Profit from operations nearly doubled for Bajaj Auto Ltd in the September quarter. Its shares, however, fell by around 3% to Rs1,552, as a large jump in profit was already factored in by the street. About a week ago, Rajiv Bajaj, managing director of the company, told reporters, “The June quarter has so far been the best in the company’s history and we will outdo this in the September quarter.” The company’s shares had risen by 7% since then to Rs1,605.
Profit, excluding other income and before tax, rose by 98% last quarter, much better than the 79% growth reported in the June quarter. This was on the back of a further rise in operating profit margin, which rose a little above 22%. Investors had been excited when the company had reported margins of 19.5% in the June quarter and the fact that the company has improved on this by at least 250 basis points is a positive sign.
As Motilal Oswal Securities Ltd analysts said in a month-old report, “Bajaj Auto is in a sweet spot, with a recovery in volumes combining with benign costs to deliver higher margins.” Volumes rose by 7.3% last quarter on a year-on-year basis, much better compared with the 11.7% drop in volumes witnessed in the June quarter. This was thanks to the good response to the newly launched Discover 100 and the refurbished Pulsar models. The Discover has cannibalized volumes of the company’s other offerings in the same space, Platina and XCD, but since it enjoys relatively better margins, the cannibalization is a positive development.
Graphics: Paras Jain / Mint
The newly launched bike has captured share from competitors as well. But considering that the company had reduced its focus on the 100cc segment considerably in the past, the growth is coming off a relatively low base. If the new product continues gaining share at the same pace, competitive pressure can be expected to increase.
Investors haven’t particularly been worried about such a prospect, going by the sharp rally in the firm’s shares this year. The shares have risen by about four times from December levels of under Rs400. But the impressive performance in the past two quarters has led to a spate of earnings upgrades. After the near-doubling of profit in the September quarter, earnings per share estimates are likely to be raised above Rs100, against the current consensus estimate of less than Rs90 per share. Given the sizeable earnings upgrades, the stock should be able to retain the sharp gains made in the recent past.
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