The September quarter was one of challenges for Bajaj Auto Ltd—across product categories and across geographies. Motorcycle sales volumes fell by an annual 10% as it sold less in local and overseas markets. Even commercial vehicle (mainly three-wheeler) sales, its stronghold, fell 12%, led by a 22% dip in export sales and a flat domestic market. Bajaj’s exports took a beating mainly due to a huge hike in Sri Lanka’s import duty on vehicles.
In spite of selling around 10% less vehicles for the quarter, Bajaj Auto’s net revenue at Rs.4,972.4 crore fell by a marginal 4% from a year ago, even as it came in a tad higher than Bloomberg’s consensus estimates. This was because of an improvement in the average selling price (ASP) per vehicle sold. According to Surjit Arora, analyst, Prabhudas Lilladher Pvt. Ltd, “Higher ASP was due to better product mix in the domestic markets and better export realizations.” Bajaj cut prices in the Sri Lankan markets to minimize the impact of higher import duties and also had better sales in the African markets.
Market analysts reckon the launch of two new bikes—Discover 125 ST and Pulsar 200—also gave a fillip to average realizations during the quarter. Bajaj’s quarterly results highlight a jump in market share between April and September in both motorcycle brands.
Better product positioning and realizations evidently shored up Bajaj Auto’s profit margins amid cost pressures—both other expenses and employee costs rose significantly from the year ago. Operating margin was flat—only 40 basis points lower on a year-on-year basis. Operating profit, in line with lower revenue, fell 6% from the year ago period to Rs.915.2 crore. One basis point is one-hundredth of percentage point.
Bajaj Auto’s net profit at Rs.740.7 crore was slightly higher than estimates on the Street and about 2% lower than a year ago. This was despite lower other income and a higher tax rate, as the tax exemption for its Pantnagar unit is over.
It remains to be seen if the festive season will boost domestic sales volumes and if exports will ramp up to earlier volumes, especially in Sri Lanka. Besides, the firm’s stock valuation may improve if it continues to beat Hero and gain market share in motorcycles.
For now, analysts say Bajaj Auto is better poised in a challenging and competitive milieu compared with world motorcycle leader Hero to manage both revenue and profit growth. Although the stock is up around 25% since January, it lost ground after the September quarter sales volumes proved to be sluggish and analysts revised growth estimates downward for the whole sector. At the current market price of Rs.1,770, the stock trades at around 14 times fiscal 2014 earnings, which appears fair given that the auto sector slowdown could take a while to turn around.