Maintaining margins tough, says Bajaj Auto

Maintaining margins tough, says Bajaj Auto

Mumbai: India’s second largest motorcycle maker Bajaj Auto Ltd said maintaining profit margins at current levels would be a challenge after reporting on Wednesday that profit more than quadrupled in the final quarter of the fiscal ended March.

Bajaj Auto, which is planning to launch an ultra low-cost car with Nissan Motor Co. and Renault SA in 2012, beat forecasts with a net profit of Rs529 crore for the quarter, up from Rs130 crore in the same period last fiscal. Operating margin rose to 22.9% from 14.2% in the year-ago period.?The rise in raw material prices in the fourth quarter (Q4) had been negated to some extent by robust sales, Kevin D’sa, vice-president (finance), said.

However, raw material costs as a percentage of sales—which had risen to 69.3% in Q4 from 66.2 % in the first quarter of last fiscal—were still climbing. “On the material costs side there will definitely be an increase," he said. “If you take a longer-term view and don’t look at it quarter on quarter, the margin of 22.9% will be a challenge to maintain."

However, pressure on margins could be offset to some extent by higher margins from more powerful bikes such as the Pulsar and other high-end bikes, besides increased exports, D’Sa said. Bajaj also sells the 100cc Discover brand. The two together are expected to sell one million units a year, the firm said, without specifying a time frame.

For the bike industry as a whole, sales rose 30% last year and are expected to rise 12-14% this fiscal, he said. Bajaj Auto shares that have a market cap of Rs31,696 crore, on Wednesday ended 1% higher on the Bombay Stock Exchange at Rs2,145.70, while the Sensex rose 0.32% to end at 17,195.81.