Amidst subdued demand, disruption in its export market and cost pressures, Bajaj Auto has reported weak results in the June quarter
Bajaj Auto, India’s second largest two-wheeler company, has posted a marginal increase in net profit, which increased by only 0.98% year-on-year (y-o-y) to Rs718.39 crore for the quarter ended 30 June 2012. Meanwhile, its sales increased just 3% y-o-y to Rs4,865.66 crore for the latest quarter. Despite marginal increases in net profit and sales, its sales numbers have dipped amidst increased competition and a benign automotive market, underlying serious economic weakness and disruption in exports.
The most disappointing aspect of Bajaj Auto has been its sales and profit figures, even if they have increased. It reported only a 3% increased in y-o-y net sales, which is far below its three-quarter y-o-y average growth rate of 12%. Similarly, its operating profits leave a lot to be desired; its operating profits grew by 4% y-o-y, to Rs871.71 crore, which is less than its three-quarter y-o-y growth in operating profit of 18%.
However, on a sequential basis, its operating profits actually dipped by 5.31%, while its sales didn’t increase by much. This effectively underscores the difficulty in which the manufacturer is facing on the cost front, especially as inventories increase due to inability to sell in export markets. Its operating profit margins hardly budged, moved up by just seven basis percentage points, y-o-y, to 17.92%. However, its valuation is somewhat a little high, with its market capitalisation quoting at roughly 12 times its operating profit. It has a healthy return on networth, at 50%.
According to the company’s press release, Bajaj Auto has reported weak sales volumes, managing to sell only 10,78,971 vehicles for the June 2012 quarter, which is 1% less than what it sold for the same period last year, even though the domestic market grew by 6%. The company cited subdued demand, disruption in exports and rising oil prices as chief reasons for poor performance. Its sales volumes comprises sports, standard and deluxe categories which contributed to 16%, 24% and 60% of the domestic volumes respectively. However, in the deluxe segment, it witnessed a sharp decline of 16% in volumes while the overall deluxe market grew by 3%. The market share of the sports, deluxe and standard categories were 46%, 18% and 29% respectively.
One of the key factors that has dented its sales was inability to sell in the export markets while the inventory piled up, adding to costs. This was largely due to the disruption the company faced, on many fronts. Sales to Egypt were affected by political unrest while sales to Sri Lanka were affected by duty hikes. Cumulatively, it has lost 25,000 units in this quarter because of the export roadblock. Bajaj Auto, along with its distributor, has undertaken pro-active measures like rationalising the end-user cost of vehicles in Sri Lanka and expects normalcy in sales to return by end of next quarter, the press release quoted. On the other hand, African and Latin American markets performed well.
It plans to release the next generation Pulsar 200 NS motorbike at the pan-India level shortly and hopes that this will strengthen its position. To counter the lacklustre deluxe segment, it has planned some new launches on the back of its Discover 125 ST which was launched in mid-June which received good response.
Despite lacklustre profits, its share price jumped by over 4%, to Rs1,517.25 on Bombay Stock Exchange.