Costlier bikes fuel rise in Bajaj Auto net profit

Costlier bikes fuel rise in Bajaj Auto net profit

Mumbai: Bajaj Auto Ltd, India’s second largest motorcycle maker, said fourth quarter profit more than doubled boosted by one-time gains and sales of pricier bikes.

Net income rose to 1,400 crore in the three months ended 31 March from 532 crore a year earlier, the firm said in a statement on Wednesday. Excluding one-time items, net profit grew 27% to 675 crore, beating analysts’ estimates. A Mint survey of five analysts had estimated net profit of 635 crore, on average.

Fourth quarter sales rose 23% to 4,052 crore. The firm hiked prices by 500-1,500 across its range of models at the beginning of the quarter.

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Profit was boosted by a one-time gain of 827 crore through pre-payment of sales tax, even as the company wrote down a loss of 102 crore from its Indonesian unit PT Bajaj Auto Indonesia, which has been accumulating losses for three years.

Bajaj had a liability of 1,200 crore on account of sales tax to be paid to the Maharashtra government over the next 10 years. The firm chose to pre-pay the amount and got a discount of 827 crore.

Exports accounted for a third of the quarterly revenue, the firm said in a statement.

But with the government considering to scrap duty entitlement passbook benefits—a duty drawback scheme granted against exports—from 1 June, analysts said Bajaj’s margins could be hurt in the coming quarters. The duty drawback programme allows exporters to claim refunds on taxes paid on imports.

“Should the government go ahead with scrapping the incentive, it will drag the company’s operating margins from the current 20% to 16%," said Mahantesh Sabarad, analyst at Fortune Equity Brokers (Pvt.) Ltd.

The firm’s duty drawback rate will drop 2 percentage points from 11%, Sabarad said.

For the year ended March, Bajaj Auto reported sales of 15,998 crore, up 39% from 11,509 crore a year earlier.

“Focus on high-end motorcycles and near record sales of commercial vehicles enabled the company to record healthy operating Ebitda margins of 20.5%, the best in the industry," the firm said in a note. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of operating profitability.

Costlier models such as Pulsar and Discover contribute almost one-third to the company’s sales volume.

Bajaj Auto’s commercial vehicle sales rose 16% to 110,000 units from a year earlier.

The firm has not been affected too much by high prices of key raw materials such as rubber, aluminium and steel, which have eaten into the profits of some other automakers. “This is despite the company missing the volume guidance of four million units for the full year," said Umesh Karne, analyst at the brokerage Bric Securities Ltd.

Steel prices increased 6% in the quarter ended March from the preceding three months, whereas aluminium prices rose 7% from the December quarter, putting further pressure on profitability of companies. Lead, a key ingredient in making batteries, has risen 9% from the preceding quarter, but the highest rise has been recorded by natural rubber, up 33% from the quarter ended December, Sachin Gupta and Chetan Vohra of Edelweiss Securities Ltd wrote in a recent research report.

Bajaj Auto sold 3.8 million units of two- and three-wheelers in both domestic and export markets during the fiscal, a rise of 34%.

“They have been able to manage their costs a lot better on back of a rich product mix and a price (hike) taken during the quarter," said Surjit Arora, analyst at the brokerage Prabhudas Lilladher Pvt. Ltd.

Bajaj Auto’s shares slipped 1.7% to close at 1,286.65 on the Bombay Stock Exchange, while the benchmark Sensex shed 0.3% to the close at 18,086 points.

The board of directors recommended a dividend of 40 a share on the expanded share capital after the issue of bonus stock to investors.

Graphic by Yogesh Kumar/Mint