The success of new products is apparent in the Bajaj Auto's financials for the first-half of the year.
Aided primarily by three new product launches, Bajaj has achieved sales of Rs 1,820.94 crore over the Rs 1630.79 crore achieved in the corresponding previous period.
The 11.65 per cent increase in sales was largely due to higher sales of the upper-end, higher priced products like motorcycles (up 26.2 per cent) and scooters (up 10.5 per cent). Bajaj launched the Caliber, Legend and Spirit during the year. Subsequently, the net profit has also risen 10.13 per cent to Rs 266.20 crore during the period.
The company's two-wheeler sales increased 14 per cent to around six lakh vehicles against 5.27 lakh vehicles last year. However, Bajaj has lost some of its marketshare in this segment from 36.7 per cent to 36.5 per cent.
Sales of three-wheelers, however, continued to fall. This segment has largely been affected due to a ban on fresh licenses in certain states.
However, despite these adverse circumstances, Bajaj's marketshare in this segment increased from 83 per cent to 87.5 per cent in this period.
Bajaj's margins have been hit slightly. Operating margins have fallen from 17 per cent to 16.75 per cent due to the hike in raw material costs, and an increase in the wage bill consequent upon the recent wage agreement.
Due to a 18 per cent rise in depreciation (Rs 80.9 crore) and a slower growth of nine per cent in other income, profit before tax has grown only by 8.2 per cent.
However, the 10.1 per cent growth in net profit has come from the declines in the tax rate. The effective tax rate declined to 32.5 per cent in the first half of last year to 31.3 per cent in the first-half this year.
Bajaj is set to launch the upgraded Super, Chetak, Classic-SL and M-80, a new 150 cc scooter, and a 50 cc moped for the Tamil Nadu market. Says Bharat Parekh, analyst at brokerage house Prabhudas Lilladher: "With new product launches well underway, Bajaj will post a rise in sales volumes and margins as the increase in input costs is being passed on to the consumer."
He expects the company to post a net profit of Rs 523 crore for 1998-99.
Bank of India
Bank of India seems to be buckling under the weight of bad debts.
Its net profit has dropped by a phenomenal 54.29 per cent to Rs 101 crore for the half-year ended September 30,1998.
According to sources in the bank, this was primarily due to a strong 33.8 per cent increase in interest paid on deposits to Rs 1,695 crore even as interest income increased only by 19.8 per cent to Rs 2,280 crore.
The rise in interest paid seems odd because interest rates were definitely lower in these six months than during the past year.
Specifically so when Bank of India's deposit base increased only 25 per cent to Rs 41,978 crore. So what explains the one-third surge in interest expenditure?
Bank of India sources said 65 per cent of the bank's deposits are held in long term term deposits. So, the decline in interest rates does not immediately impact the interest paid on existing deposits.
However, the interest on advances is directly linked to prime lending rates and drops lower immediately after interest rates are cut. The lag therefore reflects in the interest mismatches.
Advances were 23.5 per cent higher at Rs 23,863 crore, and the lower interest rate regimes reflects in the lower 19.8 per cent increase in interest income. Bank of India's NPAs increased from 11.54 per cent of net advances last year to 13.7 per cent in the first half. This, coupled with the spurt in the interest expenses by 33 per cent, has hit operating profits badly. Profit before provisions and contingencies have dropped by nearly 25 per cent to Rs 277 crore.
Another reason for the spurt in the operating expenses by 28 per cent is the 65 per cent spurt in provisions for gratuity which has gone up in the first half to Rs 66 crore.
Sources in the bank attribute the fall in profits to the spurt in NPAs and the increased provisions for gratuity.
However, going by the spurt in the percentage of NPAs on the increased credit level, provisions have not increased to that extent. Provisions and contingencies have increased only by 21 per cent to Rs 176 crore but that includes a new provision for depreciation in investments in the current year which was absent last year. This is to the extent of Rs 13.17 crore in the first half.
A two percentage point rise in NPAs on a credit level of Rs 23,800 crore translates into Rs 476 crore. But Bank of India has provided around Rs 160 crore.
Much depends on the second half of the year when the average cost of deposits is expected to decrease due to the fact that old term deposits will mature and will be replaced with new deposits at lower rates.
The prospect of the bank accumulating fresh NPAs remain strong as the slowdown in the economy gains momentum.
Unless the bank increases its efforts at recoveries, Bank of India may well find itself slipping back in the red.
