Bajaj Auto’s September quarter net falls 29% on one-time expense
By Shally Seth Mohile , 2014-10-15 12:00:00
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Mumbai: Bajaj Auto Ltd’s September quarter profit fell the most in 17 quarters after the two-wheeler maker took a one-time expense related to its Pantnagar factory in Uttarakhand.
Net profit fell 29% to Rs.591 crore in the three months ended 30 September from Rs.837 crore a year earlier, the company said in a statement on Tuesday. Excluding the one-time expense, the company would have reported a profit of Rs.853 crore. Net sales rose 15% to Rs.5,826.85 crore from the year-earlier period.
A Bloomberg survey of 15 analysts had estimated profit for the September quarter at Rs.863.8 crore while 21 analysts expected net sales at Rs.5,728.9 crore.
The company’s total sales, including exports, rose 9.8% to 1.06 million units from 961,330 units a year ago. Exports rose 29% to 500,000 units.
In October 2011, Bajaj had filed a writ petition before the Uttarakhand high court seeking exemption for its Pantnagar plant from paying national calamity contingent duty (NCCD). On 9 October, the court rejected the petition.
“Accordingly, in this quarter, the company has recognised this liability for the last seven and a half years, i.e. 1 April 2007 to 30 September 2014 aggregating to Rs.340.29 crore,” Kevin Dsa, president of finance at the firm, said in the statement. Bajaj Auto will also have to continue to pay around Rs.3 crore a month towards NCCD, Dsa added.
Exports, which accounted for 47% of company’s net sales, drove earnings. A higher contribution of the more profitable commercial vehicles (including exports), which rose 40% to 156,429 units, also helped widen the overall operating margin. Bajaj’s operating margin widened 120 basis points to 20.8% from the June quarter.
Exports earnings rose 28% to Rs.2,736 crore from a year ago. In the past 12 months, Bajaj Auto has entered many new countries, including Argentina and Mexico, and plans to enter Brazil, one of the biggest Latin American markets for two-wheelers, with its partner KTM next year, Rajiv Bajaj, managing director of the Indian company, said in an interview in August.
The company will be able to sustain the margins because of an improvement in domestic sales given last year’s low base, said Mitul Shah, an analyst at Karvy Broking Pvt. Ltd.
“We expect volumes on both domestic and exports to improve from here on,” said Shah, adding that the lower-than-expected strengthening of the rupee against the dollar also bodes well for the firm’s exports realization. “One had expected the rupee to appreciate sharply but it continues to hover at Rs.61 against the dollar.”
Margins should have been better considering that it was the best quarter for the company in terms of the overall product mix, said Surjit Singh Arora, an analyst at Prabhudas Lilladher Pvt. Ltd. “Even though the product mix was at its peak boosting the average selling price, the margins have not improved in the same proportion,” said Arora, attributing it to a rise in raw material costs.
“A back of the envelop calculation suggests the company’s raw material expense per vehicle went up 8%, but price per vehicle went up only 5%.”
He maintains a neutral stance on the stock. “With new launches and competitive intensity getting high, we expect margin improvement to take a while.”
Bajaj Auto is the most profitable among publicly traded two-wheeler firms. It is followed by Hero MotoCorp Ltd which reported an operating margin of 13% in the June quarter and TVS Motor Co. Ltd at 3.9%. Hero and TVS have not reported earnings for the three months ended September.
Even though the company’s profitability remains impressive, it continues to underperform in the domestic motorcycle market. In the September quarter, when sales in the domestic motorcycles rose 14%, Bajaj’s sales fell 9% to 461,651 units, according to Society of Indian Automobile Manufacturers (Siam).
Ahead of the earnings, Bank of America Merrill Lynch upgraded the stock to “buy” from “underperform”, citing higher volume and average selling prices, and increased contribution from dirt bike making affiliate KTM Power Sports AG. The company owns 47% in the Austrian sports motorcycle firm.
The Austrian company makes some of its models at Bajaj’s Chakan plant near Pune and exports it.
Bajaj Auto reported its earnings after the end of trading on Tuesday. Its shares rose 2.55% to Rs.2, 410.05 on BSE, while the exchange’s benchmark Sensex shed 0.09% to 26,361.14 points.
