M&M reclaims second spot from Bajaj Auto

Riding high on continued demand for its diesel-powered utility vehicles, Mumbai-based Mahindra and Mahindra Ltd (M&M) has dethroned Bajaj Auto Ltd to become the country's second most valuable auto maker.

M&M has beaten the slowdown during the first month this financial year, posting a growth of one per cent in sales against a drop of seven per cent by the rest of the industry.

Today, M&M extended its lead over Bajaj with a market capitalisation of Rs 59,243 crore against the latter's Rs 52,867 crore, based on the closing price on BSE. Tata Motors remains the leader with a market capitalisation of Rs 78,817 crore. M&M, the biggest manufacturer of utility vehicles in India, had lost the spot to Bajaj Auto in December last year on the back of an industry-beating 20 per cent operating margin posted consistently by the latter.

However, continued upswing in M&M's stock saw it go past Bajaj Auto's market capitalisation on April 29 on BSE. Meanwhile two-wheeler sales of Pune-based Bajaj Auto has been under strain since the past few months, with sales falling nearly 12 per cent in March and April. The Rajiv Bajaj-led company is the second largest manufacturer of two-wheelers in the country and the largest three-wheeler maker.

Analysts attribute M&M's strong stock performance, having risen more than eight per cent in the last four trading sessions, to healthy growth in tractor sales in April, coupled with continued uptick in sales of the Bolero.

On the other hand, increased competitive pressures from Honda Motorcycle and Scooter India and the total absence in the scooter segment has hurt Bajaj Auto, with a 'sell' recommendation on its stock from some brokerage houses. The Bajaj Auto stock has fallen 3.68 per cent in the last four trading sessions.

"The incumbent players in India's two-wheeler market currently face two key issues. First, domestic demand has decelerated significantly, with growth in FY13 slipping to only two per cent. Second, Honda's stated aggressive capacity expansion plans to 4 million units from 2.8 million imply limited growth for the incumbents," said Sahil Kedia, an analyst at Barclays.

"Given the increased competition, we forecast further market share loss for the incumbent players and believe the risk of increased price discounts or subvention schemes is high," Kedia added.

Bajaj Auto lost market share in March in the motorcycle segment to 23.27 per cent against 24.73 per cent in the corresponding month the previous year. Honda's share grew substantially to 14.2 per cent during the same month from 8.78 per cent a year ago.

However, analysts also point out that tractor sales during the current year will come under pressure with a lot depending on the monsoon. About a third of M&M's revenues come from the farm equipment sector. In addition, the finance ministry's reluctance to withdraw the sports utility vehicle (SUV) tax imposed during the Budget will take its toll on SUV demand during the year, impacting M&M.

Bajaj Auto has lined up a few launches in the coming months, including an economy segment bike based on the Discover 100 platform and new Pulsar models. Further, international plans for the two-wheeler company will include addition of new markets such as in Africa and Latin America.