Exports, richer sales mix drive Bajaj Auto’s Q3 earnings to record high

Bajaj Auto’s net profit increased 23 per cent in the quarter endeed December, 2020 (Q3) compared to a year ago period. The earnings during the three-month period were fuelled by a higher contribution of pricier models in the overall sales mix coupled with a better realisation and strong volume run in the export markets, the company said. Exports accounted for a little more than half of the total number of vehicles sold by the firm during the quarter. The company maintains a cautious outlook amid persistent rise in commodity prices and weak demand in the domestic market.

The maker of Pulsar and Discover brands reported a record net profit of Rs 1,556 crore compared to Rs 1,262 crore a year ago. Net revenue increased 17 per cent to Rs 8,910 crore compared to Rs 7,640 crore a year ago. The Ebitda margins, a key measure of profitability, also rose year-on-year to 19.8 per cent from 18.4 per cent. This comes despite a sharp year-on-year decline in the more profitable commercial vehicle business. The earnings surpassed Street estimates in all aspects – revenue, profitability as well as margins. Also, for the first time in its 75 year history, Bajaj’s turnover breached the Rs 9,000 crore -mark.

The overall volumes (commercial vehicles and motorcycles) including exports advanced 9 per cent year-on-year to 1,306,810 units even as CV sales remained under intense pressure amid shuttered schools and offices and limited use of public transport. It dropped by -65 per cent and 36 per cent in exports and domestic markets respectively.

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Rakesh Sharma, executive director, Bajaj Auto attributed the record quarterly performance by the company to “better levels of realizations and margins in the international business.” This he pointed out came on back of a richer product mix and strong export volumes. Bajaj’s overall exports saw 22 per cent growth year-on-year as most of its key markets including South Asia and Africa, Latin America have reached the pre-Covid levels, said Sharma. The only exception is South East Asia, which has only reached half of pre-Covid levels, he added.

“The proportion of the more expensive brands including Dominar, KTM, Pulsar in total sales has grown both in domestic and export markets,” he said. Bajaj took a price hike of 1 to 3 per cent in its range of motorcycles in several markets to offset the impact of withdrawal of MEIS (merchandise exports incentive schemes)

Bajaj’s Sharma said the domestic motorcycle market is presently growing in low single digits. It will advance in high double digits in the March quarter. But this is because of low base of last year. Ahead of the BSVI transition on 1 April 2020, companies had started curtailing dispatches leading to lower sales. “Optically you will see humongous growth rate, but when sanitized for the base, the growth in Q4 will be in low single digits,” he said.

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Meanwhile, a persistent increase in commodity prices is a cause for concern, he said. “We have to be cautious as we cannot pass on the increase in one shot. It has to be callibrated as the demand is fragile. The fourth quarter is anyways a seasonally weak quarter compared to third,” he said. Bajaj took a price hike of 1-3 per cent in domestic market and may take another round in March, he said.

Mitul Sharma, head of research at Reliance Securities, expects company’s exports volumes to grow 12 per cent in the second half of FY21E on the back of revival in African market. He also sees domestic two wheeler market to continue positive traction in FY22E. Sharma also remains positive on Bajaj’s domestic three wheeler business bouncing strongly in FY22E. “In view of healthy exports, recovery in high margin three wheeler business, margin expansion, improving return ratio and strong balance sheet, we maintain BUY rating on Bajaj Auto,” wrote Sharma. At present the brokerage has two-year target price of Rs3,870. Factoring in the record quarterly performance, Bajaj’s shares closed at Rs3706.60, up 1.91 per cent.

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