Mumbai: Bajaj Auto, India’s second largest two-wheeler maker, met estimates with a 40% jump in third-quarter profit, and expects a rise in vehicle sales next year, signalling confidence in the country’s growing auto market.
The company expects unit sales in 2012 to grow to 5 million vehicles, Rajiv Bajaj, vice chairman and managing director, told the CNBC-TV18 channel. It has a target of 4 million unit sales for the current fiscal ending March 2011.
“They have just hiked prices in January so that will help them maintain margins in the fourth quarter since I don’t foresee a drop in volumes,” said Umesh Karne, analyst at Brics Securities in Mumbai.
Auto sales in the third quarter tend to be higher because of the Hindu festive season that peaks in October-November and is considered an auspicious time for purchases such as vehicles and white goods.
The company is also confident of achieving an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 20% for the fiscal ending March 2011, it said in a statement on Wednesday, adding it was targeting exports of $1 billion for the period.
Domestic auto sales have grown by a third in 2010, powered by strong economic growth, an expanding middle class, and easy financing options. The pace of growth has made it the second fastest growing auto market in the world after China, which grew at a comparable rate.
A Fitch report earlier this year on the Indian passenger vehicle industry cautioned growth would slow to 12-15% in 2011.
Domestic sales of motorcycles for calendar 2010 have grown 27.2%, according to data from the Society of Indian Automobile Manufacturers (SIAM), an industry body.
However, rising costs of raw materials have put some automakers on the backfoot on the question of margins, given runaway increases in the price of steel and rubber, forcing most automakers to raise prices.
“The good part is that raw material prices have gone up but they (Bajaj) have other expenses under control, suggesting operating efficiency,” Karne of Brics Securities said.
A report from Vaishali Jajoo, analyst at Angel Broking, said raw material costs at Bajaj had increased 240 basis points in the December quarter over the year-ago period. Rajiv Bajaj told CNBC-TV18: “Raw material prices have done their worst, and besides rubber, I don’t see any concern in terms of steel, aluminium, copper...there might be a little (concern) on nickel.”
Beating Costs, Meeting Estimates
Bajaj Auto reported third-quarter profit of Rs667 crore ($147 million), while revenue grew 27% to Rs4028 crore.
A Reuters poll of 10 analysts estimated net profit of Rs618 crore on revenue of Rs4093 crore. Bajaj Auto’s domestic sales in the quarter rose 22.6% to 872,682 units.
Shares of Bajaj Auto, valued by the market at $8.35 billion, turned positive after the results. The stock, which touched a high of Rs1324.45 earlier, closed up nearly 2% at Rs1319.85 in a main Mumbai market that closed down 0.6%.
The stock was among the best performing in 2010, rising 75% through the year, outperforming a 17.4% rise in the main index.