Export relief for Bajaj Auto but domestic volumes suffer

Export volumes will aid realisation but real test is to improve the Discover portfolio domestically

The lifting of the import ban by Egypt comes as a relief for Bajaj Auto, struggling to get its domestic act together. Analysts say Egypt’s move will have a two-three per cent impact on Bajaj's FY15 earnings. Realisation on three-wheelers is also better than that of two-wheelers and there is an improvement in volumes.

Egypt is a critical market for three-wheelers, contributing  25 per cent of the company's three-wheeler exports. While the company had earlier in the week forecasted flat three-wheelers export growth for FY15, analysts expect incremental three-wheeler sales of 25,000 and two-wheeler sales of 15,000 given the recent revoking of the ban.

The sales before the ban were pegged at 7,000 for three-wheelers and 5,000 for two-wheelers. The company was expecting the ban to be lifted in October. The company says it has orders of 5,500 three-wheelers and 3,500 two-wheelers for June.

Analysts say for FY15, Bajaj Auto is expected to record export growth of 14-15 per cent, led by Africa and Indonesia. While the company has hedged about 70 per cent of its exports at Rs 60 to a dollar, the worry is the stronger rupee, which might impact its un-hedged position. Following the lifting of ban, analysts now expect the share of exports as a percentage of volumes to rise from 40 per cent currently.

The worry is on the domestic front, where volumes are expected to grow at seven-eight per cent. The company expects domestic sales to grow due to an improvement in consumer sentiment, especially in urban markets where it does better.  

Domestic sales were down 14 per cent in FY14. The problem for it has been the sagging sales of the Discover range of motorcycles, volumes for which fell 25 per cent year-on-year in FY14, despite new launches. This was the key reason the company's market share in FY14 for domestic motorcycles is down 440 basis points to 20 per cent.

While the company has indicated it will improve its market share on the back of differentiated models, analysts say given aggressive competition and the confusion in the minds of customers about the various models of Discover and its price points, this is easier said than done.