 "Bajaj Auto scores over Hero again in Q1")
Despite the five per cent decline in overall volumes, higher realisations on the back of price hikes helped the country's largest maker of two wheelers, Hero MotoCorp to limit the fall in revenues to 1.4 per cent in the June quarter, compared to the year ago period.
Given the economic slowdown, the motorcycle segment which gets the company about 90 per cent of volumes fell nine per cent year-on-year in the June quarter. Smaller peer Bajaj Auto too saw a fall in domestic volumes by 12 per cent for the quarter, partly due to the slowdown and strike at Chakan plant in Pune.
But, improved product mix especially on exports saved Bajaj the blushes and it reported growth of two per cent in revenues.
While both companies benefitted from falling raw material costs, Bajaj Auto saw its margins rise to 21 per cent. Higher three-wheeler sales whose share of export volumes went up from 53 per cent a year ago to 62 per cent, coupled with favourable currency movement helped Bajaj Auto improve its margins. This product mix coupled with better currency hedges helped the company boost export realisations by 23 per cent for the June quarter. On the other hand, lower raw materials costs and other expenses helped Hero to post an Ebitda margin of 14.9 per cent, higher than the estimated 14 per cent for the quarter. Analysts say margins also got a boost due to the increased sales of higher margin products Splendor and Passion.
Though Hero's performance was above estimates on the revenues and margins front, net profit was a tad disappointing given higher taxes. With its tax benefits shrinking and tax rate at 27 per cent as compared to 18 per cent in the year-ago quarter and higher than 22-23 per cent expected earlier, net profit growth was lower by 11 per cent vis-à-vis analyst estimates of about Rs 600 crore.
At Rs 1,758, Hero's stock is trading at 16 times FY14 estimates and most analysts have a buy on the company. However, analysts say that Bajaj Auto continues to have the edge vis-à-vis Hero MotoCorp as it will continue to reap the benefits of weaker rupee, better product mix and has a better risk profile given 50 per cent of revenues for the current financial year are expected from spares, exports and three wheelers. Its consistency too is a critical differentiator. Says an auto analyst with a domestic brokerage, "Bajaj's margin performance has been consistent and they have been able to launch products with their own technology unlike Hero."
Analysts believe that the premium difference in valuations (Bajaj at 17 times) is likely to stay.
Outlook
Going ahead, while Bajaj Auto has said that it will launch six new models/variants /refreshes just before the festival period, Hero MotoCorp has indicated that it has lined up seven-eight launches.
With Honda adding a further 1.2 million units (in capacity) this financial year, analysts believe the going will get tougher for Hero MotoCorp going ahead as compared to Bajaj. While it is difficult to replicate the market leaders vast distribution network, until it launches its own indigenously developed product, and given aggressive competition, it will have its task cut out.
Given the economic slowdown, the motorcycle segment which gets the company about 90 per cent of volumes fell nine per cent year-on-year in the June quarter. Smaller peer Bajaj Auto too saw a fall in domestic volumes by 12 per cent for the quarter, partly due to the slowdown and strike at Chakan plant in Pune.
But, improved product mix especially on exports saved Bajaj the blushes and it reported growth of two per cent in revenues.
While both companies benefitted from falling raw material costs, Bajaj Auto saw its margins rise to 21 per cent. Higher three-wheeler sales whose share of export volumes went up from 53 per cent a year ago to 62 per cent, coupled with favourable currency movement helped Bajaj Auto improve its margins. This product mix coupled with better currency hedges helped the company boost export realisations by 23 per cent for the June quarter. On the other hand, lower raw materials costs and other expenses helped Hero to post an Ebitda margin of 14.9 per cent, higher than the estimated 14 per cent for the quarter. Analysts say margins also got a boost due to the increased sales of higher margin products Splendor and Passion.
Though Hero's performance was above estimates on the revenues and margins front, net profit was a tad disappointing given higher taxes. With its tax benefits shrinking and tax rate at 27 per cent as compared to 18 per cent in the year-ago quarter and higher than 22-23 per cent expected earlier, net profit growth was lower by 11 per cent vis-à-vis analyst estimates of about Rs 600 crore.
At Rs 1,758, Hero's stock is trading at 16 times FY14 estimates and most analysts have a buy on the company. However, analysts say that Bajaj Auto continues to have the edge vis-à-vis Hero MotoCorp as it will continue to reap the benefits of weaker rupee, better product mix and has a better risk profile given 50 per cent of revenues for the current financial year are expected from spares, exports and three wheelers. Its consistency too is a critical differentiator. Says an auto analyst with a domestic brokerage, "Bajaj's margin performance has been consistent and they have been able to launch products with their own technology unlike Hero."
Analysts believe that the premium difference in valuations (Bajaj at 17 times) is likely to stay.
Outlook
Going ahead, while Bajaj Auto has said that it will launch six new models/variants /refreshes just before the festival period, Hero MotoCorp has indicated that it has lined up seven-eight launches.
With Honda adding a further 1.2 million units (in capacity) this financial year, analysts believe the going will get tougher for Hero MotoCorp going ahead as compared to Bajaj. While it is difficult to replicate the market leaders vast distribution network, until it launches its own indigenously developed product, and given aggressive competition, it will have its task cut out.