Steady margins save the show for Bajaj Auto

Whether raw material costs can be kept benign needs to be seen

Bajaj Auto’s December quarter core results didn’t surprise the Street. Its net sales fell 8.6 per cent to ~4,976 crore and net profit dropped 4.7 per cent to ~925 crore compared to a year ago, much on expected lines. The Street had toned-down expectations due to a 10.5 per cent fall in sales volume in the quarter (851,645 units).

While revenues were a tad lower than the Bloomberg estimates of ~5,055 crore, net profit was ahead of the estimates of ~851 crore, largely due to a 31.7 per cent year-on-year jump in other income to ~319 crore. The silver lining was strong show on the operating margin front of 20.6 per cent, which also lent some support to profit. While the operating profit margin is lower than the 21.1 per cent a year ago, a decent product mix helped hold up above 20 per cent. The quarter saw a better show from some of its marquee and relatively high-end offerings such as the ‘V’, Avenger and Pulsar. About 221,000 units of these motorbikes were sold and accounted for 48 per cent of total two-wheeler volumes.

Analysts say this is among the best of performances by these high-end motorbikes in recent quarters. This helped Bajaj Auto beat the lull in exports, down 17.5 per cent over a year. Performance is expected to get better, as the March quarter performance will witness volume additions from its recently launched 400cc motorbike, the Dominar 400, pitted as a rival to Eicher Motors’ Royal Enfield.

The entry-level motorbikes, CT100 and Platina, maintained their market share at 33 per cent. While a healthy product mix helped operating margin, analysts are divided on whether the good show can be replicated in the coming quarters. A key aspect which boosted operating margin was a 11.6 per cent decline in raw material cost. The company says it will be able to maintain margin, but as the price of key raw materials such as steel, rubber and plastics have moved up substantially from mid-2016, this is to be seen. This is also possibly why, after the results and the initial two per cent jump in its stock price, euphoria faded over the course of Tuesday’s trading session. The stock closed with 0.4 per cent gain at ~2,837.75 on the BSE.