Bajaj Auto's Q2 net rises 12% on strong exports, beats estimates

Higher input costs drag margins down to 16.4%

Bajaj Auto's (excluding subsidiary) net profit rose 12 per cent year-on-year (YoY) for the July-September quarter, led by robust exports of motorcycles and three-wheelers and an improved product mix. However, a steep increase in raw material prices singed the company's margins in the three-month period over the corresponding quarter. The earnings beat the estimates (E).
 
Net profit at the Pune-based automotive firm rose to Rs 1,275 crore in the second quarter (Q2) of 2021-22 (FY22), against Rs 1,138 crore in the year-ago period. Net sales in the same period rose 22 per cent to Rs 8,762 crore, from Rs 7,156 crore in the corresponding quarter, the company said in a stock exchange filing.

 
 A sharp increase in raw material prices, including aluminium, rubber, and steel, crimped the company's margins to 16.4 per cent in the September quarter, from 18.2 per cent in the year-ago period.
 

 To a great extent, a price increase taken by the company, higher realisations, better product mix, and a favourable exchange rate cushioned the fall in margins. If not for them, the drop would have been sharper. 
 
In a recent report, Nomura said unless commodities/oil cool off, firms will face a difficult choice of raising prices further and risk demand impact or endure margin pressure. "We believe the latter is more likely,” it observed.

 
The company's domestic motorcycle business bore the brunt of the continued slowdown in the two-wheeler market and dropped 11 per cent to 488,148 units. After a collapse during the pandemic, commercial vehicles sales, including three-wheelers, showed signs of a rebound. Albeit on a low base, they rose 88 per cent to 44,068 units, from 23,392 units in the year-ago period.
 
In a separate filing, Bajaj Auto said it has floated a wholly-owned subsidiary for captive financing of two-wheelers and commercial vehicles.
  
The name of the proposed company will be Bajaj Auto Consumer Finance, with a proposed authorised capital of Rs 100 crore.

 
Meanwhile, exports saved the day for the maker of the Pulsar and the Discover. The overall exports during the quarter rose 28-per cent YoY to 612,191 units. Of these, motorcycle exports saw a sharp 31-per cent jump, while commercial vehicles saw an increase of 8 per cent only.
 
"Bajaj reported healthy volume performance in Q2FY22. We expect its export business to witness a healthy growth in FY22E, on the back of a positive traction in the African market," said Mitul Shah, head of research, Reliance Securities.
  
Shah also expects the domestic two-wheeler industry to recover gradually and the domestic three-wheeler business to bounce back strongly in FY22E and FY23E, respectively. In view of healthy exports, recovery in high-margin three-wheeler business, margin expansion, improving return ratio, and strong balance sheet, Reliance Securities has a 'buy' rating on Bajaj Auto.

 
Bajaj said during the quarter, it accrued Rs 82 crore towards remission of duties and taxes on exported products (RoDTEP) for the fourth quarter of 2020-21 and the first quarter of FY22, and has recognised Rs 60 crore towards merchandise exports from India scheme (MEIS) for the period April-December 2020. The Directorate General of Foreign Trade declared the rates towards RoDTEP and also allocated funds towards MEIS.