Bajaj Auto Q1 profit drops 5.6% to Rs924 crore
Bajaj Auto Ltd’s profit fell for the third straight quarter because of higher raw material costs and the switch to the stricter Bharat Stage-IV (BS-IV) emission norms.
The maker of Pulsar and Discover motorcycles on Thursday reported a net profit of Rs924 crore in the quarter ended 30 June, a 5.6% drop from Rs978 crore a year earlier. Net revenue fell 3.8% to Rs5,854 crore, compared to Rs6,088.75 crore in the year-ago period.
Bajaj Auto’s earnings lagged estimates. The company had been expected to post a profit of Rs907.70 crore on net sales of Rs5,499.40 crore, according to Bloomberg analyst surveys.
The Pune-based company said it incurred a one-time charge of Rs32 crore in payments to dealers for inventory they held as of 30 June, before the rollout of the goods and services tax (GST) the following day.
A sharp drop in sales volume in the domestic market, coupled with higher raw material costs, dragged down the Ebitda (earnings before interest, tax, depreciation and amortization) margin to 18.3% from 20.5% in the same quarter of the last fiscal year.
Motorcycle and commercial vehicles sales in the domestic market fell 23% to 478,909 units from a year ago. Exports that had declined for the past five quarters snapped the trend, rising 10% to 409,525 units.
“We were hit both in the beginning as well at the end of the quarter,” said S. Ravikumar, president of business development at Bajaj Auto, citing the changeover to BS-IV norms in April and the run-up to GST. He expects sales volume to remain under pressure for another couple of months before the impact of both factors fades. Ravikumar said he expects margins to improve from here on and reach the 20% level on rising exports and higher contribution of pricier models in the overall sales mix—a trend seen in the June quarter when the contribution of more expensive motorcycles went up to 30% from 26% in the same quarter a year ago.
Bajaj’s efforts to penetrate new export markets and reduce dependence on traditional markets like Sri Lanka, have started paying off, he said. Its exports to Sri Lanka, for instance, dropped by a fourth to 2,000 units in the June quarter from a year ago.
Nitesh Sharma, an analyst at Phillip Capital, said the earnings were below his estimates largely on account of the raw material costs.
“Owing to the GST, there was no room for the company to pass on the raw material (cost) increase; this in turn impacted realisations adversely,” he said. He expects better sales volumes and receding of “GST-related headwinds” to boost earnings in the current quarter.
In a research note after the earnings announcement, brokerage Arihant Capital Markets Ltd, wrote, “With potential to bring back stock levels within the network, introduction of new variants and steps initiated on mass communication and ground field activities, performance for Q2 / FY18 is anticipated to be much better.”
Bajaj Auto’s shares dropped 0.22% to Rs2,818.65 on BSE at the close of trading on Thursday.