Wiht strong buying in the tech stocks, the Sensex managed to record a 109-points gain on Thursday. Bajaj Auto however failed to show any gains, and featured in the top losers' list. The stock was down more than 6 per cent. The reason for this decline is not far to seek. The performance during the second quarter of this year has not been very impressive.For the second quarter (July-September 2000), the sales stood at Rs 986 crore-a growth of 7.5 per cent growth over Rs 917 crore in the corresponding period of the previous year.
While the sales growth was in single digit, the fall in profit margins was alarming. For the second quarter, OPM stood at 5.61 per cent-significantly lower compared to 15.05 per cent in the corresponding period of the previous year.
For the first six months, while sales grew by 11.4 per cent, the OPM has fallen from 14.93 per cent to 8 per cent. Rising cost and stiff competition have been affecting the profit margins. A rise in material cost is the main concern. For the first half, material cost risen 21.2 per cent.
While the first half's performance has been far from impressive, will the company able to stage a smart recovery in growth rates?
The company has been making attempts in this direction. To reduce its employee cost is one such step. The company has plans to reduce its work force by nearly 30 per cent in the next three to four years. Already, 2,000 employees have opted for VRS recently.
While the reduction in work force will reduce its wage bill, a lot would depend on the demand scenario.
While the performance has been encouraging for the motorcycle segment, the performance of the scooter division due to slowdown in demand, and stiff competition is not very impressive. For motorcycle too, rising competition remains the main concern.
As such, profit margins may continue to remain under pressure in the near future.
From market point of view, the sector will continue to get a lower discounting. And with a not-so-rosy picture in the medium term, any upside for discounting is unlikely at this stage.
The recent buy-back offer at Rs 400 also failed to have any medium term effect on the stock price. After the buy-back was over, the stock started its downtrend once again. The company had received 1.8 crore equity shares under the buy-back scheme.
The technical position too is not very promising. The stock has been on a downtrend spiral for quite some now, and is below its important supports. It has a minor base at Rs 250. On the upper side, immediate hurdle is at Rs 330 whereas strong resistance is at around Rs 380. Unless these two levels are crossed, the medium term position of the stock will remain negative.
Deepak Singh Tanwar
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.