Two-wheeler stocks slid on hint of price war

Two-wheeler makers were pounded drastically during Monday's trade. Bajaj Auto in its earnings conference call highlighted that the company will continue with aggressive discounting strategy in the entry-level motorcycle segment. The company's strategy is in-line with its efforts to gain additional market share, expanding from the existing 16.3 per cent domestic market share to 20 per cent. 

This aggressive pricing strategy may lead to a price war in the entry-level motorcycle segment amongst the motorcycle makers. If a price war is triggered, then this would adversely affect the competitor's margin.

The company’s management expects a revenue growth of 15 per cent CAGR for the next 2-3 years. The company indicated a capex of Rs. 250 to 300 crore for FY19 with a target to achieve 4.8 million units in FY19E. Furthermore, it has set an export target of 1.9 million units for FY19E.

This outlook led to fear amongst the investor community which in turn lead to a decline in the stock prices of all two-wheeler producers.

The stock of India’s largest two-wheeler company Hero Motocorp tanked almost 8 per cent to touch an intraday low of Rs. 3,094. The stock closed for the day at Rs. 3163.9, down by 6.2 per cent, while Bajaj Auto dipped almost 6.4 per cent to touch an intraday low of Rs. 2,658.7 and closed at Rs. 2689.1, down by almost 5.4 per cent. Another two-wheeler major maker, TVS Motors also plummets 7 per cent to touch an intraday low of Rs. 524.3. The stock closed for the day at Rs. 540.3 per share, down by almost 4.3 per cent on Monday.