New Delhi: India’s second largest two-wheeler maker by sales, Bajaj Auto Ltd, said net profit for this fiscal year’s first quarter ended June declined 4.4% from a year ago as higher costs of raw materials dented earnings in an early indication of how most auto firms will post financial results for the period.
The firm’s net profit in the quarter fell to Rs175 crore from Rs183 crore in the year-ago period. The results were better than the estimates by five analysts, who had predicted an average Rs170.2 crore.
Shares of Bajaj Auto, which was relisted two months ago after demerging the finance and insurance businesses, rose 9.6% in a weak broader market, to Rs494.15 each on the Bombay Stock Exchange as the results exceeded analyst expectations.
Bajaj management said it remained optimistic about the business.
Sales rose about 9.2% to Rs2,340 crore in the quarter, from Rs2,142 crore a year ago, as it sold more of its newer higher-margin motorcycles such as the XCD. This increase in revenues was better than the 8% expansion in sale of two-wheelers and three-wheelers, which grew to 620,095 units.
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For the industry, sales volumes of two-wheelers increased for the first time in at least five quarters during April-June this year, data from the industry group Society of Indian Automobile Manufacturers show, as bike makers increased discounts and also due to depressed volumes in the same period a year ago.
But, Bajaj grappled with rising expenses—raw materials spending rose 11% in thequarter to Rs1,619 crore, as prices of steel and nickel surged by about 50% from a year ago.
The company’s operating margins contracted by 1.32 percentage points to 10.09%. Operating margins measure how much profit is left after deducting basic expenses of running a business.
“I think the worst is over for Bajaj as volumes should come back and I envisage no further growth in raw material prices,” said S. Ramanth, vice-president at IDFC-SSKI Securities Ltd. “But, it is going to be an export play and (have) zero growth in domestic sales.”
Bajaj exported 198,717 vehicles in the quarter, one-third more than a year ago, and analysts expect it to continue at the same pace, helped by newer products, a depreciating rupee and an expanding distribution network in markets such as Indonesia.
Faced with slow growth in domestic sales, in the light of a 13-year-high inflation rate and expensive credit, Bajaj is largely placing its bets on new model introductions to help increase sales and margins. The company sees an increase in margins, “with the launch of new motorcycles in the profitable 125cc plus category and new three-wheelers,” said Kevin D’Sa, vice-president, finance, in a statement.
Bajaj Auto’s holding company, Bajaj Holdings and Investment Ltd, said on Thursday that its consolidated net profit for the June quarter was Rs51.3 crore. Bajaj Holdings, which has 30% each in the No. 2 motorcycle maker and Bajaj FinServ Ltd, was created in May as a result of a restructuring which split the manufacturing and financial services businesses of the group.
Reuters contributed to this story.