When a stock hits a new high, the demand for the stock is very high. But when the stock is on a downward spiral, there are very few who would like to take a long positions. This is precisely what has been happening with Bajaj Auto scrip. The stock touched a six-months low on Wednesday. Do the fundamentals of the stock really deserve this beating?While the motorcycle business of the company managed to do well, the performance of its scooter division is not very impressive. Consider this: For the first six months (April-September 2000), the company has achieved a sales of 2.02 lakh vehicles (motorcycles)-growth of 104 per cent from 0.99 lakh vehicles in the corresponding period in the previous. At the same time, the scooter sales have fallen from 3.32 lakh units to 2.4 lakh units - registering a fall of 27.7 per cent. As such, a rise in sales of motorcycles has been offset by a substantial fall in scooter sales.
While the performance is decent if one were to consider the industry rates, due to the rise in competition and the increase in costs, profit margins have remained under pressure.
While this is one concern for the stock market, the factor which seems to have affected the stock most in last few years is the fact that the fancy for automobiles especially for the two wheeler segment has declined drastically. The stock was available for Rs 700 in September 1998.
It is the falling market fancy of the recent times which has affected the stock price so badly that even a buy-back announcement few months back failed to provide a major relief.
The stock did improve from Rs 300 to Rs 390 when the buy-back at Rs 400 was announcement. But this was short lived, and the stock has started its downward journey once again. Below Rs 256, it will touch a seven-year low.
As far as future is concerned, while the motorcycle segment is continue to show impressive growth, a downtrend in demand for scooters plus rising competition will have its impact. While the company is ready with new launches, it would not be an easy thing to improve its market share. Profit margins will continue to remain under pressure.
And for this reason, the market continue to give a low discounting to the stock. Technically speaking, the position of stock is far from impressive. The stock has a major hurdle at Rs 400 and unless this level is crossed, the medium term outlook for the stock will not improve.
As on the downside, the stock is below all short-term supports, and the next base is at around Rs 250. The position will further weaken below this level.
Deepak Singh Tanwar
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.