Nov 6, 2000|
Bajaj Auto's other income to decline
Bajaj Auto Ltd (BAL) has recently completed its buy back of shares. BAL has bought back 18.2 m shares (15% of the equity capital) at a price of Rs 400 per share. For the buy back, the company has had to spend Rs 7.3 bn (19% of total surplus funds on hand). As of March 2000, BAL's total investments, cash, loans and advances stood at Rs 38 bn.
The buy back will affect the company's profitability and net margins as its other income will fall. BAL's dependance on other income is not new due to its huge surplus funds. Other income has played a very important role in BAL's performance in the past few years.
Other income accounted for 52% of the company's profit before tax in FY98, 50% in FY99 and 62% in FY2000. For FY2001E other income will account for 67% of the company's profit before tax. However, this is going up due to a fall in operating profits and not due to higher other income. Infact, other income is expected to decline by around 25% in FY2001E. Over the next few years this ratio is expected to decline.
Though this is good for the long term as the quality of the earnings of will improve, it will impact the company's performance in the short term.
The company's operating profits continue to be under pressure. For the 1HFY01 its operating margins fell to 8% from 14.9% in 1HFY00. The margins in the motorcycle and scooterette segment are lower than the traditional scooters segment, which is BAL's forte. In future, as a large chunk of the sales mix will be contributed by these two segments, this would put pressure on the company's operating margins.
On a more positive note, BAL's motorcycle volumes continue to do well. For the 1HFY00, the company's Japanese motorcycles grew by 104% YoY.
The flash figures for the month of October 2000 do not look very encouraging as the company's overall volumes have fallen by 19% month on month.
On the current price of Rs 266, BAL is trading at 7.7x FY2001E EPS of Rs 34.5 (on fully diluted shares).
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