Bajaj Weakens in Q2, Expects Revival In Festive Season

Industry Scenario

Sales volumes have been extremely gloomy for the H1 FY13. Though the economic slowdown had been affecting the markets since the beginning of FY12, two-wheelers had seemed to be relatively less affected then. However, this changed in FY13 and September marked one of the worst months for two-wheeler manufacturers. Motorcycles sales declined by a whopping 18.85 per cent in September 2012 over September 2011. As a result of this trend, SIAM cut its growth forecast for the motorcycle segment from the earlier 11-13 per cent to 5-7 per cent for FY13. Amidst this, BAL witnessed an overall sales volume de-growth of 9.87 per cent in Q2FY13 as compared to Q2FY12 (-5.38 per cent in July 2012, 16.10 per cent in August 2012 and -13.77 per cent in September 2012 on a YoY basis).

BAL’s Performance; though not impressive, better than the rest

BAL’s performance in Q2FY13 was much in line with the above scenario. It witnessed a 4.11 per cent decline in revenues, from Rs.5185.36 crore in Q2FY12 to Rs.4972.4 crore in Q2FY13. Apart from the direct result of a decline in sales volume, a higher excise duty coupled with a reduction in other operating income added to the downfall of BAL. The company also saw a drop of 6.18 per cent in its operating profit in Q2FY13 as compared to the corresponding period in the previous year, which also brought down its operating margin by 40 basis points to 18.41 per cent. However, the net profit increased by 2.05 per cent, up from Rs.725.8 crore in Q2FY12 to Rs.740.67 crore in Q2FY13. This was mainly on the back of a higher other income, lower financing cost and no loss on hedging.

A major achievement during Q2FY13 was Bajaj’s Discover displacing Hero’s Splendor to become the largest selling motorcycle in India. This had the Discover getting hold of a 25 per cent market share as of September 2012 as compared to a 16 per cent market share that it had in April 2012. The Pulsar too got a better grip in the premium segment; its market share having increased to 50 per cent in September 2012 from 45 per cent in April 2012. Though the company’s sales have declined over the quarter, it has been performing better than other players like Hero Motors and TVS. This has led to an overall increase in the market share of BAL.

Exports fail to push

Exports too took a hit in Q2FY13 due to a decline in sales in Sri Lanka following a recent hike in the export duty. This resulted in the average sales of motorcycles per month in the Sri Lankan market coming down from 12000 to approximately 6500. According to BAL, African countries have been strong but there is a notable slowdown in the rest of the world. This resulted in a 3.92 per cent decline in export revenues. Exports form a major part of BAL’s revenues, contributing to nearly 35 per cent of its total revenues and have thus affected the company’s financials to a large extent.

Bright future ahead

However, the management expects sales to jump on account of the festive season and Q3 being a strong quarter, sales would show a sequential increase. Whether they would be higher than previous year’s sales is quite questionable having seen no change in the macro-economic conditions that caused the slowdown in the first place.