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Bajaj Auto 2QFY2000 results - more disappointment for investors - Views on News from Equitymaster
 
 
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  • Oct 21, 1999

    Bajaj Auto 2QFY2000 results - more disappointment for investors

    Bajaj Auto has posted marginal rise of 4% in 2QFY2000 sales, while net profit has appreciated by 12%. This was reported by a leading financial daily.

    Bajaj Auto is India's largest manufacturer of two/three-wheelers with a presence in all three segments of the two-wheeler market - scooters (64% market share in August 1999), motorcycles (26% market share) and mopeds (6% market share).

    (Rs m) 2QFY2000 2QFY1999 Change
    Sales 9,170 8,815 4%
    Other Income 924 584 58%
    Revenues 10,094 9,399 7%
    Expenditure 7,790 7,316 6%
    Interest 5 11 -55%
    Depreciation 355 326 9%
    PBT 1,944 1,746 11%
    Tax 570 520 10%
    Net Profit 1,374 1,226 12%
    Net profit margin 15.0% 13.9%  

    Bajaj's 12% higher net profit is attributed to 58% rise in 'other income' from sale of investments. Without it, Bajaj's profit would have fallen significantly.

    Bajaj's sales volume in 2QFY2000 declined by 4% (year on year), while in 1QFY2000 volumes had slumped by 12%. In 1HFY2000, scooters, Bajaj's bread and butter business, posted 15% (year on year) decline in volumes. This is a matter of concern for analysts. Weak demand and shift towards motorcycles has hit scooter sales, and September sales figures indicate that there is yet no demand pick-up.

    Although Japanese motorcycle volumes appreciated by 19% (year on year) in 1HFY2000, Caliber failed to corner market share from Splendor (Hero Honda). Failure to consolidate market share is also cause for worry.

    Another matter of concern is decline Bajaj's operating margins (by 200 basis points) in 2QFY2000. This is largely due to change in product mix (from scooters, to motorcycles and mopeds). Another factor that has hurt Bajaj's margins has been the discount schemes that were on offer for the past few months.

    Bajaj plans to shift completely to four-stroke models in scooters. The conversion to four-stroke models will involve higher costs and will erode Bajaj's margins further.

    Market view: Bajaj's 2QFY2000 results have failed to enthuse analysts, who feel that the going will get tougher for the company over the next two quarters. They have flagged a 'HOLD' on the stock.

     

     

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