Bajaj Auto reports dismal 60% drop in net - Views on News from Equitymaster

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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)2QFY002QFY01Change
Sales9,1709,8587.5%
Other Income924720-22.0%
Expenditure7,7909,30519.4%
Operating Profit (EBDIT)1,380554-59.9%
Operating Profit Margin (%)15.0%5.6% 
Interest 513161.2%
Depreciation35542218.8%
Profit before Tax1,944839-56.8%
Other Adjustments-271 
Tax57030-94.7%
Profit after Tax/(Loss)1,374538-60.8%
Net profit margin (%)15.0%5.5% 
No. of Shares (eoy) (m)119.4119.4 
Diluted number of shares101.4101.4 
Diluted Earnings per share*54.221.2 
*(annualised)   

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.

VolumesSep-00Sep-99% changeApril-Sep 00April-Sep 99% change
Scooters 28,43657,587-50.6%243,935342,145-28.7%
Sunny/Spirit 4,8237,942-39.3%38,54732,00820.4%
Step thrus 9,87413,713-28.0%67,02073,429-8.7%
Japanese Motorcycles 44,23920,969111.0%202,33499,241103.9%
Three-Wheelers 14,55316,240-10.4%87,55884,5063.6%
Total 101,925116,451-12.5%639,394631,3291.3%

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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