Bajaj Auto floats subsidiary for e-mobility; net profit slips 20%

Covid-induced lockdown dents volumes, erodes margins

Bajaj Auto recorded a 20 per cent drop in net profit for the June quarter, as compared to the previous one. The results come even as the company on Thursday announced the formation of a wholly-owned subsidiary to sharpen focus on the electric mobility segment.
 
Even though it beat estimates, the net profit of the two-wheeler firm fell sequentially to Rs 1,061 crore in the April-June period. The drop comes on the back of Covid-induced lockdowns that stalled production and shut dealerships.
 
A Bloomberg poll of analysts pegged the number at Rs 992 cr­ore. The year-on-year net pr­o­fit of the firm rose 50.2 per cent to Rs 1,061 crore, but the earnings are not strictly comparable to Q1 of FY21 due to the nationwide lockdown at that time.
 
Overall vehicle sales, including exports, at the maker of Pulsar motorcycles and RE three-wheelers fell 14 per cent sequentially to 1,006,014 units in the reported quarter as the pandemic upended lives in urban as well as rural India. The company’s revenue during the quarter also declined sequentially to Rs 7,386 crore from Rs 8,596 crore. The lower volumes and higher raw material prices singed margins, pulling it down to 15.6 per cent in the June quarter from 18.1 per cent in the March quarter.
 

Lower revenue from operations resulted in the loss on spread of fixed costs by 160 bps. Increase in the cost of raw-material, net of increase in prices, resulted in lower Ebitda margin by 220 bps, while the fall was cushioned, to some extent, by higher dollar realisation and improved mix, the company said in the statement.
 
“It was a tough quarter as the volumes didn’t pan out the way we had expected. Going into the quarter, in March, the severity of the second wave was not known. By the end of March, it engulfed the whole country — first the north and then the south,” said Rakesh Sharma, executive director, Ba­j­aj Auto. The lesser-than-exp­ected volumes also imp­acted Bajaj’s operating leverage.
 
Sharma said things have started looking up since the second half of June — particularly for three-wheelers, in which Bajaj is a market leader in all segments. The company retailed 7,000 three-wheelers, as against the expected 5,000.  Though the monthly run rate is far lower than what it was in FY20 — when it retailed an av­erage of 25,000-30,000 units — the month-on-month imp­ro­vement is encouraging, he said.
 
Meanwhile, the company’s exports have been steady at 200,000 units a month. It is expected to get better once the lockdowns in Uganda and The Philippines are lifted.
 
According to Sharma, the September quarter may be better than the year-ago qua­rter on all fronts — exports, domestic motorcycle and three-wheelers.
 
Mitul Shah, head of re­search at Reliance Securities, expects Bajaj’s exports to witness a healthy growth in FY22E (estimates) on the back of positive traction in the African market. He also expects the do­mestic two-wheeler industry to recover Q2FY22E onwards.
 
“Domestic three-wheeler business would bounce back strongly in FY22E. In view of healthy exports, recovery in high margin three-wheeler business, margin expansion, improving return ratio and strong balance sheet, we have a ‘buy’ rating on the company for a two-year target price of Rs 3,870,” said Shah.
 
On the formation of a who­lly-owned subsidiary to shar­pen focus for the electric mobility segment, the company said in a statement: “The wholly owned subsidiary will leverage the growth opportunities in the evolving mobility space and will help the company to venture into the manufacturing of electric and hybrid vehicles in the 2-wheeler, 3-wheeler and light 4-wheeler categories.”
 
A corporate structure will allow us to partner, get into alliances and give us the flexibility to move with a greater speed. All the EV business will get into this company,” said Sharma.