Inventory to cushion Bajaj against strike impact

Bajaj Auto, the second-largest motorcycle manufacturer, may see a limited impact on production of an ongoing strike at its plant in Chakan near Pune.

The automaker said on Wednesday that the production at the Chakan plant has been partially resumed and it expects short-term impact on output for June and July.

Bajaj expects to make 50,000 bikes in June and July each at its Chakan plant compared with the usual 75,000 a month, Rajiv Bajaj told a business news channel on Wednesday.

The company on Tuesday said workers at the plant had issued a notice to the management regarding the stoppage of work from June 28; however the workers stopped reporting to work from June 25.

Out of 1,500 workers at the plant, around 100-200 turned up for work today, he said.

For Bajaj Auto — one of the major premium bike makers — the Chakan facility with an annual capacity of producing 1.2 million bikes plays a key role because it manufactures its premium models including Pulsars, KTM bikes, Avenger and Ninja that fetch better and margins and realisations.

Analysts, however, see shutdown beyond two weeks impacting company’s profitability.

“We estimate that the plant accounted for 25% of Bajaj’s fiscal 2013 net sales and a higher proportion of profits, given higher realisation products that are produced at the plant. A prolonged shutdown beyond two weeks could result in downside risk to our estimates, wrote Jamshed Dadabhoy ad Arvind Sharma analysts with Citi Research in a note.

The company, however, said it currently has an inventory of around four weeks.

“Given the dealer level inventory estimated at around four weeks, the impact of a short period strike may be limited. However, if the strike extends beyond a week, sales of Bajaj’s higher realisation Pulsar bikes may get impacted with a daily revenue loss of Rs 21.1 crore,” wrote Aashiesh Agarwaal and Ashish Poddar, analysts with Edelweiss, in a note.