Bajaj Auto unfazed by 15% net slump

Blames consumer fatigue with 100cc bikes for slowdown.Bajaj Auto today announced a 15 per cent drop in net profit for the first quarter of this financial year "" its second straight decline in quarterly profit "" amid slowing demand for motorcycles and rising interest rates.However, the company remained defiant. Attributing the slowdown to consumer fatigue with 100 cc motorcycles, it forecast higher profitability in the second half of this financial year, boosted by rising sales of motorcycles with bigger engines.It has developed a new motorcycle in the sub-150 cc segment that purportedly has the fuel efficiency and price tag of an entry-level 100 cc motorcycle. It will hit the market in September this year.The 100 cc segment constitutes the largest portion of the motorcycle market and manufacturers have for long cashed in on it, none more so than Hero Honda, the market leader and Bajaj's arch rival.In a buoyant market, the Bajaj Auto stock gained 3.1 per cent to close at Rs 2,194 on the Bombay Stock Exchange.Bajaj Auto's total income, net of excise, fell nearly 4 per cent to Rs 2,212 crore. It sold 494,042 motorcycles in April-June this year, a drop of 13 per cent, which is sharper than the 11 per cent decline in all motorcycle sales."We had to take the hard decision of cutting inventory and production. By reducing inventory, we actually reduced our market share by 3 per cent, but this was essential as dealers would otherwise be sitting on huge unsold stock," said S Sridhar, head of Bajaj Auto's two-wheelers division.The company contained the erosion in its margin, caused by rising raw material cost, by selling more high-value products. The EBIDTA margin for the quarter was 13.2 per cent compared with the last financial year's 15 per cent. The industry average is about 10 per cent."Last year, 125 cc motorcycles constituted 40 per cent of our sales. The figure was 50 per cent last quarter," said Shridhar.Addressing shareholders at the annual general meeting in Pune, Managing Director Rajiv Bajaj said: "The drop in demand for 100 cc bikes is due to product fatigue. A new motorcycle, which will be launched in September, will change the scene and the company will see a much better second half of the year 2007-08."Chairman Rahul Bajaj said 15,000 units of the new motorcycle would be manufactured every month in the initial period, to be ramped up to 50,000 by March 2008.He said the margins were under pressure due to rising input costs, competitive pricing and a slowdown in the market.The company is increasing exports to Indonesia and Latin America to cut its dependence on India. Exports in the last quarter rose 52 per cent to 149,804 vehicles.Reacting to a query on the future of the company's plant at Akurdi, Bajaj said there was no plan to shut it down."Although the production at Akurdi has fallen from 350,000 in 2005-06 to 50,000 in 2006-07, we will not close down the plant. Closing down a plant in a profit-making company is not simple, given the legal structure," he said.The cost of production at Akurdi is higher than that at some of Bajaj Auto's other plants, such as the one in Pantnagar, Uttaranchal, which enjoys tax exemptions.With a series of voluntary retirement schemes in the last six years, the number of workers at Akurdi has come down from 4,500 to 2,600.On the other hand, the Pantnagar plant produces 500,000 units with fewer workers. An extraordinary general meeting of the company will be convened on August 18 to seek an approval for the three-way demerger scheme proposed by the company.

Bajaj Auto unfazed by 15% net slump

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