These are hard times for the Rs 9,046 crore Bajaj Auto. Rising interest rates and banks' reluctance to lend for two wheeler purchases have meant weak volumes in the home market. Not surprisingly, the company's top line grew at just 9.7 per cent to Rs 2,311 crore in the June 2008 quarter.
That was not sufficient to offset the increase in the raw material bill, which rose about 300 basis points and brought down the operating profit margin by nearly 200 basis points to 11.5 per cent. As a result, the net profit fell marginally to Rs 175 crore.
The company's motorcycle volumes are unlikely to grow at more than 8-9 per cent over the next couple of years, despite the fact that exports are growing. Volumes in the June quarter, which were up13 per cent, were driven, to a large extent by exports.
A very large proportion of around 50-60 per cent of Bajaj Auto sales are driven by customer loans from banks; for Hero Honda the proportion is lower at 25 per cent. Given that interest rates remain high, sales in the home market are unlikely to grow by more than 4-5 per cent.
The management believes sales will pick up in the second half of the year with the launch of four new models at the higher end