Bajaj Auto Ltd put up a decent show for the March quarter, with revenue and profit after tax only a tad below Bloomberg’s consensus estimates. Revenue rose 12.2% from a year ago to Rs4,651.4 crore, as the company sold 7.3% more vehicles. Average realization per vehicle sold was higher by around 5%. For the full year, it sold 13% more vehicles totalling 4.35 million.
What’s more commendable is that the two-wheeler maker maintained its profitability. After adjusting for expenses capitalized, operating margin at 19.8% was 40 basis points higher than a year ago, even as the company managed to maintain it through the four quarters of fiscal 2012, in spite of adversities such as inflation and currency volatility. Operating profit rose by around 14% from the year-ago period, as higher sales and stringent cost control, mainly on the raw material and staff fronts, played out favourably.
Bajaj Auto’s operating efficiency is mirrored in the fact that the 12% growth in revenue trickled down to a similar growth in net profit to Rs752 crore (after adjusting for valuation gains on hedging instruments), in spite of higher depreciation and lower other income. One need not get worried by the 44% year-on-year (y-o-y) drop in reported net profit, as the previous year reported figure of Rs1,400 crore included tax refunds.
Also See | keeping the trend (Graphic)
Quarterly performance (Graphic)
But the company’s shares fell 2.6% to Rs1,574 apiece after the results. A few concerns could be the reason for this. One, there is a sequential decline of around 1.3% in average realization per vehicle sold. This is partly because of an adverse product mix. Export volume of three-wheelers, which fetch higher margins, was 19.2% of total sales, compared with 20.1% in the December quarter and 20.5% in the year-ago quarter.
The bigger concern on this count is the hazy outlook for the near term, as Bajaj Auto’s three-wheeler exports to Sri Lanka have been hit to almost nil from its earlier 50% in the total three-wheeler exports, due to higher import duties levied there since April. Management optimism on reviving exports to the region may not turn into a reality in the near term, though other regions such as Africa may compensate.
One would also have to wait and watch for market response to several launches planned in the next few months, which may entail promotional costs. Also, launches by competitors—both domestic and international—flooding the two-wheeler market will keep up the pressure.
Given this and the adverse economic environment, the company’s sales volume target of five million units for fiscal 2013 is a tall order, according to some analysts. In the last eight quarters, Bajaj Auto’s net sales growth rate has steadily tapered off, though, of course, it’s been on a higher base and also better than the industry average. The current share price discounts one-year forward earnings by around 14 times, which leaves little scope for upsides. A valuation re-rating in the near term is unlikely.
Graphic by Yogesh Kumar/Mint
We welcome your comments at firstname.lastname@example.org