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Bajaj Auto’s first-quarter numbers have come in a tad below estimates. The company has been hit by both weak demand and pricing pressure. As its year-on-year (y-o-y) volume growth was flat in the June quarter, revenue and profit growth was expected to be muted. However, the adverse product mix and rising costs have dented the firm's bottom line. During the first quarter, its net profit remained flat compared to last year, even as revenues grew 7.5 per cent. Bajaj Auto's volumes have been under pressure in the domestic market, as it does not have scooters in its product portfolio, which have been driving volume growth for rivals Honda, TVS Motors, and Hero MotoCorp.
While Bajaj Auto's export revenues grew 20 per cent during the quarter, volumes expanded 22 per cent. However, the double-digit sales growth has done nothing to the profitability. Despite a 10 per cent benefit in the currency (rupee is weaker by 10 per cent, y-o-y), Bajaj Auto's export realisations have not improved.
The company’s profitability is visibly under pressure. In the June quarter, Bajaj Auto’s operating margins declined 150 basis points y-o-y and 70 basis points quarter-on-quarter to 18.9 per cent. The profitability has come under pressure, as the firm is unable to pass on increased costs to consumers. During the June quarter, employee costs and raw material have risen, compared to the previous quarter. Compared to the March quarter, raw material costs as a percentage of sales has increased 50 basis points to 70.1 per cent, while employee costs have risen 60 basis points to sequentially to 4.1 per cent of sales. Analysts are concerned about the uptick in employee costs as such a sharp move is not usual. The company is expected to answer some of these questions in an analyst call on Friday. Analysts don’t expect the firm to benefit from a recovery in volumes this year. They expect Bajaj Auto to continue to clock single-digit volume growth in FY15.
