I thought of starting with encouraging news about India's economic growth in 2016-17(FY2017). But as I started looking at the latest evidence it didn't seem as encouragingas I believed it might be. In its latest advance estimate the Central StatisticalOrganisation of the Government of India has pegged India's real GDP growth for FY2017 at7.1%. No doubt it is better than all developed countries and most emerging marketsincluding China. However it is not as good as the 7.9% GDP growth achieved in FY2016.
So we have grown; but not as much as last year. And we possibly have a longer way togo to attain a steady state annual growth rate between 7.5% and 8% which is what we needto create a launchpad for greater employment a more significant global economic presenceand accelerated poverty reduction.
In my view three factors have played a role in dampening growth this year. The first isthe lack of significant investments over the last four to five years. Of late there hasbeen a serious effort at government investments in some key infrastructure areas. But thattakes time to translate into additional income and employment. And truth be told there ishardly any private sector investment worth the name.
The second is also related to private sector investments but linked to the state of ourbanks especially many of those under government ownership. The data for the quarter ended31 December 2016 shows that for the 27 public sector banks which account for the vastmajority of the nation's loans and advances bad loans called gross non-performing assets(NPAs) were estimated at Rs. 647759 crore or 88% of the total recorded NPAs across allbanks. This represents a 140% increase over what it was two years earlier and constitutes12% of total loans and advances. With these banks being badly stressed there seems to beno appetite for advancing term loans without which it is virtually impossible to envisagethe kind of investment spends needed for getting us securely on to a higher growth path.
The third is a shorter term aberration related to FY2017. I refer to the temporarynegative effects of demonetising Rs. 500 and Rs. 1000 notes on 8 November 2016. Althoughthe estimates for October-December 2016 show no appreciable dip in either real GDP or GVAthere seems to be enough evidence on the ground that removing over four-fifth of the valueof currency in circulation almost overnight and substituting it with a much slowerinjection of the new Rs. 500 and Rs. 2000 notes created constraints across varioussectors of the economy. It remains to be seen what the overall effect of this will be ongrowth for the first half of FY2018. If at all I hope it will be moderate.
In such a milieu how has your Company fared? I would say this: Bajaj Auto could havepossibly done better but given the circumstances it has done reasonably well to be whereit is. Here are the key financials:
Net sales de-grew by 3.5% to Rs. 21374 crore. Total operating income (net salesplus other operating income) decreased by 3.2% to Rs. 22026 crore.
Operating earnings before interest taxes depreciation and amortisation(EBITDA) reduced by 5.3% to Rs. 4778 crore.
The operating EBITDA margin was 21.7% of net sales and other operating income.This continues to remain the highest in the industry.
Operating profit reduced by 5.6% to Rs. 4470 crore.
At 20.3% the operating profit margin to net sales plus other operating incomewas also the highest in the industry.
Profit before tax (PBT) de-grew by 3.8% to Rs. 5336 crore.
Profit after tax (PAT) declined by 2.6% to Rs. 3828 crore.
Surplus cash and cash equivalents as on 31 March 2017 was up by 36% to Rs.12368 crore.
At a time of sluggish domestic growth and credit constraints coupled with politicaleconomic and currency problems in many countries that are your Company's leading importersof motorcycles and three-wheelers it requires considerable effort to fight against astrong negative under-current and stay profitable. That is what Bajaj Auto has done inFY2017.
Let me give you two examples. Consider the domestic market for motorcycles. Last yeardespite an overall de-growth of 0.4% in the number of motorcycles sold in India BajajAuto grew its sales by 7.2%. This year while the industry as a whole grew its domesticsales by 3.7% your Company's sales increased by 5.4% in terms of volume to over 2 millionmotorcycles. I need to emphasise that in FY2017 your Company's motorcycle sales grewfaster than its major competitors.
Similarly in a year when domestic three-wheeler sales for the industry as a wholedropped by 5% Bajaj Auto ended FY2017 by selling 253226 vehicles just 0.7% below itsall-time record sales of FY2016. Consequently in the domestic three-wheeler segment(passenger as well as goods) your Company's market share increased from 47.4% last yearto 49.5% in FY2017. In the domestic three-wheeler passenger vehicle industry BAL expandedits market share by 2.2 percentage points from 57.5% last year to 59.7% in FY2017.
Moreover despite sluggish growth Bajaj Auto's operating EBITDA was at 21.7% whichcontinues to be the highest in the industry.
To me the more significant problem in FY2017 has been the external sector. In myletter to you last year I had written that "due to external factors especially pooreconomic conditions and severe foreign currency constraints in some of the key importingcountries we have not succeeded in equal measure on the export front both inmotorcycles and three-wheelers". Unfortunately this has been true for FY2017 as welland if I may say so worse than in the previous year. Motorcycle exports de-grew by16.5%; and three-wheeler exports fell by 31.2%. In terms of rupees your Company's exportsfell by over 19% to Rs. 7880 crore. In US dollars it shrank by 23% to $1.09 billion.
Even so Bajaj Auto is still India's largest exporter of both motorcycles andthree-wheelers and it enjoys significant market shares. I hope that exports will pick upwhen some of these markets abroad get into better economic and financial shape. I am nosoothsayer and cannot forecast when.
Bajaj Auto is a sound and profitable company. What we need is a year's uptick to takeus on to a new growth trajectory. May that be FY2018.
Let me share with you one more piece of information. Madhur Bajaj who was theExecutive Vice Chairman has from 1 April 2017 demitted his executive role within theCompany. He continues as your Non-executive Vice Chairman. My sincere thanks to him forthe role that he has played in Bajaj Auto.
Equally my sincere thanks to our customers dealers vendors and employees who havealways done their utmost for your Company. And to you for your continued support.
With best regards
18 May 2017