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Bajaj Auto reports dismal 60% drop in net

Oct 19, 2000

Bajaj Auto Ltd (BAL), India's largest two wheeler manufacturer has reported a 61% YoY decline in net profit to Rs 538 m for the 2QFY01. The company's operating margins declined by 940 basis points from 15% in the 2QFY00 to 5.6% in the 2QFY01. The operating margins have also declined in comparison to the 1QFY01. In the 1QFY01 BAL's operating margin was 10.6%. Hence the 2Q performance is worse that the 1Q in the current financial year.

BAL has reported only a 7.5% increase in sales to Rs 9.8 bn in the 2QFY01. This is mainly due to the fact its scooter volumes continue to decline, inspite of a strong growth in the motorcycle volumes. The costs which went up significantly were material costs which rose by 27% YoY in the 2QFY02. Besides this staff costs rose by 7% and other expenses by 18% during this quarter.

(Rs m) 2QFY00 2QFY01 Change
Sales 9,170 9,858 7.5%
Other Income 924 720 -22.0%
Expenditure 7,790 9,305 19.4%
Operating Profit (EBDIT) 1,380 554 -59.9%
Operating Profit Margin (%) 15.0% 5.6%  
Interest 5 13 161.2%
Depreciation 355 422 18.8%
Profit before Tax 1,944 839 -56.8%
Other Adjustments - 271  
Tax 570 30 -94.7%
Profit after Tax/(Loss) 1,374 538 -60.8%
Net profit margin (%) 15.0% 5.5%  
No. of Shares (eoy) (m) 119.4 119.4  
Diluted number of shares 101.4 101.4  
Diluted Earnings per share* 54.2 21.2  

The company's net margin too declined in the 2QFY02 as interest costs went up, its other income declined by 22% YoY and it had to provide Rs 271 m towards its voluntary retirement scheme.

The main reason for this decline in operating margins is the changing sales mix of the company. As scooter volumes continued to decline and as this is a higher margin business as compared to motorcycles, the company's costs have gone up.

Volumes Sep-00 Sep-99 % change April-Sep 00 April-Sep 99 % change
Scooters 28,436 57,587 -50.6% 243,935 342,145 -28.7%
Sunny/Spirit 4,823 7,942 -39.3% 38,547 32,008 20.4%
Step thrus 9,874 13,713 -28.0% 67,020 73,429 -8.7%
Japanese Motorcycles 44,239 20,969 111.0% 202,334 99,241 103.9%
Three-Wheelers 14,553 16,240 -10.4% 87,558 84,506 3.6%
Total 101,925 116,451 -12.5% 639,394 631,329 1.3%

The company has become an aggressive player in the motorcycle segment. However to garner up market share the company has been resorting to discounts. This has resulted in it capturing a 21.6% market share in the 1HFY01 and beating TVS Suzuki, to the second place. However this has not had a beneficial impact on the company's bottomline.

Also as marketing costs related to its new product launches in the motorcycle and scooter segment have added to the dismal performance of the company.

The total compensation under the voluntary retirement scheme is estimated at Rs 812.2m, of which Rs 271 m has been charged to this quarter. The remaining will be charged during the next two quarters.

BALs' shares fell by 4% today in anticipation of bad results. On the current price of Rs 311 it is trading at 5.1x FY00 fully diluted EPS of Rs 60.5 (on share capital of Rs 1,014 m). The company's share capital will reduce to Rs 1,014m after the buy back as compared to Rs 1,194m earlier. As the results have been worse than expectations we expect the shares to fall over the next couple of trading sessions.

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