Bajaj Auto Q2 net slides 29% to Rs 591 cr

Bajaj Auto, India’s third-largest two-wheeler manufacturer, posted a 29 per cent year-on-year drop in net profit for the quarter ended September. The Pune-based company reported a net profit of Rs 591 crore, compared with Rs 837 crore in the corresponding period last year.

The fall in profit was primarily due to a penalty imposed by the Uttarakhand High Court over non-payment of duties. Bajaj Auto said following the judgment, it was liable to pay Rs 340 crore as a one-time penalty and interest.

According to the order, the levy of National Calamity Contingent Duty (NCCD) is out of the purview of the exemptions granted to the company under the scheme of incentives provided to industries in Uttarakhand. The penalty has been calculated for the past seven and half years, since April 1, 2007.

“This is a one-time charge and going forward, the charge towards NCCD is expected to be about Rs 3 crore a month,” said a company release. But for the charge of this exceptional item, profit after tax would have been Rs 853 crore, the second-highest in the company’s history.

S Ravikumar, president (business development) Bajaj Auto, said, “We will consult our legal team on whether or not to appeal (against the high court ruling) in the Supreme Court. We have not received a copy of the final order yet.”

Other manufacturers operating in Uttarakhand, including Hero MotoCorp, have either appealed against the NCCD charge or have been paying this regularly. Other manufacturers, too, enjoy a tax holiday of 10 years in that state.

Analysts had expected a better performance by the company. According to a Bloomberg consensus, Bajaj Auto’s net profit for the September quarter was estimated at Rs 866 crore. The company’s net sales, however, beat expectations.

“Bajaj Auto’s second-quarter results were broadly in line with our expectations, after adjusting for the exceptional items. Strong growth in motorcycle exports (29 per cent year-on-year) and three-wheeler growth (40 per cent) offset the volume decline in the domestic motorcycle space (10 per cent). Realisation/vehicle grew five per cent year-on-year, largely on account of price rises. On the operating front, earnings before interest, tax, depreciation and amortisation margins (adjusted for a mark-to-market forex loss of Rs 67.4 crore), at 20 per cent, dipped by 190 basis points year-on-year on account of competitive pressure in the domestic market. The margins were broadly in line with our estimate of 19.6 per cent. Adjusted for an MTM forex loss (Rs 67 crore) and a one-time charge (Rs 340 crore), the adjusted net profit, at Rs 881 crore, was largely in line with our estimate of Rs 860 crore. Going ahead, we will like to seek clarity from the management on its strategy to regain share in the domestic motorcycle market,” said Bharat Gianani, research analyst (automobile), Angel Broking.

Currently, he has an ‘accumulate’ rating on the stock, with a target price of Rs 2,475.

The company’s net sales during the September quarter stood at Rs 5,827 crore, growth of 15 per cent compared with Rs 5,061 crore in the corresponding quarter last year. Helped by a robust pick-up in exports and incremental volumes from the newly launched Discover 150, the company clocked a 10 per cent rise in unit sales, at 1,055,582, compared with 961,330 units in the year-ago period.

This is the first time in six quarters that Bajaj Auto’s quarterly sales exceeded a million.

Exports, which accounted for about half the company’s unit sales, rose 29 per cent during the quarter and accounted for 45 per cent of the revenue. The company said export volumes exceeded 500,000 units, a first. “Mature markets continue to do well and new markets, seeded through the past few quarters, are yielding desired results,” the company said in a release.

“If it wasn’t for the foreign exchange dip, our operating margin would have been more than 21 per cent, against the reported 20.8 per cent. We are expecting the new Discover to continue its upward swing. The third quarter is expected to be even better; we are hoping to clock 1.1 million sales,” Ravikumar said.

At 23.1 per cent, the adjusted margin was in line with analysts’ estimate of 21.7 per cent.

Foreign exchange losses stood at Rs 67.4 crore, against a loss of Rs 39 crore in the year-ago period. While the company didn’t disclose expenses related to corporate social responsibility in the year-ago period, analysts say it is expected these have risen, impacting profits.