Weak volumes, higher costs dent Bajaj Auto’s Q4 showing
The company hopes for a better performance in FY18
Barring the margin blip, Bajaj Auto’s fourth (March) quarter numbers were broadly in line with Street expectation. Despite a weaker volume, down 10 per cent due to demonetisation and shift to BS-IV emission standards, revenue was ~5,212 crore, down only three per cent over a year ago and better than the Bloomberg consensus estimate of ~4,830 crore.
The operating profit margin was 21.2 per cent, pegged back by higher raw material costs and expenditure from the transition to BS-IV, down 210 basis points (bps) over a year. Higher raw material costs and stiff competition across its categories will limit the scope for further margin gain. Net profit at ~801 crore was down 15.6 per cent.
The full-year numbers were better, as volume performance till October was robust, though muted during November-March. Sales in April in the domestic market have been disappointing, falling 21 per cent over a year. Overall sales were flat over a year, as export surged 46 per cent. While some of it was a spillover from March, the company will be hoping for a strong export show, including revival in Africa.
The management said FY18 could be better, both for the domestic and export markets. It believes full-year sales of new launches and expectation of a normal monsoon should boost domestic sales. It is cautiously optimistic on export. Though forex availability and weak target market currencies continue to be major hurdles, the management said currencies were less volatile than last year. While it improved market share by 30 bps over a year in FY17, to 18 per cent, Sharekhan’s Bharat Gianani believes rising competitive intensity in the domestic market and lack of scooters in its portfolio might restrict market share gain.
The stock on Thursday fell two per cent, given the muted performance. With the uncertainty in the domestic and export outlook, and recent volume performance, investors should first await consistent sales growth.