Bajaj Auto: Hit hard at the net level

Performance summary

• Net sales grow by 16% YoY during the quarter led by healthy growth in volumes.
• Operating margins contract by 0.6% YoY on the back of higher input costs (as a percentage of sales).
• Growth in net profits is slower at 6% YoY despite a strong growth in operating profits. This is on account of higher interest costs and depreciation charges as well as extraordinary losses.

What has driven performance in 2QFY12?

• Bajaj Auto reported a revenue growth of 21% YoY on the back of a 16% YoY increase in volumes during the quarter. Average realisations (on total operating income) increased by over 5% YoY.

  The company in total sold 1,164,137 units during 2QFY12 as compared to 1,000,570 units in the corresponding quarter last year. Total motorcycle volumes grew by 16% YoY and formed about 88% of the total unit sales. Three-wheeler sales rose by 17% YoY to 136,780 units.

  Domestic motorcycle sales formed about 59% of the total volumes during the quarter and grew by 8% YoY. Motorcycle exports did better to grow by 37% YoY to stand at about 342,686 units (22% of total volumes). Volume sales of the company's two flagship brands - Pulsar and Discover - averaged at about 86,000 units and 133,000 units per month respectively.

  In the three-wheeler segment, the 17% YoY volumes growth was largely led by exports. While three-wheeler exports grew by a robust 44% YoY, domestic sales declined by 9% YoY as high interest rates and fuel prices dampened demand. Three-wheeler exports formed about 60% of the total three-wheeler sales during the quarter. Total three-wheeler volumes formed about 12% of total unit sales.

• Bajaj Auto's operating profits increased at a slower pace as compared to the increase in revenues on the back of a 0.6% YoY margin contraction during the quarter. The key reason for the same was higher costs of raw materials and purchases (as a percentage of sales). Raw material and purchases costs rose by 22.5% YoY in absolute terms, while employee and other expenses increased by 15% YoY and 22% YoY respectively.
  Cost break-up...

  (Rs m)	2QFY11	2QFY12	Change	1HFY11	1HFY12	Change
  Raw materials/ purchases	30,712	37,616	22.5%	58,394	72,280	23.8%
  % sales	70.7%	71.4%
  Staff cost	1,142	1,311	14.8%	2,405	2,700	12.2%
  % sales	2.6%	2.5%
  Other expenditure	2,593	3,173	22.3%	4,779	5,784	21.0%
  % sales	6.0%	6.0%
  Total expenditure	34,447	42,099	22.2%	65,578	80,763	23.2%

  
  
• Surge in interest costs, higher depreciation charges and extraordinary losses took their toll on the bottomline, which grew at a much slower pace of 6% YoY. The company incurred extraordinary losses to the tune of Rs 95 bn during the quarter, which was an MTM loss on the valuation of certain range forward contracts. Excluding the same, growth in net profits stood at 20% YoY.

What to expect?