Bajaj Auto shares skid with sales drop - rural growth in doubt

Bajaj Auto share dropped 9 percent after the company posted a disappointing set of sales numbers for December 2011. Though on a year-on-year basis, Bajaj reported sales growth of 10 percent. The fall has been sharp compared to November.

The company posted sales of 305,690 vehicles in December 2011 as compared to 374,477 in November 2011. This is indicative of a slowdown in rural growth - which has been a key growth driver for the industry.

The market has no doubt been shocked by such a huge fall within a month.

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However, Bajaj Auto and other two-wheeler players have been warning about a slowdown when they announced their November sales numbers.

TVS Motors, in their November release, had warned: "As a result of lower overall economic growth, high inflation, increased fuel prices and interest rates, we expect some moderation in the growth of two-wheelers over the next three to six months".

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Rajeev Bajaj had also complained that the effort required to push November sales to a 25 percent growth was very high.

The strong growth of 25 percent in November was much above the average recorded for the year. Against an average of 16.9 percent growth reported by the three large two-wheeler manufacturers - Hero Motocorp, Bajaj Auto and TVS - November sales were in the range of 25-27 percent.

The month was clearly an aberration. The high growth came due to inventory replenishment built up for the festive season. Poor festive season growth resulted in all companies pushing sales by way of sales promotion.

But the bigger picture that Bajaj Auto's numbers paint is that the rural market is now witnessing the effects of slowdown. Most of the growth in two-wheelers has been driven by strong demand from 'B' and 'C' cities. This, coupled with the high base effect, makes most of the two-wheeler stocks unattractive over the next one year.