Exports dampen Bajaj Auto's 1st quarter show

Flat volume growth and persisting pain from exports remain major overhangs

Weak export volumes dented the operational performance of Bajaj Auto in the June quarter. Overall volumes, given weak exports, fell two per cent over a year. However, higher realisation helped the company post revenues of Rs 5,984 crore, up 3.7 per cent over a year. The profit was marginally higher than the Bloomberg consensus estimates of Rs 5,950 crore.

Operating profit margins remained flat over a year at 19.3 per cent, missing the Bloomberg consensus expectations of 23.8 per cent.

Given currency fluctuations and weak demand, export volumes dipped 22 per cent in a year, with that of the high-margin three-wheeler segment witnessing a sharper decline of 46 per cent. This was a major drag on operating margins. While a lower tax outgo helped the firm, a weak operational performance and lower other income capped its net profit growth at 2.2 per cent. Net profit, at Rs 978 crore, was higher than the Bloomberg estimate of Rs 956 crore.

Despite lacklustre results, the stock wasn't impacted on Wednesday's trade. "Exports to Nigeria and Egypt have been sluggish for a few quarters and, hence, Q1 results were muted," says Arun Agarwal, assistant vice-president, PCG Research, Kotak Securities. "The domestic market sales will continue to remain strong and compensate for decline in exports," he adds.

While exports were on a weak footing, domestic sales were up 16 per cent over a year in Q1, with the two-wheelers segment growing at 13 per cent and three-wheelers sales increasing 48 per cent over a year. Recent launches such as V15, Pulsar and Avenger continue to cushion domestic two-wheeler sales. In the three-wheeler segment, Bajaj Auto improved its market share from 47 per cent in FY16 to 54 per cent in Q1 of FY17.

Pressures could persist in the exports market. The only silver lining for now is that average realisations, which in Q1 stood at Rs 67.1 to the dollar against Rs 63.9 a year ago, are improving due to a weaker rupee.

However, analysts say for any substantial improvement in earnings, Bajaj Auto's ability to reclaim its earlier export volumes of over 400,000 units a quarter (June quarter at 380,000 units) would be critical. In fact, with exports likely to remain weak and no major launches planned in the low-end segment in FY17, analysts feel the risk-reward is not in favour of Bajaj Auto. "Therefore, management commentary expected tomorrow will be critical," an analyst from a domestic brokerage said. A neutral or negative commentary could put the stock under pressure in the near term.