Earnings preview: Bajaj Auto rides on new products, exports

For now, all eyes are on 2-wheeler companies as stock prices climbed across the board in the last month. Bajaj Auto was no exception and the firm’s scrip rose by 5% while the BSE Auto Index rose 2.4 percent.

Bajaj Auto, the world’s fourth largest two- and three- wheeler company, is expected to report a 23-27 percent growth in sales and 24-26 percent growth in net profit for the June 2011 quarter, a study of reports by brokerage firms PINC, Angel Broking and Motilal Oswal suggests.

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Topline growth for the quarter will mostly be on the back of higher volume aided by new launches, increase in exports and overall consumer preference for two-wheelers, said an analyst from PINC Research. Volumes for the June 2011 quarter grew by 18 percent, a company release said. While motorcycle volumes rose by 16.3 percent due to strong traction in Pulsar and Discover, it was the sharp 32 percent rise in exports and 30% rise in three-wheelers that pushed up the overall volume growth. (see table) 

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While PINC research expects an increase of 5.5 percent, Motilal Oswal expects prices to increase by 6.9 percent year-on-year. Price hike undertaken by Bajaj Auto in April (domestic) and in May for the export markets augurs well for the company, said Motilal Oswal in its results preview for the June 2011 quarter.

However, Motilal and PINC, both expect Bajaj Auto’s operating profit margin to contract by 50-100 basis points to around 19-20 percent. One basis points is 1/100th of one percent. Higher commodity prices are expected to lead to a contraction in its operating profit margin, which is expected to fall slightly below 20 percent, slightly below the company’s guided margins. The company had given guidance to maintain margins at 20 percent in its con-call post the March 2011 quarter results.

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The weather also has good tidings for Bajaj Auto in the form of a reasonably normal monsoon. The country is expecting an agriculture growth of around 4% and Bajaj Auto is confident of cashing on it by increasing its rural footprint.

Key points to watch out for:

• Growth in rural sales

* Company plans to sell 3 million units in India in 2011-12

• Launch of new model (Boxer-150 cc) in August 2011