|Bajaj Auto on Friday reported a 9.2% year-on-year (y-o-y) drop in adjusted consolidated net profit to Rs 1,066.49 crore for the three months to March. In a subdued demand environment, revenues rose 9% y-o-y to Rs 7,395.19 crore, driven by a volume growth of 14% y-o-y. While domestic motorcycle sales grew 23% y-o-y, exports rose 13% y-o-y, led by a 34% increase in commercial vehicle despatches.|
However, profitability was under pressure and operating profit margins contracted 390 basis points y-o-y to 17%. While higher raw material cost ate into margins, the company continued to offer attractive discounts to customers as a way to gain market share. The practice of offering discounts was started in Q1FY19 and Bajaj priced its entry-level bikes a little lower than the competition. Raw material costs, as a share of net sales, increased 200 basis points. The Bajaj Auto stock rose 3.3% on Friday, post the results announcement, to close at `3,041.80 on the BSE.
With the company resorting to discounts, the average realisation per vehicle during the quarter fell to around `60,500 against `63,600 in Q4FY18. Analysts had pencilled in a contraction in margins on account of higher discounts in the economy motorcycle segment. “We expect Ebitda margin to decline largely due to an inferior product mix, higher commodity cost and increase in discounting in the economy motorcycle segment,” analysts at Kotak Institutional Equities had said.
Consequently, the Pune-based company’s earnings before interest, tax, depreciation and amortisation (Ebidta) declined 12% y-o-y to `1,266 crore in the January-March quarter. On Friday, the company said its overall share in the domestic motorcycle market had increased 300 bps to 18.7% at the end of March. For Q4FY19, the share in domestic motorcycle market was 20%.
Managing director Rajiv Bajaj had said in early May that the company had outperformed the industry in terms of volume growth and that would be reflected in the Q4 results. Bajaj had noted at the time that the impact on margins was an industry-wide trend. “Despite all that has been said about Bajaj Auto discounting, you will see that the same impact on margins is there for all those who have announced the result so far,” he had said on a news channel. Post the Q3FY19 results, the management had said it was aiming for a market share of 24% in the domestic motorcycle segment, from the current market share of 20%, in the next 2-3 years.