Is lack of innovation hurting Bajaj Auto?

Bertrand D'souza of Overdrive feels Bajaj needs to revitalize its premium bike segment.

For Bajaj Auto, the decision they took all those years ago to just follow the motorcycle market hasn't been a very forward looking.

Bertrand D'souza

Editor

Overdrive

Two-wheeler maker Bajaj Auto disappointed the Street with first quarter net profit rising marginally to Rs 740 crore compared to Rs 737.7 crore in same quarter last year, dented by weak operational performance and higher depreciation charge.

The stock fell 3 percent intraday on Thursday, post the results. Is brand fatigue and lack of innovation causing Bajaj Auto to fall back significantly in this market share race?

Bertrand D'souza, Editor, Overdrive, says the fact that they are not present in the scooter market is definitely affecting their numbers.

"Over the last few years, we have been seeing that scooters have been gaining a lot of market share over motorcycles. So definitely, for Bajaj Auto, the decision they took all those years ago to just follow the motorcycle market hasn't been a very forward-looking step," he feels.

But yes, the profitability in the motorcycle business has definitely been higher, said D'souza.

He said for Bajaj Auto, Discover is a good brand and has done well, but hasn't been able to put up a fight against Hero Splendor. "Splendor has been ruling the segment. Neither Bajaj nor Honda has been able to displace Hero from there."

D'souza feels Bajaj needs to revitalize its premium bike segment. One of the most profitable brands in their portfolio has been Pulsar and the company must rework on that.

Foe Honda, he thinks with the sole aim of having the largest market share, the company will come up with an extensive product line. Honda, which emerged as the second biggest producer of two-wheelers in India, is set to launch the most affordable 110 cc bike in August.

The dark horse in the race to market share has been TVS . It has dethroned Bajaj Auto in the overall two-wheeler markets purely because of its presence in the scooter segment.

Bajaj Auto stock price

On July 23, 2014, at 11:05 hrs Bajaj Auto was quoting at Rs 2084.00, up Rs 10.60, or 0.51 percent. The 52-week high of the share was Rs 2363.90 and the 52-week low was Rs 1683.35.

The company's trailing 12-month (TTM) EPS was at Rs 112.16 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 18.58. The latest book value of the company is Rs 332.04 per share. At current value, the price-to-book value of the company is 6.28.