Let me start with some encouraging news. The data on national income released inFebruary 2016 by the Central Statistical Organisation of the Government of Indiaanticipates real GDP growth of 7.6% for 201516 (FY2016) up from 7.2% in theprevious year. I believe this to be a reasonable estimate. Just as I believe that if wehave good monsoons in 201617 as the meteorological office has suggested we shouldbe set to achieve even higher growth of around 8% this fiscal. The worst is hopefullybehind us.
I will touch upon a somewhat worrisome macroeconomic issue towards the end of thisletter. But for now I need to share with you the results of your Company. Despiteheadwinds in both the domestic and international markets Bajaj Auto has performed verywell. Here are the key financials:
Net sales increased by 5.4% to Rs. 22253 crore. Total operating income (netsales plus other operating income) grew by 5.3% to Rs. 22967 crore.
Operating EBITDA increased by 17.5% to Rs. 5147 crore. This is the highest inyour Companys history.
At 22.4% of net sales and other operating income the operating EBITDA marginis I believe the highest in the industry.
Operating profits grew by 17.9% to a record of Rs. 4839 crore. The operatingprofit margin was 21.1% of net sales plus other operating income also the best inthe industry.
Profit before tax (PBT) increased by 31.8% to a record Rs. 5385 crore.
Profit after tax (PAT) rose by 29.8% to Rs. 3652 crore another record for theCompany.
Inspite of two dividend payouts in FY2016 surplus cash and cash equivalents ason 31 March 2016 was up by 7.5% to Rs. 9089 crore.
So these are very good results and your Companys Management deservescongratulations for such achievements.
Let me now touch upon some other aspects of Bajaj Autos performance. After threeconsecutive years of degrowth your Companys domestic sale of motorcyclesincreased by 7.2% to almost 1.9 million units. That has been very encouraging especiallyin an environment where overall demand still remains somewhat subdued. So too has BajajAuto done well in domestic sale of threewheelers which has increased by 8.8% overthe previous year to just a tad short of 255000 units.
However due to external factors especially poor economic conditions and severeforeign currency constraints in some of the key importing countries we have not succeededin equal measure on the export front both in motorcycles and three-wheelers. Aftera 15% growth in motorcycle exports last year the numbers fell by 4.1% to 1.46 millionunits; and similarly on the back of a 9.2% growth in FY2015 exports of three-wheelersdropped by 1.6% to some 280000 units. This does not take away from the fact that yourCompany remains Indias largest exporter of both motorcycles and three-wheelers andit still enjoys significant market shares. In fact it has improved its market share inimportant geographies: 24% in markets where it operates in Latin America driven by thePulsar 200NS; and 33% share in the relevant markets of Africa where the Boxer continues tolead our motorcycle sales. I hope that exports will pick up when some of these marketsabroad get into better economic and financial shape.
Regarding the domestic play I am impressed by the strategy that Bajaj Auto has beenfollowing to garner significant market shares in certain key segments. Using what yourCompanys Managing Director likes to call the strategy of creative differentiation more of which is described in the Management Discussion and Analysis we havesucceeded in capturing major often leading market shares in three categories: (i) thesupersports segment with the KTM and the Pulsar RS 200; (ii) the sports orperformance segment with the Pulsars and the Avengers; and (iii) the entrylevelsegment with the Platina and CT 100.
In February 2016 your Company launched the V15 a 150 cc bike to create a new anddifferentiated model for the large mass commuter segment. These are early days yet. But Ihope that this new and more powerful offering will steadily increase Bajaj Autospresence in this important sector of the market the more so as demand picks up withan overall economic rebound in FY2017.
Amidst successes there has been a disappointment. Your Company has produced what Ibelieve to be an excellent Quadricycle called Qute (rhymes with cute). InFY2016 we exported under 400 units to 13 markets across the world. It was ready forintroduction in India last year. Unfortunately everything has been held up byongoing court cases which now await a final verdict in the Supreme Court. Thematter is subjudice. All I can hope for is a positive outcome so thatpassengers in India enjoy the benefits of this fuel efficient and emission friendlyfour-wheeled vehicle as have their counterparts abroad.
That brings me to the worrying macroeconomic theme that I alluded to earlier. Eachyear India is producing an extra 12 million young people of an age that makes them readyfor the nations workforce. Unfortunately while there is no doubt that we as acountry can increase our GDP growth initially to 8% per annum and then hit a steady-stateof around 8.5% for several years everything seems to suggest that employment will notrise at anywhere close to that rate of growth. Indeed all recent data across mostmanufacturing and service sector activities show that employment elasticities (namely thepercentage increase in employment for a percentage growth in value added) are not onlyless than unity but often negative. Matters worsen if you juxtapose significantly greaterskill and multitasking needs of the future with the inadequate educational andtechnical abilities of many who are entering the labour force thanks to years ofneglect of our schools colleges and technical and vocational training institutions. Howthen can we expect to employ the majority of our youth even when we attain higher growth?And what will this do to inequality and social tensions? I dont have ready answers.But as a nationalist in his seventh decade I am concerned.
Finally I live in wonderment with what technology brings in every day. I recently reada very good book by my friend Klaus Schwab of the World Economic Forum entitled TheFourth Industrial Revolution where he writes of 23 deeply disruptive technologicalshifts that are on the anvil. Some of these are implantable technologies wearableinternet artificial intelligence the internet of things ubiquitous robotics 3Dprinting and various forms of nanotechnologies. I can only speculate how these coulddisrupt automobile manufacturing especially of motorcycles threewheelers and othertwo-wheelers. Since I am a generalist these are but nave speculations and guesses.Perhaps the senior team of Bajaj Auto might want to pool resources to explore some ofthese outofthebox ideas in addition to what they are already doing.
Let me end by stating that I have great faith and confidence in the capability of yourCompanys Management and its ability to deliver good results in the future. Also mythanks to our customers dealers vendors and employees who have always done their utmostfor your Company. And my thanks to you dear shareholders for your long and continuedsupport.
With best regards
25 May 2016