Mumbai: Bajaj Auto Ltd’s fiscal fourth-quarter profit fell 15%, the steepest decline in 12 quarters, as motorcycle and three-wheeler sales in India fell because of a cash crunch following the government’s decision to scrap high-value banknotes and a switch to stricter vehicle emission norms.
Bajaj’s overseas motorcycle sales also fell because of economic and political uncertainties in export markets such as Nigeria and Sri Lanka.
The maker of the Pulsar and Discover brands reported a net profit of ₹ 02 crore in the three months ended 31 March, missing analysts’ estimates, from ₹ 49 crore in the year-ago period. A Bloomberg poll of analysts estimated sales at ₹ 827.6 crore and profit at ₹ 842.2 crore.
Revenue dropped 8.7% to Rs5,212.83 crore from Rs5,710.17. Motorcycle and three wheeler sales including exports, dropped 9.7% to 787,627 units in the March quarter.
S. Ravikumar, president- business development and assurance at Bajaj Auto, said sales of both motorcycles and three wheelers are likely to pick up as invalidating of the high denomination currency in November and transition to stricter Bharat Stage IV emission norms had created some temporary confusion in the market.
A normal monsoon coupled with the implementation of the goods and services tax (GST) will add further heft to the recovery, he said. GST is expected to be implemented on 1 July.
In a departure from the past, Ravikumar, declined to give forecasts for sales volume or marketshare for the company.
Bajaj’s earnings before interest, tax, depreciation and amortization (Ebitda) margin, a measure of profitability, narrowed to 21.2% in the March quarter from 23.3% a year ago. The company attributed it to the rise in input costs and increase in costs on transition from BS III to BS IV compliant vehicles. Its outgo on CSR also rose sharply during the quarter to Rs73 crore from Rs9 crore a year ago.
“Unlike other competitors, we did not have to write, big fat cheques or liquidate the channels on 31 March and that helped us maintain margins," said Ravikumar. Market leader, HeroMoto Corp Ltd also bore the brunt of the note ban and switch to BS IV. Hero’s fourth-quarter earnings contracted 14% and two-wheeler sales dropped 7%, the company said on 11 May. It had pegged the cost of liquidation of its BS III two-wheeler inventory at a discount at Rs193 crore.
Nitesh Sharma, an analyst at Phillip Capital Pvt. Ltd, said Bajaj Auto’s earnings were marginally below estimates. “The company reported weak margins despite robust realisation improvement -- up 10% quarter on quarter helped by a higher contribution by costlier bikes. These include the V15 and V12 of which it has sold 234,000 units since its launch in December 2016 and high-end Dominar motorycle, which also went on sale the same month and of which Bajaj has sold 9,300 units since its launch.
“While BS III inventory clearance discounts were minimal for Bajaj, we would keep a watch on discount amount during the quarter," he said, adding that the brokerage has a BUY rating on the stock as it expects a recovery in domestic and exports market.
With the company entering several new markets including Poland, Malaysia, Latin America, it expects volumes to pick up from the levels of last year, Ravikumar said. In the fiscal year that ended in March, India’s largest exporter of motorcycles, saw the contribution of exports drop to 39% from 45% in fiscal 2015-16. “It’s unlikely to fall further," he said.
The company’s board recommended a dividend of ₹ 5 per share, maintaining last year’s pay out. Bajaj’s consolidated profit after tax was for the full year rose marginally to ₹ 4,079 crore from ₹ ,061 crore in fiscal 2015-16.
Bajaj Auto’s shares fell 1.94% to ₹ 2,973.85 on Thursday. The benchmark Sensex shed 0.73% to 30,434.79 points.