Extended lockdown for eight-weeks in Bajaj Auto

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Bajaj Auto was founded by Jamnalal Bajaj in a small village of Rajasthan, India in the 1940’s. Baja Auto is the world’s third largest manufacturer of motorcycles and second largest in India while, it is the world’s largest manufacturer of three-wheeler vehicles. With the launch of motorcycles during 1986, the company emerged as a two-wheeler manufacturer as the sale of its products had a rising demand in the market. The company was initially trading company and through backward integration, they have their own manufacturing setup to deal with automobiles. Evolution of this company is an Upswing. The current scenario of the market has caused chaos in the business as the operations of the automakers and other industries are halted due to the spread of Coronavirus.
The Nifty Auto shed around 4% in the morning session as the operations of the automakers have been disrupted by the virus outbreak which has also resulted in the decline of share prices of the automakers. The Bollinger band graph shows the decline in the share price of the company as the business operations in the country has been halted and also the company has decided to shut its operations over 8-weeks which would help in reducing the spread of the virus. The management also stated that there won’t be any job losses or salary cuts in the company as it plans to cover every employee till the end of the month interms of jobs and salaries.


The company has also declared an interim dividend for the year of Rs.120 to its shareholders which shows the strong financial position of the company as it distributes its profits during a crisis. The management has also decided to provide Rs.100 crore to help the affected individuals. The company would be closely working with the government and NGOs to deploy various measures and resources necessary for the prevention of the spread of virus.
The deadline for auto companies to sell their BS4 units is closer as the sale or manufacture of any BS4 vehicle would not be permitted from March 31st 2020. There are stocks piled up of around 4.5-5 lakh units of unsold vehicles in the state of Uttar Pradesh, Haryana, Delhi, Gujarat, Maharashtra and Punjab which has led to the Automobile dealer’s body FADA filing an application with the court for seeking an extension of sale of the BS-4 vehicles till May 31,2020. Bajaj Auto has updated almost its entire motorcycle line-up with BS6 models, but certain dealerships are left with few stock of BS4 stock vehicles which would be cleared off in the upcoming days.
 

The bullish trend of the stock has been ended due to the outbreak of the virus which has also disrupted the bullish trend for the stock which has caused the share price of the company to decline. Valuations appear attractive, but given the uncertain macro environment and the threat of possible prolonged impact of coronavirus, it is preferable to invest in stocks offering higher visibility of demand recovery, better competitive positioning, scope of higher operating leverage and strong balance sheet.

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