Bajaj Auto Maintains Performance Despite Lower Volumes

The Q1FY14 scorecard of Bajaj Auto (BAL) met market expectations. The company has managed to keep its financial performance buoyant even during a time when the sales volumes have been suffering. In the elapsed quarter, the total sales of BAL declined by 9.24% from that in Q1FY13. Domestic sales, which account for 63% of the total sales volumes, declined 7.03%. Exports, which account for 37% of the total volumes, dipped 12.77%.

Domestically, BAL’s market share stood at 23% in Q1FY14. The size of the domestic market for the premium segment declined by 11% in Q1FY14 and BAL, being the single largest player in this segment, was more than proportionately affected. Moreover, labour unrest and stoppage of work at its Chakan plant caused the company a loss of 20000 units of Pulsar.

Even in terms of export volumes, the company’s performance was weak. Its sales in Egypt suffered as a result of the recent geo-political crises there. Sales were also negatively impacted in Nigeria following a ban on the use of motorcycles as taxis in a few provinces. However, this was partially set-off by growth seen in Kenya, Uganda and Bangladesh.

In terms of financial performance, BAL met street expectations in Q1FY14 by posting a 2.02% growth in net sales to Rs 4808.73 crore over that in the previous year corresponding period. Its revenues grew by 0.93% to Rs 4911.09 crore as the company saw lesser ‘Other Operating Income’ in Q1FY14, as compared to Q1FY13.

The depreciating rupee was one of the factors that helped the company gain on net sales. While in USD  terms BAL’s exports were flat at USD 327 million, in rupee terms the exports grew by 10% to Rs 1876 crore.

The EBITDA came in at Rs 906.71 crore, up 4.02% from Q1FY13. This resulted in the EBITDA margins expanding by 54 basis points to 18.46% in Q1FY14.

On the other hand, the net profit margin dropped by 26 basis points to 15.02% in the same period. This decline was on account of a notional loss of Rs 96 crore on outstanding forward option contracts as on June 30, 2013. In Q1FY13, the company had gained Rs 33 crore on account of foreign exchange fluctuations. It is important to note that the loss in Q1FY14 is notional in nature and that it would reverse over the tenure of the contracts.

Despite a weakness in volumes both domestically and internationally, BAL has managed to keep its financial performance afloat. It has also maintained its stance of not offering huge discounts to boost sales. Although the overall situation in the automobile industry would improve only with a reversal in macroeconomic trends, we are optimistic about this company during these difficult times.