As you know I am neither a soothsayer nor its modern day avatar an economist. Thus Ifind it difficult to predict what a country's GDP growth will be like until the numbersare published and become known to all. Even so I had somehow expected that we might cross7% growth in FY2018. The citizens of the country certainly deserved it.
However it looks as if I will be disappointed. The second advance estimate of nationalincome released on 28 February 2018 by the Central Statistical Organisation of theGovernment of India has pegged India's real GDP growth for 2017-18 (FY2018) at 6.6%. Ifthis is what we actually end up with it will represent a deceleration of 50 basis pointscompared to 7.1% achieved in the previous year. The gross value added (GVA) estimates showa similar trend. Real GVA growth for FY2018 has been estimated at 6.4% versus 7.1% inFY2017.
I can think of many reasons why we may end up performing worse than the previous year.Of these two are particularly important. The first is insufficient investments. Our shareof gross fixed capital formation to GDP has been declining over the last six years and nowstands at 31%. This is insufficient to bring about a steady-state growth of 7.5% to 8%.The second is the terrible state of our banks. Saddled by a huge overhang of bad loans ornon-performing assets that have eroded their balance sheets and destroyed profits mostbanks have neither the requisite financial strength nor the confidence to fund industrialgrowth. This is not only affecting the bigger players but much more so the medium andsmaller scale corporate entities across India who are now hardpressed to secure necessaryworking capital let aside term loans for investments. Despite the benefits that ought toaccrue from the new bankruptcy process in India I do not see a quick resolution to thisproblem.
In this somewhat unhappy macro context I am pleased that Bajaj Auto has performedcreditably. Here are the key results for FY2018.
Net sales increased by 15.6% to H 24700 crore the highest ever for yourCompany.
Operating earnings before interest tax depreciation and amortisation (EBITDA)increased by 7.7% to H 5145 crore which was also the highest ever.
The operating EBITDA margin was 20.2% of net sales and operating income.
Operating profit increased by 8.0% to H 4829 crore. The operating profit margin was19.0% of net sales and operating income. l Profit before tax (PBT) grew by 8.4% to H 5783crore and was the highest ever as well. As was profit after tax (PAT) whichincreased by 6.3% to H 4068 crore.
Surplus cash and cash equivalents as on 31 March 2018 was up by 25.7% to H 15542crore.
Let me share with you two positive aspects of the FY2018 growth story.
The first has to do with exports. During the year motorcycle exports grew by 14.5% andyour Company sold 1.39 million bikes to customers abroad thanks to concentratedefforts by the Management plus strong growth in Africa led by economic recovery inNigeria in the ASEAN owing to product launches in Philippines and entry into Malaysiaand in Latin America especially in new countries such as Argentina. Commercial vehicleexports increased by 39% to over 267000 units led by a recovery in Egypt and yourCompany's sustained investments in other markets. In FY2018 exports fetched Bajaj Autoand the country US$1.36 billion in revenues up by over 25% compared to the previousyear.
The second good news relates to three-wheelers. Last year this segment faced a severedemand crunch. That is a thing of the past. In FY2018 Bajaj Auto's domestic three-wheelersales broke records to reach an all-time high of 369637 units representing a volumegrowth of 46% over FY2017. Consequently your Company's market share in the domesticthree-wheeler segment has shot up in the course of a single year from 49.5% in FY2017 to58.1% in FY2018. For passenger carriers the market share is higher still: up from 59.7%last year to 67.0% in FY2018.
I am particularly pleased with Bajaj Auto's performance in the goods carrier businesswhich it had entered just two years ago. In a short span of time it has ramped up goodscarrier sales from 1325 units in FY2016 to 22791 units in FY2018 and now accounts forover 19% market share of this segment in India.
Your Company could have done even better had it not been affected by a decline indomestic motorcycle sales. This was not on account of the market as a whole nor due to anoverall lack of demand for all types and makes of motorcycles. Indeed FY2018 saw domesticsales of motorcycles grow by 13.7% by volume. Your Company continued doing well at theentry-level segment with its CT 100 Platina and Discover 100/110 as well as in thesports and super-sports' segments with its Pulsars Avengers the Dominar 400 andthe KTMs. However it could not perform adequately in the large commuter' segmentand sold less than what was expected.
Hopefully this gap will be taken care of in the next couple of years through existingand new products. This is a critical segment and as I understand your Managing Directorand his team are expending considerable effort at bridging this gap. I wish them well andhope that they will overcome this challenge as they have others in the past.
Last year I had written "Bajaj Auto is a sound and profitable company. What weneed is a year's uptick to take us on to a new growth trajectory. May that beFY2018." That uptick has hopefully begun. Now is the time to drive motorcycle salesintroduce the quadricycle in India further grow the three-wheeler and export businessesand take your Company to new heights.
Please join me in asking your Managing Director and the Management to relentlessly aimhigher. Because we deserve the best
and when that is achieved to do even better.
My thanks to our customers dealers vendors and employees who have done their utmostfor your Company. And to you for your continued support.
With best regards
Rahul Bajaj Chairman
18 May 2018