Bajaj Auto: Back in the game

New model drives volumes but a strengthening rupee could hit income from exports.

Bajaj Auto’s return to the 100cc segment is paying off. With the new 100cc Discover a hit, the Pune-headquartered company’s sales for the September 2009 quarter are up a smart 15 per cent to Rs 2,793 crore. Within a short period, since mid-August, the company managed to sell 160,000 lakh Discover bikes, which drove volumes for the maker of two- and three-wheelers.

The market leader in the 100cc space is Hero Honda, with a share of close to 80 per cent. With the Discover being competitively priced, Bajaj could eat into Hero Honda’s share. Bajaj Auto is doing well in overseas markets too; export volumes of both two- and three wheelers in the September 2009 quarter were up 8 per cent year-on-year.

The only concern on the export front is the strengthening rupee since exports now account for about 30 per cent of the company’s sales. Meanwhile, operating profit margins in the September 2009 quarter were up nearly 800 basis points to 22 per cent with the company selling more high-margin models and thereby earning better realisations.

Of course, the lower raw materials bill helped. For the current year, operating margins could come in at close to 20 per cent since prices of some inputs are going up. However, the company expects to save on marketing spends.

Meanwhile, it remains the market leader in the premium space with the Pulsar range (150cc-220 cc) continuing to do well, though there is some competition from both Hero Honda and Honda Motorcycles. What Bajaj has going for it is a strong cash balance of Rs 1,652 crore. Despite the fairly good numbers, the stock came off with the Street anxious that higher raw material prices could impact margins.