Bajaj Auto - The Discover 100m an attempt to regain marketshare - PhillipCapital

Bajaj Auto recently launched a new variant of the Discover - the 100M. The price point at which the vehicle has been launched seems to indicate that the two wheeler industry is clearly responding to competitive pressures and a slowing demand. While there is no direct price war, companies are offering greater value to customers at existing price points. This we believe could eventually put pressure on industry margins.

While on specifications/features the Discover 100M seems to be a balanced motorcycle, nonetheless sales could be negatively impacted by a potential confusion around the Discover brand and the knack of consumer to stick to vehicle perceived to be ôreliableö (particularly, in a downturn).

Pricing closer to the lower end, engine from the top end variant. With the launch of the 100M (the salesperson indicated that ôMö stands for mileage) Bajaj Auto now has three Discovers with a 100cc engine - the 100 DTS-I (an older base version), the 100M and the 100T (launched earlier this year, top end version). The ôM has been priced at Rs47,770 (ex showroom Mumbai) which is extremely close to the price of the DTS-I (Rs47,110). Hence, cannibalization is likely.

However, the vehicle shares the engine of the 100T (the top end version) with similar styling. There are two major differences - (a) the M has 4 gears compared to 5 for the T and (b) the wheelbase has been reduced a bit to 1255mm (1305mm for the T). Compared to the DTS-I (the base version), the M has about 20% extra power with contemporary styling.

Positioning within Bajaj's portfolio still unclear; creates confusion. Bajaj will not be removing the existing Discover 100DTS-I. Effectively it will have two motorcycles with a 100cc engine at the same price point. This is bound to create confusion for customers (the salesperson at the showroom would often confuse the features of one bike with another).

Further, given that the company plans to launch another 5 Discovers by February 2014 - we would not be surprised if another low end 100cc Discover is introduced. This could further diffuse the Discover brand.

The launch highlights key industry trends. While there has been no direct price war, we believe the launch highlights the fact that the industry is aggressively looking to offer value to consumers at the same or even lower price points. Examples we highlight - the five year warranty by Hero/HMSI; the launch of the New Activa/Dream Yuga by HMSI at lower price points (compared to the old Activa/Dream Yuga) and the Discover 100M (20% more power at the same price).

Bike performance to be key. Clearly, Bajaj Auto is betting on the new Discovers to recoup lost marketshare. We believe the company will be handicapped by (a) a potential diffusion in the Discover brand and (b) in a slowdown consumer stick to tried and tested product. Nonetheless, if the on-road performance of the vehicle is robust it could bring incremental volumes. However, for now we maintain our Neutral stance on the stock.

Source : Equity Bulls

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