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Business News/ Opinion / Online-views/  Falling rupee, lower commodity costs rescue Bajaj Auto
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Falling rupee, lower commodity costs rescue Bajaj Auto

Falling rupee, lower commodity costs rescue Bajaj Auto

photo: BloombergPremium

photo: Bloomberg

Bajaj Auto Ltd’s financial results for the quarter ended 31 December aren’t as bad as its sales volumes report for the same period. The company’s shares had dropped by around 8% soon after it announced a sharp month-on-month drop in sales in December. Volumes for the December quarter were lower by 7.6% compared with the September quarter.

But despite the drop in volumes, the company has managed to keep its operating profit intact at September quarter levels, thanks to a 90 basis points improvement in profit margin.

photo: Bloomberg

While the softening in commodity prices helped, Bajaj Auto’s performance has also been lifted by its exports division, which benefited from the depreciation in the rupee. Exports account for around 35% of the company’s turnover.

Export volumes had dropped by 10.2% quarter-on-quarter, but thanks to a nearly 10% jump in average realizations, the turnover of the segment was more or less flat. Of course, part of the increase in realizations is on account of the price hikes the company took to pass on the increase in costs owing to the withdrawal of some export benefits.

With effect from 1 October, the government abolished the duty entitlement pass book scheme, under which exporters are reimbursed on customs duty paid on an imported input as a percentage of the export price.

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But while these price hikes were taken to offset the increase in costs, the gains from the depreciation in the rupee have flown into profits as well. Realizations improved marginally in the domestic segment as well.

Of course, the markets can’t be expected to cheer the results, considering that the outlook for the company remains weak. The firm’s volumes have been sluggish in recent months because of consumer preference for bikes in the entry and executive segments.

Bajaj Auto, on the other hand, gets a large proportion of its sales from the premium segment, which has been hit owing to the economic slowdown and the increase in interest rates. Analysts have already trimmed estimates for the current fiscal year and the next owing to the above trend.

While the December quarter results come as a slight reprieve, it’s hardly enough to change the sentiment for the stock.

Graphic by Yogesh Kumar/Mint

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Published: 19 Jan 2012, 11:01 PM IST
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