani.

"We will have to wait for a few more months to see whether there is a real reversal."

Investors reacted to Bajaj's January sales numbers by sharply bidding up its stock price. Its shares rose as much as 9.4 per cent on Monday to a high of Rs 326.90, up Rs 28.10 from Friday's close.

The shares have risen steadily over the past month, gaining nearly 46 per cent since December 28.

Unsure lower pricing is strategy

Richard D'Souza, analyst with Sunidhi Consultancy, said Bajaj Auto was offering lots of discounts to stop sales from falling, but profit margins were narrowing as a result.

"The basic thing for Bajaj is that they should leave the numbers game and concentrate on profitability," D'Souza said.

Bajaj reported last month that profit in the October-December plunged 78.2 per cent from a year earlier to Rs 284.8 million, on net sales of Rs 8.99 billion, down 9.8 per cent.

"The question is whether the management has identified what the customer really wants. Is it only lower prices?" D'Souza asked rhetorically.

Ravichandran, the Bajaj Auto vice-president for marketing, said the company believed customers were looking for three things from scooters -- low price, fuel efficiency matching motorcycles and a trendy look.

Bajaj will launch a more fuel efficient, four-stroke version of the Chetak, and a trendy-looking scooter called the Fusion, by April, he said.

"We have been facing a severe problem with scooters and our first line of attack is to arrest the decline," he said.

Motorcycles grabbed more than 50 per cent of the Indian two-wheeler market last year, up from less than 10 per cent just a decade ago. Simultaneously, scooter sales have sunk, falling almost 37 per cent in the final nine months of last year from the same period a year earlier.

Bajaj has had good sales of its more expensive motorcycles, following the shift in consumer trend, but it is trying to salvage its scooter sales, which accounted for 35-40 per cent of revenue in the past year to March.

For the nine months to December, its motorcycle sales rose 89 per cent to 314,641, boosting Bajaj's share of the domestic motorcycles market to 21.4 per cent from 14.9 per cent during the same period a year ago.

Still, the big winner from the shift from scooters to motorcycles has been Hero Honda Motors, the country's largest motorcycle maker.

Hero Honda, 26 per cent owned by Japan's Honda Motors Co, last month reported its net profit surged 44 per cent in the October-December quarter to Rs 701 million, on sales of Rs 8.49 billion, up 44.2 per cent from a year earlier.

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