Mumbai: The country’s second largest two-wheeler firm by sales, Bajaj Auto Ltd (BAL), saw its profits fall 23% for the quarter ended 31 December 2008 against the same period the previous year.
The decline in profit was fuelled largely by an acute shortage, as well as high cost, of finance and depressed buying sentiment.
The company, however, beat analysts’ estimates, which had predicted a deeper shade of red. A 15 January Mint poll of five brokerages had projected income from sales to decrease by 23% and profits to shrink by 47%.
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Net profit for the three months fell from Rs214 crore to Rs166 crore, the company said in a statement. Total revenue net of excise also slumped by 16% to Rs2,141 crore for the quarter, against Rs2,544 crore a year earlier.
The firm’s operating Ebitda (earnings before interest, tax, depreciation and amortization) margins remained largely the same, sliding by only 0.2% at 14.5% against 14.7%, compared with the previous year. On a quarter-on-quarter basis, however, it strengthened by 0.9%. BAL’s earnings per share fell to Rs11.4 from Rs15.5.
BAL, which makes the ubiquitous three-wheeler autorickshaws along with other two- and three-wheelers, managed to sell only 493,748 units, a reduction almost a third at 31%
The firm is a partially-owned unit of Bajaj Holdings and Investments Ltd (Bhil), which holds a 30.69% stake in the firm, and a 34.77% in Bajaj Finserv Ltd. In its earnings announced Friday, Bhil reported a stand-alone profit of Rs8 crore, down from Rs111 crore for the same period last year, and a consolidated profit of Rs59 crore, down from Rs160 crore.
The high net profit for the previous year’s quarter came from a Rs108.16 crore benefit from sale of investments by Bhil. This quarter, the firm took a Rs70 lakh hit on its sales of investments.
In fact, Bajaj Auto was the single largest contributor to Bhil’s consolidated profits, adding Rs47 crore to the holding company’s bottomline.
S. Ramnath, a Mumbai-based analyst with IDFC-SSKI Research said BAL had beaten his firm’s projections by at least two percentage points. “We continue to maintain the out-performer rating on the stock,” he said, attributing the better-than-expected performance to the firm’s “reduced expenses on raw material and increase in average realization”.
However, he declined to comment on projections for the next quarter, saying, “It will largely depend on the volumes. I am not too positive on the volumes.”
BAL’s managing director Rajiv Bajaj attributed the company’s relatively better margin to an improved product mix with the more profitable 125cc-plus bikes, coupled with a leaner cost structure from plant closures, retirement of at least two-thirds of employees and rationalization of its suppliers’ base to 200 in the last decade.
However, in spite of the surprisingly good results, analysts continue to question the actual reasons behind the sequential increase in operating margins
“The company says it’s the result of a better product mix. One needs to understand which of the models sold better than the second quarter resulting in such a substantial improvement in the margins,” said Jinesh K. Gandhi, an analyst from Motilal Oswal Securities Ltd. While saying he was definitely impressed by the numbers, Gandhi maintained it was “not clear what has led to such an improvement in margins on a sequential basis”.
However, he said the company’s operating margins would likely continue to strengthen, given falling commodity prices and restoration of DEPB benefit for exports kicking in. It will also be helped by new launches to some extent, he said.
DEPB refers to the duty entitlement pass book that neutralizes the incidence of basic customs duty on the import content of an export product.
BAL’s shares sped up in response, closing at Rs467.75, up 6.72% on a day when the Bombay Stock Exchange’s benchmark Sensex index gained 276.85 points, or 3.06% to close at 9323.59.
The company said while it is optimistic of sales looking up with the new launches of two- and three-wheelers, its performance would continue to be challenged by a few factors. These include continuing crisis of confidence amongst customers, dealers and financiers and inevitable slowdown in the rate of export growth.
Graphics by Ahmed Raza Khan / Mint