Bajaj Auto Ltd’s performance has been getting better every passing quarter. In the first quarter of the previous fiscal ended June 2009, volumes had dropped by 11.7%. In the September quarter, volumes grew by 7.3% thanks to the good response to the newly launched Discover 100 and the refurbished Pulsar. Volume growth improved to 64% in the December quarter thanks to the continued success of these models and partly due to a low base. Last quarter, the company reported an 84% rise in volumes.
What’s more, Bajaj has improved its performance even in terms of profitability. In the June quarter, when the company reported an operating profit margin of 19.5%, investors had been excited. But the company improved this to 22% in the following two quarters and sprang another surprise when it reported a margin of 22.9% for the March quarter. Considering that raw material costs have been on the rise, one would have excused the company if margins had fallen last quarter. In fact, Motilal Oswal Securities’ estimates for the quarter assume a margin of 20.2%, lower than the 22% margin recorded in the September and December quarters. The company has been able to increase margins thanks to an improvement in its product mix.
The sharp rise in volumes and the improvement in profitability led to a 172% jump in the company’s operating profit last quarter. Bajaj Auto has ended the year with earnings per share of Rs117.7, way higher than estimates of Rs90 per share till the middle of the previous fiscal. The success of the company’s newly launched models and the company’s ability to maintain high margins evidently took the markets by surprise. Analysts have been upgrading their earnings estimates almost every passing quarter.
Graphic: Yogesh Kumar/Mint
If Bajaj Auto is able to achieve its volume target of four million vehicles in this fical (a growth of 40% from current levels), it could well be another year of regular earnings upgrades. The company has also said that it should be able to achieve margins of over 20%. If it’s able to deliver on these two counts, it could end up with an earnings per share of over Rs170, says an analyst. This is way higher than current consensus estimates of Rs133 per share. Of course, it’s not necessary that Bajaj’s targets will be achieved. But even so, earnings upgrades are likely and this should keep the stock in demand, notwithstanding the sharp outperformance in the previous year.
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