Exports help offset domestic woes as Bajaj Auto pre-tax profit falls 8%

Bajaj Auto posted better-than-expected earnings for the March quarter over the year-ago period, as strong export volumes of motorcycles and a favourable exchange rate helped offset the decline in the domestic market. Profit before tax (PBT) contracted 8.2 per cent, while revenue from operations shrunk 8 per cent over the corresponding quarter last year. Net profit remained flat.

The maker of Pulsar and Discover models recorded a decrease in revenue from operations to ~6,816 crore, from ~7,421 crore last year, while PBT declined to ~1,721 crore from ~1,876 crore.

Overall volumes at the Pune-based automaker fell 17 per cent to 991,961 units over the year-ago period. It was dragged down by a 17 per cent fall in the domestic market, and a 21 per cent fall in overseas shipment of three-wheelers.

The Rajiv Bajaj-led firm remains optimistic of the road ahead, even as the lockdown has crippled the economy. “We expect a smart recovery in the second half of the year,” said Rakesh Sharma, executive director of Bajaj Auto, in a postearnings investor call.

He said things would improve over the next few months, different agencies get a better grip of the situation and normalcy gets restored in retail finance and supply chain. “We will continue to march ahead,” said Soumen Ray, chief financial officer of the firm.

Analysts were left surprised with the earnings performance, but don’t share the same optimism as the management. “Bajaj Auto has delivered a strong operating performance and earnings are much better than our estimates,” said Mitul Shah, vice-president (research), Reliance Securities.

Bajaj will face a tough time in the exports business, on account of lower crude prices in major export destinations such as Africa and West Asia. Further, its high-margin threewheeler business will recover with a lag effect, once people shun public transport in favour of personal transportation.

This will weigh on the firm’s profitability, said Shah. Despite the headwinds, Sharma was bullish in his commentary. “As the Covid situation recedes, we will continue to profit from our strong position in Africa,” said Sharma, adding that competition from Chinese firms remains fragmented.