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Home >Markets >Mark To Market >Bajaj Auto clocks a decent Q4, but cost inflation is back to haunt

Bajaj Auto Ltd exceeded the Street’s estimates in the March quarter on key earnings parameters. Standalone Q4FY21 revenue at 8,596 crore was ahead of Bloomberg’s consensus estimate of 8,065 crore. Net profit at 1,332 crore exceeded analysts’ expectations of 1,312 crore.

Aided by a favourable base, overall sales volumes rose 18% year-on-year. Bajaj Auto sold 11,69,664 units in the March quarter compared to 9,91,961 units in the year-ago period.

In a post-earnings conference call, the management said that the contribution from its 125cc segment has risen from 46% in FY20 to 60% in Q4FY21, courtesy the success of Bajaj Pulsar 125cc model. In this segment, its market share has improved from 7% in FY20 to 19% in Q4FY21. Further, the management said that exports remain robust and expects FY22 to be one of the best years.

The cost pinch
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The cost pinch

Still, the stock reacted negatively to the earnings, ending Thursday’s session nearly 1.5% lower on the NSE. Rising cost inflation, which has started to weigh on margins, is making investors worried, analysts said.

Ebitda margin stood at 17.7% in Q4FY21. Ebitda is short for earnings before interest, tax, depreciation and amortization. Although operating margin meets the consensus estimate of 17.7%, compared to the year ago, margins have contracted by 65 basis points (bps). One basis point is one-hundredth of a percentage point. Sequentially, the impact on high input cost is more pronounced with a decline of 168bps.

The management did acknowledge this headwind from rising input cost inflation. However, it is taking steps in the form of price hikes to mitigate the impact. According to the management, input costs increased by 6-7% between January and now, adding that cost pressures persist in the current month, too. The company took price hikes of 1.5% in Q4FY21 and another 2% hike in April.

The management added that price hikes taken by the company in India and overseas are ahead of its competition.

Recently, the two-wheeler manufacturer hiked the prices of its KTM and Husqvarna bikes in India. From April, the KTM bikes have become expensive by 8,812 and the Husqvarna bikes by 9,728. But analysts are far from being convinced.

“Going by the management commentary, cost inflation has not been passed on fully, so we expect another 100-150bps margin contraction for Bajaj Auto in the coming quarters," said an analyst with a domestic brokerage house, requesting anonymity.

Meanwhile, so far this month, the Bajaj Auto stock is up roughly 11%, outperforming the benchmark index Nifty Auto, which rose nearly 7% in the same period. Analysts said while the management is confident of pent-up demand aiding volumes once the pace of vaccination improves, elevated input cost remains a near-term concern, which can weigh on the stock’s performance.

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