Stock Review: Bajaj Auto

AFTER much resistance, Bajaj Auto has decided to play the volumes game. First quarter numbers show a distinct shift in Bajaj Auto's product mix, which has eaten into the company's operating margins. With the launch of Bajaj Discover 125 this April, analysts say the company is strengthening its presence in the very competitive executive segment, where margins are lower than the sporty one. No wonder, earnings before interest, taxes, depreciation and amortisation margin declined 150 basis points sequentially and 90 basis points yearon-year to 19.1 per cent.

While Bajaj expects sales of the high-end Pulsar to pick up after college starts, the share of the premium bikes would decline. The premium segment (125-250cc) accounted for 52.8 per cent in the fourth quarter of FY11 and is down to 51 per cent in the first quarter of FY12. With the launch of the Boxer, an entry-level bike for the rural markets, the company's share in the premium segment will come down further. This change in product mix has resulted in realisations declining 1.3 per cent in the first quarter, as margins are lower in the executive and entry segments.