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  1. Bajaj Auto Q1 profit drops after marketshare falls to 15 pct; Rajiv Bajaj blames discounts

Bajaj Auto Q1 profit drops after marketshare falls to 15 pct; Rajiv Bajaj blames discounts

Bajaj Auto on Thursday reported a 6.46% year-on-year drop in its PAT to Rs 923.51 crore for the three months to June.

By: | New Delhi | Published: July 21, 2017 4:56 AM
Bajaj Auto, Rajiv Bajaj The company’s market share fell sharply to 15% from 20% in the preceding quarters.

Bajaj Auto on Thursday reported a 6.46% year-on-year drop in its PAT to Rs 923.51 crore for the three months to June. The company’s operating profit margins came in at 18.3% in Q1FY18, down nearly 300 basis points from 21.2% in Q1FY17.

Bajaj had been operating at 20% EBITDA levels consistently for many years and this is among the rare occasions when it had dropped below those levels.

Theo operating profit was down 6% Y-O-Y to Rs 1,288.13 crore during Q1FY18.

Revenue from operations was down 3.84% Y-O-Y to Rs 5,854.19 crore compared to Rs 6,088 crore same quarter in FY17.

The company’s market share fell sharply to 15% from 20% in the preceding quarters. Bajaj Auto MD, Rajiv Bajaj, blamed the fall in Bajaj Auto’s market share to deep discounting by competition when the two wheeler industry changed from BS III to BS IV compliant vehicles and also due to transition to GST.

Competition had lakhs of BS III vehicles which they off loaded into the market at discounts ranging from Rs 5,000 to Rs 25,000 and they bought market share in Q1 with these discounts, Bajaj said.

The discounts amounting to Rs 700 core were offered in those few days, Bajaj said.

Bajaj had shifted to BS IV and it neither had any BS III vehicles nor did it offer any discounts on the contrary it hiked prices by around Rs 2,500.

This affected Bajaj Auto’s top-line and bottom line, Bajaj said.

According to Bajaj around eight lakh vehicles were offered at an average discount of Rs 7,000 to Rs 8,000.  Consumers preponed their sales and Bajaj lost some of their customers because of the discounts to competition, he said. As competition liquidated their stocks, they were able to feed fresh stock into their network in Q1 which affected Bajaj’s Q1 market share, he said.
The company also offered post-GST prices mid-June and managed to reduce stock at dealers and for the remaining stock dealers were compensated to the tune of `32 crore during Q1. All this put pressure on Bajaj Auto’s motorcycle business in the domestic market and there was a sharp drop in billing in June 2017.

Bajaj said their market share would come back and they will be back to their 20% market share levels by August ‘17. Further with new products in all their seven brands expected in the later part of the year they will gain further market share of around 6%, he said. Margins in the export markets and in the CV business remained intact, Bajaj said.
Bajaj Auto’s export grew 21% Y-o-Y to $347 million with sales volume going up 10% to 4.09 lakh units. In the commercial vehicles market operating EDBTDA remained intact with 50% market share.

Exports in Q1FY18 was at around 400,O000 units and going by this trend the company may end the year with close to 1.7 million vehicle exports, Bajaj said.

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