Bajaj Auto expects pent-up demand to drive retail sales in the Q22 min read . Updated: 22 Jul 2021, 07:19 PM IST
- The company expects wholesale dispatches to remain below retail demand since dealers are holding stocks in the range of 7-8 weeks
Bajaj Auto Ltd – one of the country’s largest motorcycle manufacturers – is expecting retail sales of motorcycles to improve in the second half on account of pent-up demand in the domestic market after gradual easing of the regional restrictions. The company, though, expects wholesale dispatches to remain below retail demand since dealers are holding stocks in the range of 7-8 weeks.
Bajaj also reported its second highest export volumes of 650,000 units during the June quarter and the company expects volumes to further strengthen once some of the African and East Asian markets recover from surge in Covid cases.
According to Rakesh Sharma, executive director, Bajaj Auto, the first quarter was a tough one to navigate largely because of the suddenness of the second wave but exports were steady despite the logistics problem.
“Going forward, there is this lurking fear about the third wave. Keeping that aside, we should see good recovery on pent-up demand getting released into the market. In domestic motorcycles, wholesale will trail retail because there is sufficient level of stock in the channel. This was not the case last year. In the aftermath of the BS4 to BS6 transition post covid, pent up demand came and there was a need to fill stocks in the channel. It was a double advantage," said Sharma.
The auto industry came under pressure from the first week of April when Maharashtra began strict lockdown measures. Delhi, Haryana, Karnataka, Tamil Nadu and others followed suit. Most manufacturers either stopped production or reduced output significantly.
Some like Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders. With a steady drop in infections most automakers have resumed operations from the middle of May.
“Exports I guess will hold steady and we have been talking above almost 2 lakh every month and it should continue. Some of our key markets like Philippines, Cambodia, Uganda, are facing an acute pandemic problem. Hopefully if cases start to recede we will see these markets also come into play. So by the end of Q2 or beginning of Q3 these markets will be back and strengthen the exports," said Sharma.
He also added that the only downside for the company is the increase in raw material costs and due to the fragile economic recovery after the second wave the company is finding it difficult to pass on the increase. “So we have to see how to manage that. Hopefully with demand coming back, the operating leverage which we lost will come back in Q2."
Bajaj Auto doubled its net profit of ₹1061.20 crore for the quarter ending June 30, on a year-on-year basis, as a result of the low base of last year. The company reported a net profit of just ₹528 crore for the corresponding period last fiscal due to nationwide lockdown to tackle the first wave of Covid-19.
The Pune-based manufacturer reported a bottom line of ₹1551.28 crore in the fourth quarter of FY 21.
Revenue from operation grew by 139.86% to ₹7386 crore due to the robust export orders during the quarter. On a sequential basis, the company’s topline dropped from ₹8596.10 crore in the fourth quarter of FY 22.
Bajaj’s operating profit or earnings before interest, tax, depreciation and amortization (EBITDA) also rose by 174% to ₹1120 crore and the operating margins also expanded by 190 basis points to 15.2% due to the cost cutting efforts and increase in volumes.
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