In stark contrast, stocks of companies like Hero Honda and TVS Suzuki have been doing fairly well on the bourses. Even LML, in spite of all its troubles has done well on the bourses in comparision to Bajaj Auto, at least in the last couple of months.

For Bajaj Auto, the company's financial performance continues to bother the stock market. The two-wheeler major has posted sales of nearly 2.97 lakh units in the first quarter, which marks an 11.82 per cent drop in volume sales over the corresponding quarter. In line with this, sales at Bajaj Auto have dropped 1.31 per cent to Rs 800.30 crore, compared to Rs 810.94 crore last year, thanks largely to higher realisations from its new product launches.

This aside, another area of worry for Bajaj Auto could well be the dwindling margins. In fact, operating margins for the first quarter ended June 1999 have dipped from 16.49 per cent to 14.79 per cent. Company sources attribute this to increased material costs and a fall in the sales of the high profit-earning three-wheelers. Furthermore, the new wage agreement signed by the company and increased advertising for new product launches have also played an integral role in eroding the two-wheeler major's margins.

However, the company now looks ready to claw back its lost market share with a host of new product launches. The company is likely to invest nearly Rs 850 crore in the next few years for new product launches and capacity expansions. Through this investment, Bajaj hopes to roll out 10 new models, with a special emphasis on the Indo-Japanese motorcycle segment within the next three years. More importantly, after having largely been dubbed a production company, Bajaj is now turning into a marketing company which anticipates the needs of customers and develops products accordingly. The Legend, a four-stroke scooter (the first ever in India), has helped Bajaj meet the year 2000 emission norms.

The company's strategy now seems intent on having a product to suit every need - the Classic SL, Chetak, and Super will cover the range in scooters. In motorcycles, Bajaj will be represented in almost every segment starting from the low-end M-80 to the stylish and high-powered sgement with the 110cc Mercury and the upmarket 175cc Eliminator. With the third plant planned at Chakan near Pune, Bajaj's production of two- and three-wheelers could well touch the prestigious two million vehicle mark, a corollary of which would be the enormous pricing cushion that the company would enjoy due to the truly world scale of operations and the resultant lower costs.

Thus, while the company's long-term prospects appear bright, the stock market is yet to give its verdict. The scrip is making attempts to make a bottom. The volumes continue to rise. The stock incidentally posted a nearly short-term double bottom. The stock has managed to show a double bottom at Rs 432. This is a positive indication as far as the short-term health of the stock is concerned. For long-term signals, the stock needs to cross the Rs 517 level. From a technical point of view, a move above this will improve the stock health. A higher bottom would also be a good sign for an entry with a medium-term prespective.

Deepak Singh Tanwar and Percy Dubash