Mumbai:  Bajaj Auto Ltd’s net profit in the quarter ended Mar 31 is seen rising 4% on-year to nearly 8 bln rupees despite a fall in total sales, as it is likely to achieve its operating profit margin target of 20%.

India’s third largest two-wheeler manufacturer is expected to post net sales of 48.61 bln rupees in Jan-Mar, 5% higher than the corresponding period a year ago, according to an average of estimates of 14 brokerages.

These brokerages have pegged Bajaj Auto’s earnings before interest, tax, depreciation, and amortisation margin in Jan-Mar at 20-21%.

Motilal Oswal expects the automaker’s margins to rise 260 basis points year on year, but fall 190 bps sequentially to 20.2%, “driven by unfavourable mix on higher share of Discover M (100cc motorcycle), higher advertisement spends…”

A near 9% rise in exports, and higher contribution of three-wheelers exports are likely to aid margin expansion in the reporting quarter.

The increase in net sales despite a 4.6% fall in total volume has been attributed to an expected 8.5% on-year increase in realisations, Motilal Oswal said.

Weak domestic environment continued to affect the company’s sales, with motorcycle sales falling 4.0% on-year to 825,304 units in Jan-Mar, and three-wheeler sales falling 9.1% to 110,491 units.

These two figures are inclusive of exports, but as exports rose 9.0%, fall in sales is purely on the domestic front.

Bajaj Auto will detail its Jan-Mar earnings on Thursday. Both analysts and the Street will watch for management commentary on the outlook for retail sales in 2014-15 (Apr-Mar).

Bajaj Auto ceded around 400 bps of domestic motorcycle market share in 2013-14, and it currently stands at around 20%.

Managing Director Rajiv Bajaj, in interviews to CNBC-TV18 news channel, has said that exports to key African countries have stabilised, and are expected to improve going forward. Clarity will be sought on three-wheeler exports to Egypt, which stopped after the country banned imports of three-wheelers.

This resulted in a sharp 26% on-year decline in three-wheeler sales in April. Bajaj Auto usually sells around 7,000 three wheelers in the region monthly.

Analysts will also watch for guidance on the company’s foreign exchange hedging strategy, as some market watchers believe that if the National Democratic Alliance wins the mandate at the Centre, it could lead to an appreciation of the rupee against the US dollar.
Today, shares of Bajaj Auto ended up 1.5% at 1,977.30 rupees on the National Stock Exchange.

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