Bajaj Auto shares down most in 5 months on reports of production cut

Automobile major Bajaj Auto plans to cut down on production in the two-wheeler and three-wheeler segments by up to 25 percent at its export-focussed plants. The decision is triggered by uncertainties in Nigeria, which is the company’s biggest market, the Economic Times reported on February 27, citing multiple sources aware of the development.

As a consequence, the stock fell over 3.5 percent in early trade on February 27, marking its steepest decline in the past five months. It is also the poorest performer in the Nifty Auto index. Over the course of the last month, the stock has lost over 5.89 percent.

According to the report, Bajaj Auto is expected to manufacture approximately 250,000-270,000 units in March, which is significantly lower than its average production of 338,000 units during the initial nine months of FY23.

The situation may lead to a decline in the overall capacity utilisation rate at Bajaj Auto plants to below 50 percent. The company has an installed capacity of 550,000 units every month.

“Indeed, there is a lot of uncertainty in Nigeria — both civil and economic — on account of elections and demonetisation. So, we have cut our shipments substantively until things settle,” Rakesh Sharma, executive director of Bajaj Auto, told the daily.

Nigeria, Africa’s most populous nation, had decided last year to start circulating newly designed 200, 500 and 1,000 naira notes, originally giving people until January 31 to get rid of their their old currency notes, which would no longer be legal tenders after that date.

The bank said it wanted to reduce the amount of cash in circulation in order to better control liquidity, curb inflation and move towards a cashless economy.