With an overall sales drop of 31%, two-wheeler maker Bajaj Auto Ltd?s topline and bottomline are shifting to lower gears. The company for the quarter ending December 31, 2008 has reported a drop of 22% in net profit to Rs 166 crore as compared with Rs 214 crore in the same quarter previous year. The turnover (net of excise) of the company saw a dip of 16% to Rs 2,141 crore from Rs 2,544 crore in the corresponding quarter last year. The company might be attributing a dip in net profit in the Q3FY2009 to the Rs 61 crore that it paid against the compensation under VRS after it decided to shut down its Akrudi plant, but industry figures show that falling sales have a larger role in bringing down the net profit.

The continuing crisis of confidence amongst all stakeholders critical to sales ? customers, dealers and financiers, and slowdown in the rate of export growth are seen as potent challenges indicative of bumpy road ahead.

?Since 75% of Bajaj?s total vehicles are purchased on finance, the sales have taken a huge hit as several banks have withdrawn from two-wheeler financing,? a Mumbai-based analyst said, adding that the company?s limited presence in the scooter segment has also impacted its numbers.

?The overall export has slowed down because of financial meltdown in global markets and since the trend is unlikely to improve, exports from Bajaj Auto will be under pressure,? he said.

?In an industry wherein product is king but strategy is ace, this year represents the stress test for our product and marketing strategies, most specifically our conviction in the power of the 125cc+ motorcycle brands,? Rajiv Bajaj, managing director, Bajaj Auto Ltd said in a release.

The company has chalked out plans to launch six new motorcycles and three new three-wheelers rolling out from its plants in the next few months. But the company also acknowledges that there are risks associated while launching multiple closely spaced products. However, softening of raw material prices and restoration of DEPB benefit for exports from 6% to 9% will help the company to post better results in the coming quarters, analysts feel.

Sales of Bajaj Auto went down by 31% in the third quarter at 4,93,748 units as compared to 7,13,135 units in the corresponding quarter of the last financial year. The company also registered a dip of 35% in total two-wheeler sales in the quarter at 4,17,111 units vis-?-vis 6,38,716 units in the same quarter in 2007-08.

Interestingly, the share of exports to its total turnover has gone up to 37.13% in third quarter of this financial year as against 20.1% in the third quarter of FY 2007-08. The total exports have grown by 41% to 2,15,233 units.

However, Ebidta margins of 14.5% in Q3FY2009 has improved q-o-q basis from 31.6% in Q2FY2009, which the company attributed to a lean cost structure achieved through closure of plans, retirement of two-third of the employees and rationalisation of vendors from 855 to 200 over the last decade.

?High interest coupled with credit crunch affected the market. Though central banks globally are injecting liquidity in the system, 2009 will be challenging for the industry. At least it will take two more quarters before the business rebounds for the ailing automobile industry,? said Abdul Majeed, auto analyst and partner, PricewaterhouseCoopers (PwC).