A 23% year-on-year jump in revenue and a 21% surge in net profit in the June quarter from Bajaj Auto Ltd, the country’s second largest motorcycle maker, did not enthuse the Street. Its shares closed 1.3% lower at Rs 1,431 apiece after the announcement.
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Perhaps, for a firm that has largely met consensus expectations and maintained operating margin higher than peers at above 20% for the last several quarters, a slip this time was disappointing.
Revenue and net profit growth was a tad lower than estimates. Operating margin at 19.1% was 90 basis points (bps) lower than a year ago and 170 bps lower than the preceding quarter. One basis point is one-hundredth of a percentage point.
As expected, raw material costs played spoilsport, given the cost increases seen in rubber, plastics and even base metals. The firm, however, displayed stability in employee costs and other expenses.
Further, the average realization per vehicle, which reflects a firm’s pricing power, was down 1.3%, contrary to market expectations of marginally better realizations. This has accelerated concerns arising from a slowdown in the domestic market and the threat of increasing competition that could eat into its market share and pricing power.
Analysts are waiting for the response to its new motorcycle, to be launched around the festive season. The management, however, reiterated its overall volume growth estimates of 20% for fiscal 2012 (FY12) over the previous fiscal.
“Things could be favourable on the margin (front) in the next few quarters, if commodity prices are stable,” said Surjit Arora, analyst at Prabhudas Lilladher Pvt. Ltd. Bajaj Auto still enjoys the best operating margins in the industry. This comes from the significant share of three-wheelers in revenue and two-thirds contribution from higher-end premium motorcycles.
During the quarter, export volumes grew by 32% year-on-year. But any withdrawal of export incentives, which is in the offing, could affect earnings growth.
Bajaj Auto’s June quarter as a lead indicator of the two-wheeler and auto sector does not bring good tidings for others in the pack. But the stock is reasonably valued at around 14 times its FY13 earnings estimates. Analysts’ consensus for now points towards a 14-15% compounded earnings growth until FY13.
Graphic by Yogesh Kumar / Mint
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