Despite being the world’s third largest manufacturer of motorcycles, Bajaj Auto announced a disappointing quarter amidst stagnant economy with high inflation and lacklustre sales
Bajaj Auto, which manufacturers 'Discover', the world’s largest selling motorcycle brand, has announced rather disappointing results when it reported a 4% decline in net sales. Its net sales for the quarter ended September 2012 was Rs4,972.40 crore, down from Rs5,185.36 crore recorded for the corresponding period a year ago. While net sales declined, its operating profit increased, but just barely, by 4% and net profit was almost flat, increasing by just over 2% to Rs740.67 crore.
According to the Moneylife database, the company has been going through a difficult time, both in terms of sales and generating operating profit. The average three-month year-on-year (y-o-y) average sales growth was just 4%, underlying difficult economic climate. Likewise, its three-month y-o-y operating profit average growth rate was 13%. This quarter it showed a growth rate of only 4%, a result of spiralling costs. To minimise the impact on operating profit, the company is adopting for a variable-cost structure. The market seems to be attaching premium valuations to this company, with its market capitalisation quoting at over 13 times its operating profit, given the high return on equity of 50%.
One would have expected the company to take advantage of the momentum it had over Hero MotoCorp when its Bajaj Discover model overtook Hero Splendor as the largest selling motorcycle in the month of September. However, the company sold 10,49,208 vehicles for the second quarter ended September 2012, which was 10% less than what it sold for the same period last year. This is worse than industry decline of 9%. Despite increases in its market share from 23% to 27% in the last five months, it had not translated this to a better bottomline. The company cited higher inflation, higher input costs and higher fuel prices, forcing consumers to cut back on high priced purchases.
The share price of the company stood at Rs1,782.50, or up 0.69% on the Bombay Stock Exchange (BSE) today.
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