Bajaj Auto on track to hit volume targets

Sales have picked up after GST transition period

After the goods and services tax (GST)-led disruption in the June quarter, Bajaj Auto posted improved volumes in the July-September period (Q2). The product mix and cost management helped the firm post better-thanexpected operating performance and saw its stock gain over a per cent to close at ~3,257 on Tuesday.

A four per cent year-onyear increase in volumes, to 1.07 million units, and a similar gain in realisations helped the company post 8.6 per cent growth in revenues, at ~6,579 crore, in Q2 — lower than most estimates, which had pegged the number at ~6,700 crore. But profit margins at 19.7 per cent were better than analysts’ estimates of 19 per cent, due to lower employee and other expenses. In comparison to the yearago quarter, margins were down by 166 basis points (bps). This came despite a 12 per cent jump in raw material costs. A bigger proportion of higher-margin commercial vehicles (14.3 per cent, versus 13 per cent a year ago) and an increasing proportion of premium bikes gave stability to the margins. Reported net profit at ~1,112 crore, too, was above estimates.

Notably, volumes have picked up on a sequential basis, at 21 per cent. Volumes in recent months have been helped by a sharp jump in three-wheeler sales and stability in the two-wheeler portfolio. About 43 per cent of the company’s volumes in the quarter came in September, when it recorded the highestever sales, both overall and for commercial vehicles. Analysts at JP Morgan believe the company’s wholesale volumes should translate into a better underlying trend over the second half of FY18, reflecting an improvement in exports and incremental stabilisation in the domestic portfolio.

While the trend has been good so far (1.95 million units), given Bajaj Auto’s overall target of achieving four million units in FY18, the Street will keep a watch on sustenance of the momentum. The firm’s entry level motorcycles, Platina and CT100, and their variants have helped improve its market share from 25 per cent to 32 per cent, on a sequential basis. Going ahead, how it improves its share in the premium segment will be important. Given that Dominar and Pulsar have not delivered the volumes the company hoped for, it will have to depend on new launches such as the Avenger 200cc. Exports is another important growth driver, and Bajaj Auto hopes to clock 1.7 million units (0.8 million in the first half) in FY18 to achieve its annual target. What is aiding the export effort is higher sales to newer markets and stability in bigger markets such as Nigeria.