Not surprisingly operating margins ""-at just over 14 per cent""were under pressure with input prices going up and the weak demand not allowing the company any pricing power. The fourth quarter was particularly difficult with margins falling to 12.8 per cent, a sequential fall of 220 basis points. Hero Honda has turned in a particularly good fourth quarter with operating margins up 460 basis points thanks to a check on costs. |
With the demand for two-wheelers unlikely to pick up significantly in the near term, the outlook for Bajaj in the current year doesn't seem too bright either. The Pune-based company's strategy has been to focus more on the 125 cc and above segments rather than on smaller bikes which are not profitable.
The 125 cc XCD, which has a run rate of 25,000 vehicles a month, hasn't exactly set the market on fire. But, Bajaj Auto says it's ready with four new models in the 125 cc plus segment""which now accounts for 36 per cent of the motorcycle market in volumes"" to be rolled out by December 2008.
The company has gained a share of 600 basis points in this space over the past year and now commands a share of 49 per cent, with its150 cc models doing well.
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Three wheelers"" currently selling at around 20,000""25,000 vehicles a month"" haven't fared as in the domestic market as they have overseas. A couple of new launches should help push up sales.
The company turned in a net profit of Rs 756 crore in FY08 but earnings are unlikely to grow significantly in FY09 and margins should remain under pressure.The stock should command a lower multiple than peer Hero Honda, which at the current price of Rs 788, trades at 14 times estimated FY09 earnings.
Chennai Petro: Turnaround quarter
Public sector refiner the Rs 28,018 crore Chennai Petroleum has turned in some sterling numbers for the March 2008 quarter. The refiner's gross refining margin ""-the difference between the cost of crude purchased and the price of finished petroleum products such as petrol and diesel""expanded nearly 50 per cent to touch a high, for the company, of $ 9.59 per barrel.
This was way better than the regional benchmark Singapore refining margins, which stayed flat at $ 6.9 per barrel and was due largely due to inventory gains of Rs 150 crore though losses from currency fluctuations offset a part of the gains. Besides, the refiner, whose throughput grew 1.5 per cent to 2.72 million tonnes, also sold a larger share of higher-margin middle petroleum products like aviation turbine fuel (ATF).
As a result, Chennai Petroleum's operating profit margin improved 110 basis points to 8.1 per cent in the March 2008 quarter on a rise in net sales of 46.7 per cent to Rs 8,399 crore.
That lead to a rise in the net profit of an impressive 82 per cent to Rs344 crore. Chennai's net sales growth in the first three quarters of FY 08, had varied between a negative 3.75 per cent and 19.7 per cent, but the strong March quarter numbers lifted the operating profit margin for the year by 300 basis points to 7.3 per cent.
Going forward, the refiner plans to increase capacity at its Manali refinery by one million tonnes from three million tonnes levels currently. This is being done by de-bottlenecking, at a cost of Rs 134 crore.
While the likely merger with IOC could be a negative for the stock because of IOC's problems relating to under-recoveries of costs because of oil subsidies, Chennai Petroleum, at Rs 346, trades at just 5.5 times estimated FY 09 earnings and is among the cheaper refineries both globally and in the domestic market and should outperform the market.