Bajaj Auto, India’s largest exporter of two-wheelers and three-wheelers, believes that the current trend of muted export volumes would spill over to the first quarter of FY24 before the start of recovery in the ensuing quarter after that.
Strengthening of the US dollar, shortage of the same for international trading, and high local inflation has hit several key markets where Bajaj Auto has volume exposure resulting in a decline in y-o-y volumes for eight consecutive months.
From the highs of 250,000 a month, the company’s exports fell to 112,000 in January this year, which was the lowest in 30 months. Before the crumbling of exports began, Bajaj Auto
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Nigeria, which is the single biggest market for Bajaj Auto, accounting for 25% of its total export, has been the worst hit especially after the local government launched demonetisation in February. Nigeria, Africa’s most populous country, demonetised 200, 500- and 1,000-naira notes leading to a severe shortage of cash.
Bajaj Auto exports to over 90 countries with a mix of about 50% to major countries in Africa, 20% to Latin America, 20% to South Asia and Middle East and 10% to ASEAN.
Rakesh Sharma, executive director, Bajaj Auto, said, “We recognised the sharp slowdown and as a first step moved swiftly to calibrate the channel stocks to a lower level of retails and limit exposure of our partners.”
Bajaj Auto, which has a share of 46% of India’s total two-wheeler and three-wheeler exports, has seen a volume decline of 27% in exports during April-February, which was higher than the 18% fall recorded by the industry, as per data shared by the Society of Indian Automobile Manufacturers (SIAM).
“We have leading positions in almost all these markets and we have continued to remain engaged with our customers so that when the markets return to normal, we take a disproportionate share of the recovery,” Sharma said.
But the recovery process will be slow and won’t begin at least in the next few months. According to a note in HSBC, Nigeria’s macro recovery is likely to be protracted even as Ghana remains in an even worse shape. Countries like Colombia and Brazil are expected to see a deterioration in macro activity in 2023, while the Philippines is struggling with sticky inflation.
“We expect exports to be at similar levels as current in the immediate short term, however we hope that there will be some equilibrium and start of recovery in Q2(FY24). Longer term, of course, we remain optimistic about the underlying demand drivers for both motorcycles and 3 wheelers in emerging markets,” Sharma added.
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But the fall in exports will continue to have a negative effect on margins of Bajaj Auto but the company hopes to offset that to a certain extent with other avenues.
“The reduced weightage of exports in overall performance exerts negative pressure on the overall margin but we also have a few tail winds – the gentle depreciation of the INR which adds a fair bit to our bottom line, the return to normalcy of our profitable and very strong 3-wheeler business as well as a richer mix of higher margin products across all business units,” Sharma added.