Thrust from product mix

Bajaj Auto's July bike sales show marked improvement

Bajaj Auto has reported a stark improvement in motorcycle sales in the month of July. Sales grew 32 per cent last month, much better than the 15 per cent growth recorded in the June quarter.

In the June quarter, even though sales were relatively sluggish, a better product mix saved the day for the company. Overall sales, that's sales of both two-wheelers and three-wheelers, grew 7.3 per cent last quarter in volume terms. However, a better product mix helped sales in revenue terms to grow by over 14 per cent.

What's more, it helped in an over 100 basis points improvement in operating margin. Raw material expenses increased almost 300 basis points as a percentage of sales, because of a jump in prices (year-on-year) of inputs such as steel.

But a cut in other overheads made up, leading to the improvement in margins. One of the reasons for this, say analysts, is a cut in advertising and promotional spend.

It will be difficult to contain advertising spend going forward, though, what with the expected launch of the company's new bike in the 110-125 cc segment.

This bike has been made on an extremely new platform, with the admitting that it's been difficult to beat Hero Honda on the four-stroke platform in the 110-125 cc segment (Splendor/Passion).

As always, the markets are eagerly looking forward to the company's new offering. But regardless of how the new bike performs, the pick up in sales in the month of July is a healthy sign, especially since it also involves a better product mix. What's more, at close to 10 times FY05 earnings, Bajaj's valuations are not too demanding.

Satyam Computer

Satyam's first quarter results have shown a sequential revenue growth of 7.05 per cent, and income from software services, at Rs 771.50 crore, was well above the guidance.

Likewise, earnings per share at Rs 5.48 was well above the forecast of between Rs 4.76 to Rs 4.78. The revenue growth was entirely on account of an increase in the number of hours billed, while billing rates remained flat.

But although profits after tax were up 23 per cent on a sequential basis, operating profits rose by only 4.7 per cent. That was because substantial "other income" boosted profits.

The main reason was a Rs 6.4 crore foreign exchange translation gain""-the actual translation gain was Rs 28 crore, but the company's new mark-to-market policy resulted in a substantial loss, since forward cover had been obtained at a rate of Rs 44.40 per dollar, while the mark-to-market was made at Rs 46 to the dollar. This loss was offset against the translation gain.

The forex gain also helped offset the impact of a 4 per cent hike in onsite wages, which squeezed EBITDA margins slightly.

Going forward, Satyam has revised its revenue as well as earnings guidance upwards, with the revised EPS for this fiscal projected between Rs 21.71 and Rs 22.06.

While that's an annual growth rate of between 26.2 per cent to 28.3 per cent, EPS for the second quarter is also projected at around Rs 5.48, which means that EPS growth for the rest of the year is flat.

Hydrocarbon, power tailwind for Larsen & Toubro

With capital expenditure both in India and the overseas markets continuing to remain strong, Larsen & Toubro (L&T) had no difficulty growing its profit after tax by 27 per cent to Rs 80.13 crore.

The company has successfully leveraged the opportunities in the hydrocarbon and power sector. Key orders included those from NTPC for installing boilers worth Rs 239 crore at their facilities at Chhatisgarh, and from Zhonguan Dahua Group Company, China.

The growing international recognition of the company's expertise has been reflected with exports constituting approximately 31 per cent of the orders bagged in the last quarter. Segment revenues rose 74 per cent to Rs 2,277.45 crore in the June quarter.

Although input costs, like that of steel, were quite strong, improved design and planning of projects helped the company to keep segment profit margins steady at 5.3 per cent in the last quarter. The order backlog for this division grew 17 per cent year-on-year to Rs 16, 581 crore.

The company's relatively smaller electrical and electronics division also saw revenues grow 24 per cent to Rs 250.84 crore.

Analysts point out that demand from the industrial sector was especially strong for the company's electrical switchgear products. Crucially, the export sales of this division also grew three fold to Rs 17 crore in the last quarter.

Going forward, the company will be one of the large beneficiaries of the large investments planned in the global hydrocarbon market.

Further, the company's efforts to get into more sophisticated engineering projects both in India and overseas would not only help it to move up the value chain but also grab a larger portion of the booming projects and turnkey business.

With contributions from Mobis Philipose and Amriteshwar Mathur