Volume push from product launches and exports are likely to be the mainstay and provide some cushion to Bajaj Auto in FY13 as growth in the domestic market continues to be tepid. This is also visible in the September 2012 quarter. Despite new product launches in the quarter --the Discover ST and the Pulsar 200 NS, the company saw a fall of 7% in motorcycle sales in the domestic market. However, the company bucked the trend in the three-wheeler segment thanks to the introduction of three-wheeler diesel variants which helped domestic volumes for the quarter in the segment grow by 3% against flat industry growth. While the demand front has been weak, the company has done well operationally to curb the impact on its financials. Thus, despite a 10% fall in its September quarter volumes (two and three wheelers), revenues fell only 4% due to higher realisations. Increasing sales of its three-wheelers, Pulsar and higher range of the Discover motorbikes helped realisation improve 6% year-on-year.
These also reflected in the Ebidta margins which came in at 18.4%, down 40 basis points over the year ago quarter but up 50 basis points sequentially, with the company managing to keep the raw material to sales ratio similar to the June quarter levels.
Going ahead, the company expects to maintain its margins on the back of successive price hikes for three wheelers as well as Discover brands in July and October. The Street has given a thumbs up to the results with the stock up nearly 1%. At Rs 1,781, it trades at 13.7 times its FY14 estimates with price targets in the range of Rs 1,850-Rs 2,000.
Domestic market: Muted growth
The company saw a fall of 12% year-on-year in the domestic motorcycles volumes in the September quarter on the back of a slowdown. The muted picture continues with the first few days of festival season showing flat to a marginally positive growth says the company’s president, finance Kevin D’Sa. The company has, however, been able to improve its market share both in the commuter segment (Discover) by 600 basis points to 25% as well as the premium segment (Pulsar) by 500 basis points to 50% during the April to September 2012 period.
While the management has maintained an overall five million (domestic/exports) target for FY13, analysts believe it is likely to achieve 4.4 to 4.5 million given the slowdown. Going ahead, analysts say the company is likely to bank on new launches (bike in January) to boost lower volumes. Things could look up in the three-wheeler segment given the recent launch of diesel variants, which helped the company outperform sector growth. If the proposed introduction of new three wheeler permits in Delhi and Hyderabad comes through, the average monthly volumes are likely to improve from the current 18-19,000 to 20-22,000 per month.
Export focus
While exports (contributes 35% of volumes) grew 31% year-on-year in FY12 to 1.5 million units, they are down 5% in the first six months of the fiscal at 8 lakh units. For the September quarter, while motorcycle volume growth for exports fell less than decline in domestic volumes, the fall was more significant in the three wheeler export space which saw a decline of 22% due to issues with the Sri Lankan market. Sales have recovered though on price cuts, but they are still 20-25% lower than average volumes in that market.
Given the muted volumes in the domestic market, the company continues to focus on the export markets and expects to ride on its tie-up with Kawasaki and existing distribution networks. The fastest growth is likely to come from the African market which is growing at a rate of 10-15% and accounts for a sizeable 45% of the company’s export volumes. While the global slowdown continues to impact sales in its other (non-African) markets, entry into new markets and alliances should help on this front. The company continues to stick to its target of doubling export volumes by 2016.
