Bajaj Auto's Q3 net profit declines 22% on weak domestic volumes

A weak demand in the domestic two-wheeler market singed the net profit of Bajaj Auto for the December quarter. This comes even as exports are expected to touch record high with normalcy returning to most of the markets it serves.

Net profit at the maker of Pulsar and Discover models contracted 22 per cent year-on-year (YoY) to Rs 1,214 crore from Rs 1,556 crore in the corresponding quarter of FY21. During the three-month period, net sales rose marginally to Rs 9,022 crore from Rs 8,910 crore a year ago. A Bloomberg poll had pegged net profit at Rs 1,327 crore.

During the quarter, Bajaj’s motorcycle sales in the domestic market declined 20 per cent YoY to 471,284 units. Overall exports during the quarter crimped 4 per cent to 658,062 units. 

Strong export volumes and better realisation, coupled with price increase taken in the domestic market to offset input costs helped the firm improve EBITDA (earnings before interest, tax, depreciation and amortisation) margin sequentially. It went up from 15 per cent in the second quarter to 15.6 per cent in the third quarter. It was 19.8 per cent in the year-ago quarter.

“This quarter should be looked at sequentially instead of YoY. Unlike last year’s Q3, there was no-pent up demand this year. Last year, there was a positive base effect but this year it’s a negative one. The economics of the two-wheeler market is badly affected. The demand environment is still very fragile,” said Rakesh Sharma, executive director, Bajaj Auto. Retail sales at the industry level declined 11 per cent in the December quarter YoY. The first half of January is also showing a double-digit decline, he said.

“Our performance has improved quarter on year and we have gained market share in the motorcycle segment by 1.6 percentage points according to Vahan data. This year, we expect to clock 2.5 million units of exports, a 23 per cent increase over last year. Even in value terms, it will be $3.3 billion. Both volume and value will be an all-time high,” said Sharma.   

All the cost increases started to hit the industry from the fourth quarter of last fiscal. The increments were not commensurate with increase in the input costs as the demand environment was weak, he said. The company took a price increase of 1-1.2 per cent in the third quarter. It expects to take a similar amount in the current quarter.   

The company’s operational performance was better than estimates, said Mitul Shah, head of research, Reliance Securities. “Bajaj Auto reported a healthy operational performance despite subdued volumes in Q3 of FY22. We expect exports business to witness a healthy growth in FY22E on the back of positive traction in the African market,” said Shah.

He expects the two-wheeler industry to recover gradually in FY23 and estimates Bajaj’s three-wheeler business to bounce back strongly in Q4 of FY22.

Sharma said even as the pressure from material prices has reduced a bit now compared to what it was six months ago, the uncertainty remains and it would have to be watched carefully. Talking about the three-wheeler business, Sharma said he expects the recovery to continue as the curbs aren’t as stringent as last time.