Oct 22, 2003|
Bajaj Auto: The other income fillip
Bajaj Auto, the second largest player in the Indian two-wheeler market, has posted a 54% rise in net profit for the second quarter ended September 2003. While turnover has grown at an encouraging pace, operating margins have declined on account of additional charges towards VRS and higher input costs. A significant rise in other income has enabled the strong net profit growth in 2QFY04.
|Operating Profit (EBDIT)
|Operating Profit Margin (%)
|Profit before Tax
|Profit after Tax/(Loss)
|Net profit margin (%)
|No. of Shares (m)
|Earnings per share (Rs)*
Net sales has risen by 20% in 2QFY04, which is much higher than the 1% growth posted by the company in 1QFY04. This was account of robust rise in motorcycle sales in the September quarter (27% growth YoY). It has to be remembered that the transporters' strike in 1QFY04 affected volumes sales. But Bajaj has managed to compensate for the decline in 1QFY04 in the second quarter of this fiscal. The launch of 'Wind', the world motorcycle, has played a vital part in providing a fillip to the topline. To put things in perspective, volume sales of motorcycles in September 2003 at more than 95,000 units is the highest since April 2001 (see graph).
Apart from motorcycles, the performance of other segments like geared, ungeared scooters, step-thrus and three-wheelers are in line with our FY04 estimates. The company's new launch in the three-wheeler market pertaining to goods carriers has paid rich dividends (average monthly volumes in 2QFY04 is 19,500 units compared to 16,300 units in FY02). Bajaj continues to lose out on the ungeared scooter market front, which has been growing at 8% annually. The company's market share came down from 17% in FY02 to 12% in FY03, which we expect to touch 11% levels in FY04.
Operating margins are lower by 100 basis points on account of charges pertaining to the ongoing voluntary retirement scheme and higher raw material prices. If one were to adjust for the additional charges to the tune of Rs 76 m, the decline in margins is actually 40 basis points. For 1HFY04, the decline in margins is on the higher side, which is basically due to 1QFY04 effect (transporters' strike). Having said that, except for the three-wheeler segment, the company's ability to raise prices is limited. In this context, we expect margins to decline in the medium term as well.
Other income has risen notably in 1HFY04. This includes dividends from mutual funds Rs 748 m and profit on sale of investments of Rs 694 m (70% of other income in 1HFY04). Extraordinary item here pertains to prior period adjustments and worker compensation. If one were to exclude other income and the extraordinary effect, net profit has actually risen by 28%.
The stock currently trades at Rs 864 implying a P/E multiple of 12.1x annualised 1HFY04 earnings (14.6x FY04E earnings). Valuations seem to be on the higher end on a peer value basis even if one were to account for upside from exports. While the company is rich in cash (almost Rs 300 per share), dividend payout compared to earnings growth has been low. Given the intensity of competition in the two-wheeler sector and absence of pricing power, we expect profits to grow at a slower rate in FY05.
More Views on News
Aug 14, 2017
Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.
Aug 2, 2017
GST realted cost impacts Margins, Management expects good year ahead.
Aug 1, 2017
Good Recovery in the Scooters market, expects pick up in exports too.
Aug 1, 2017
New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.
Jul 6, 2017
Ends the year on a Flat note. Expects good recovery in the exports market.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
TRACK BAJAJ HOLDINGS & INVSTMENT
- Track your investment in BAJAJ HOLDINGS & INVSTMENT with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
- Add To MyStocks