Bajaj Auto Oct-Dec net profit likely to rise 15%

Bajaj Auto Ltd is expected to report a net profit of Rs 207 crore for October-December, up 15 per cent on year.

This is as per the average of estimates of 13 brokerages polled by Crisil MarketWire. Sales for the quarter are seen at Rs 1552 crore, up 18 per cent on year. The two-wheeler major will announce its earnings Wednesday.

Falling three-wheeler volumes, change in product mix, and aggressive marketing schemes are expected to weigh on the company's operating margins, resulting in lower bottomline growth, analysts said.

And if these were not enough, other income is expected to fall while the effective tax rate expected to rise, further checking net profit growth, they said.

Estimates for net profit range between Rs 186 -230 crore, while net sales are pegged between 1533-1761 crore. Analysts said the company's operating margins were likely to decline due to shift in product mix towards the economy segment and aggressive marketing schemes.

"We expect Bajaj Auto to report a contraction of 200 basis points on a year-on-year basis," said Kalpesh Parekh, analyst with ASK-Raymond James and Associates.

A decline in three-wheeler sales-due to rising competition-is a cause for concern, considering that the margins were the highest in this segment.

Bajaj Auto's three-wheeler sales during the quarter fell 22 per cent on-year to 49,501 units. Sale of motorcycles, however, surged 63.5 per cent on year to 441,355 units.

The success of the economy segment motorcycle, CT-100, 125cc Discover and 150cc and 180cc Pulsar models would help Bajaj Auto maintain the current momentum in motorcycle volumes.

However, the operating margin would remain under pressure due to decline in three-wheeler volumes, said Amit Kasat of Edelweiss Capital. He said the average realisations would also drop due to high percentage of economy motorcycles in the product portfolio.

"We expect EBIDTA margins to decline 270 basis points on-year to 16.8 per cent. However, we expect margins to be up 160 basis points on a quarter-on-quarter basis," said a note by ICICI Securities.

Bajaj Auto, which competes with Hero Honda Motors and TVS Motor Co., expects to sell 1.5 million motorcycles during 2004-05 (April-March).

Today, Bajaj Auto shares closed at Rs 1,090.45 on the National Stock Exchange, up nearly 3 per cent over Monday.