Bajaj Auto’s Low-Cost Motorcycle Push Leaves Investors Anxious

Shares of motorcycle makers have fallen amid investor worries that Bajaj Auto Ltd.’s push to gain a bigger slice of the low-cost market will increase competition and hurt industry margins.

Bajaj Auto’s stock has fallen 14 percent in the last five trading sessions and Hero MotoCorp., India’s largest motorcycle maker, fell 9 percent during the same period.

The maker of Bajaj CT 100 motorbike, in an analyst conference call, said it wants to take advantage of the expanding market in the low-cost 100-cc engine. The company, according to its conference call, wants to boost its share from 35 percent to 45-50 percent and is ready for aggressive pricing even if it means lower margins for next several quarters.

It’s a change in strategy from the Pune-based automaker that’s known to prefer protecting margins over volumes. That comes when demand from rural India is reviving after back-to-back normal monsoons. And automakers expect it to gain momentum on Prime Minister Narendra Modi’s promise to boost farm incomes and higher support prices.

Since Bajaj Auto is targeting to take away market share from Hero Moto’s Splendor range, the intensified competition would mean aggressive pricing and lower margins for both, according to analysts.

“We remain cautious on other mass-market two-wheeler companies—Hero Moto and TVS—as well,” Amyn Pirani, an auto analyst at Deutsche Bank, said in a note. “We anticipate margin pressures due to a combination of rising competitive intensity during a period of elevated commodity prices.”

Bajaj Auto’s three-wheeler sales growth has also slowed down. And it reported its weakest margins in four quarters in the three months to June.

“With Bajaj indicating intention to gain market share in domestic two-wheeler market, including in low-margin products and through aggressive pricing, margins will remain under pressure,” Arya Sen, an analyst at Jefferies, said in the latest report.