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Bajaj Auto Ltd reported robust performance for the September quarter, boosted by export volumes. 

With weak demand for two-wheelers in the domestic arena, sales of the segment in India were down 11% year-on-year. However, it was the 31% year-on-year rise in two-wheeler exports that helped overall volumes in the segment grow 7% year-on-year.

The stock gained up to 2% in early trade on Thursday on a day when broader markets remained weak.

The positive is that with a rebound in the economy, commercial vehicles (CV) as three-wheeler sales are making a recovery. Overall CV volumes grew 29% year-on-year helped by 8% growth in exports and 88% y-o-y growth in domestic sales. The sustenance of the trend will remain watched for.

Total sales volume growth of 9% was well complimented by the realization’s improvement. Per-unit realisations improved by 11% YoY and 3% sequentially to 75328 due to regular price hikes. This was better than estimates. Hence, the company’s revenues from operations could grow 22.5% year on year.

Rising raw material costs continued to play a spoilsport. Raw material costs at 74.9% of sales were much higher than 73% of sales in Q1 and 70.7 % of sales in the year-ago quarter. Price hikes have been insufficient to completely take care of the rise in raw material prices. Gross margins still declined 420bps and Ebitda margins at 14.6% were still lower than 15.2% in the previous quarter and 17.7% in the year-ago quarter.

The recovery in domestic two-wheeler demand remains crucial to lifting the prospects of two-wheeler manufacturers in India. The impact is more profound on the entry-level two-wheeler segment and the positive is that Bajaj Auto has a higher presence in segments above the entry level.

Meanwhile, all eyes are on the ongoing festive season which may drive the sales of domestic two-wheelers. The company is also setting up a captive finance subsidiary to undertake customer financing of products manufactured/marketed by the company and its subsidiaries/associates. Analysts at Motilal Oswal Financial Services Ltd say that this subsidiary is expected to strengthen the financing options for its customers.

As efforts on pushing up domestic sales continue, the strong export sales are supporting Bajaj Auto’s earnings prospects and keeping investors optimistic

 

 

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