Bajaj Auto’s September quarter performance on higher exports

With weak demand for two-wheelers in the domestic segment, the segment’s sales in India declined by 11% year-on-year. However, the overall volumes in this segment grew by 7% year-on-year, driven by a 31% year-on-year growth in two-wheeler exports.

The stock gained up to 2% in early trade on Thursday, when the broader markets remained weak.

The positive is that with the economy improving, commercial vehicle (CV) three-wheeler sales are improving. Overall CV volumes grew 29% year-over-year, driven by an 8% increase in exports and an 88% increase in domestic sales. The trend will be observed for subsistence.

Overall sales volume growth of 9% was well appreciated by improvement in realizations. Receipts per unit improved by 11% year-on-year and 3% sequentially ₹75328 due to regular price hike. It was better than expected. Therefore, the company’s revenue from operations could grow 22.5% year over year.

Rising raw material costs continued to play a bad game. Raw material costs at 74.9% of sales were much higher than 73% of sales in Q1 and 70.7% of sales in the year-ago quarter. The price hike has been insufficient to fully take care of the increase in raw material prices. Gross margin still declined by 420bps and EBITDA margin at 14.6% was still down from 15.2% last quarter and 17.7% in the year-ago quarter.

Improvement in domestic two-wheeler demand is crucial to lift the prospects of two-wheeler manufacturers in India. Its impact on the entry-level two-wheeler segment is more profound and the positive is that Bajaj Auto has a greater presence in the above entry-level segment.

Meanwhile, all eyes are on the ongoing festive season, which may boost domestic two-wheeler sales. The Company is also setting up a Captive Finance Subsidiary for customer financing of products manufactured/marketed by the Company and its subsidiaries/associates. The subsidiary is expected to strengthen financing options for its clients, say analysts at Motilal Oswal Financial Services Ltd.

Efforts are on to boost domestic sales, strong export sales are supporting Bajaj Auto’s earnings prospects and making investors optimistic