Bajaj Auto expects best earnings in Apr-Jun; but will the drive be smooth ahead?

The dream run witnessed by the India’s two-wheeler industry over the past few years seems to be facing a bumpy ride since the beginning of current year, as demand have turned sloppy in the backdrop of a slowdown in rural markets, which accounts for a good chunk of the overall sales for these companies. Analysts tracking the sector are sceptic about the revival in sales in the near term as prospects of a deficient monsoon this monsoon season could further cast a shadow on the brisk recovery. [caption id=“attachment_2325568” align=“alignleft” width=“380”] The company announces its quarterly numbers on 23 July[/caption] In view of the tapering sales, earnings for the two-wheeler industry as a whole in April-June will be nothing much to cheer about. Bajaj Auto, however, does not think so. Rajiv Bajaj, managing director of the country’s third-largest two-wheeler manufacturer, has claimed in an interview to the Business Standard that this will be the company’s best quarter ever. “To be technically correct, March 2011 was the only time our profit after tax went into four digits. But that was because we had a huge component in other income. We can’t say that will be the case this time. Let’s see if we can get into the four-digit territory; that is certainly what we’ve been aiming for. So, in that sense, I expect this quarter will be our best ever,” he has been quoted as saying in the newspaper. The company announces its quarterly numbers on 23 July. It has to be remembered that Bajaj Auto was displaced from the second spot by the rapidly growing Japan’s Honda Motorcycle & Scooter India two years back. What is giving confidence for Bajaj is probably the just announced June sales numbers. The company reported its first double-digit growth in the current fiscal with a 10% y-o-y rise in motorcycle sales in June. It’s motorcycle sales rose 10% to 2.87 lakh units in June compared with 2.62 lakh units sold in June last year. Riding on its best-ever June exports, the company saw total sales go up 8% to 3.31 lakh units. The company also crossed the 1-million sales mark in the first quarter of FY16 with total sales going up 2% to 10.13 lakh units. In the super sports segment that is most popular amongst the bike enthusiasts, Bajaj Auto became the dominant market shareholder, with its share rising to a whopping 59 percent in May from a mere 10 percent in June 2013. However, the company has highlighted the challenges, suggesting the shrinkage in the sports segment prompting it to defer its previously set target of achieving the market share of 23-24 percent by April-May to March 2016. The two-wheeler major’s earning performance has been farily inconsistent in the past few quarters. The company witnessed its biggest drop in earnings in January-March, with its PAT registering a de-growth of 18 percent y-o-y at Rs 622 crore. In October-December, its PAT had dropped 4.8 percent y-o-y  to Rs 861.24 crore and in July-September 0.5 percent to Rs 832.75 crore. In comparison, HeroMoto Corp, the country’s largest two-wheeler manufacturer, clocked robust earnings performance all the three quarters. While the company’s net profit rose 5.4 percent in January-March quarter to Rs 584 crore, the October-December quarter saw PAT rising 11 percent. In July-September, its profit rose an impressive 59 percent on-year to Rs 763 crore. To make matter worse, Bajaj Auto has been losing its market share at a faster clip compared with HeroMoto Corp. From a market share of 17.9 percent in FY13, Bajaj Auto’s market share has dipped to 11.1 percent in FY15. In comparison, HeroMoto Corp’s market share in FY15 stands at 40.2 percent from 42.9 percent in FY13, while Honda Motorcycle India has seen its market share jump from 18.9 percent in FY13 to 26.6 percent in FY15. Despite the lacklustre earnings performance, the Bajaj Auto stock has managed to post decent show on the bourses. In the last one year, the company’s share price have risen 9 percent, while in 2015, the stock has gained 5.2 percent year to date. On the other hand, HeroMoto Corp’s stock has declined 5 percent in last one year, while its year-to-date performance in 2015 witnessed a drop of 18 percent so far. However, the question is while April-June may be a good quarter, will Bajaj Auto be able to sustain the momentum ahead, given the monsoon worries and rural distress. Data compiled by Kishor Kadam