Keeping in line with the good news in the Indian corporate sector and also the auto-sector, Bajaj Auto has announced strong results. The company?s reported earnings per share of Rs 32.84 was about 20% above the Reuters consensus estimate. While operating profit margins were held at 22%, the essence has been that of strong volume growth. Bajaj Auto?s average domestic monthly production of motorcycles has now gone up to 2.37 lakh units a month, more than double of 1.10 lakh units recorded in the first quarter of financial year 2009-10. And this has enabled the company to offset rising raw material prices. So the overall raw material to sales ratio decreased 3.9 % on an annual basis but increased 2.2% on a sequential basis.
Analysts at JP Morgan believe that a changing product mix would have added to the increase in material costs sequentially, apart from rising input costs. Other expenses were lower by 2.8% on an annual basis and 1.50% over the previous quarter. Similarly, higher volumes and utilisation also saw staff cost to expense ratio declined 80 basis points, over the year. Going ahead, the company is likely to face pressure from the currency appreciation as 27% of its revenues are routed through overseas sales and also an impact from rising metal prices. However, analyst are of the opinion that the company would be able to mitigate this through focussing on volume growth again. Besides, 66% of the company?s portfolio (including exports) has an operating margin that is more than 20%. Pulsar, which contributes 21% of the revenues and where the company can pass on some price increases, also has margins in excess of 20%. Similarly, the three wheeler segment, which contributes around 11% of the volume, also has margins in excess of 20%. Also, the motorcycle segment is expected to grow by more than 15% in the next two years. Bajaj Auto had a capacity utilisation of 55% in 2009-10 and is expected to rise to meet the increased demand, giving it an opportunity for building volume growth again, reckon analysts. Also, with the Pantnagar plant expansion from 60,000 to 80,000 units in January 2010 will mean that the fiscal benefits would be extended. Analysts at BRICS estimate that the effective tax rate would drop from 29% in 2008-09 to 23% in 2010-11. The concern, however, would be on the financial sector to fund two-wheelers, which currently is witnessing a downturn.
