Bajaj Auto: Other income bumps up Q1 PAT

Realisations decline sequentially as product mix deteriorates

Bajaj Auto posted its best ever quarterly performance on Thursday, with net profit crossing Rs 1,000 crore for the first time. The market, however, gave it a thumbs-down, as sales and volume growth remained muted. Volumes grew 2.5 per cent, while net sales increased 7.2 per cent over a year to Rs 5,505 crore. Sales growth was 8.7 per cent below the Street’s estimated Rs 6,028 crore. Boosted by higher other income and dividend from KTM, net profit, however, rose 37 per cent over a year to Rs 1,015 crore.

What has not gone down well with investors is the fall in realisations during the quarter, thanks to a less-than-favourable product mix. Though domestic realisations inched up 1.5 per cent compared to the corresponding quarter last year, sequentially these were down 9.6 per cent. Export realisations declined 6.3 per cent sequentially even though it went up 8.5 per cent over a year. Emkay Global says its product mix seems significantly inferior. Analysts believe the share of entry-level motorcycles has increased, which has impacted realisations. The company has managed to expand its share in the domestic market by 300 basis points (bps) to 18 per cent in the June quarter but this has come at a price.

 

 

Bajaj Auto has not disappointed on margins. Its adjusted operating margins expanded 141 basis points (bps) over a year and 274 bps sequentially to 20.3 per cent, largely in line with the expectations. Lower raw material prices and employee costs have had the resultant impact on margins. Raw materials as a percentage of sales declined to 67.2 per cent in the quarter, from 70.1 per cent in the corresponding period last year and 67.5 per cent in the previous quarter. Employee costs as a percentage of sales declined to 4.3 per cent, from 5.5 per cent in the previous quarter.

Analysts have turned cautious after the latest quarterly show, as volume growth remains muted and the product mix has deteriorated.