Bajaj profit slides on lower sales; company won’t chase volumes

Bajaj profit slides on lower sales; company won’t chase volumes
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First Published: Thu, Jan 31 2008. 12 02 AM IST
Updated: Thu, Jan 31 2008. 12 02 AM IST
India’s second largest seller of two-wheelers, Bajaj Auto Ltd, had a third quarter profit decline of 16.6% from the year-ago period as it sold fewer bikes because customers deferred purchases as borrowing-to-buy became expensive.
The bike maker also incurred a one-time charge of Rs51 crore because it offered a voluntary retirement payout to workers at one of the units that wasn’t productive.
The Pune-based company made a profit of only Rs273.8 crore in the three months ended 31 December, compared with Rs328.3 crore in the year-ago period. Sales at Bajaj Auto dropped 2.3%, to Rs2,633.3 crore, in the quarter—lower than Rs2,696 crore last year. The results were worse than a Mint poll of five analysts, who estimated net profit at Rs354.66 crore and revenues at Rs2,653.88 crore.
Bajaj Auto’s insurance business, which will be separated in the next fiscal year after a proposed demerger of the vehicle making and insurance business, didn’t shine this quarter. The company’s automotive operations saw a net profit decline of 5.1% from the year-ago quarter because almost 70% of all bikes in India are financed and interest rates that haven’t budged from a five-year high are denting consumers ability to buy on borrowed money.
Analysts say that unless there is a turnaround in volumes in the two-wheeler industry, margins will be under pressure for all companies in the sector. Bajaj Auto said it wouldn’t chase just volumes.
“In the process of being true to long-term strategy of sustainable and profitable growth, if it means for a quarter or two or year, if there’s a hiccup in terms of volumes, that’s a price to be paid and that’s fine,” said Rajiv Bajaj, managing director of Bajaj Auto, in an interview, adding he would focus on keeping margins at about 15%. Bajaj was referring to earnings before interest, taxes, depreciation and amortization (Ebitda), or operating profit.
Bajaj Auto shares closed at Rs2,268.80 each on Wednesday on the Bombay Stock Exchange—down 4.62%.
“Everyone knew that volumes will be lower,” said Vaishali Jajoo, automotive analyst with Angel Broking Ltd. “Margins have been hampered because of higher raw material costs and interest rates. The industry is on a downturn, and this challenge will continue in the next quarter as well.”
Bajaj Auto has said it does not find the cheaper, lower engine capacity 100cc bikes profitable.
(Ravi Krishnan contributed to this story.)
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First Published: Thu, Jan 31 2008. 12 02 AM IST