The new national income estimates released by the Government of India''s
Central Statistical Organisation (CSO) have confused and perplexed
many. These numbers suggest that real Gross Value Added (GVA) grew by
7.5% in 2014-15 versus 6.6% in 2013-14. It seems that much of this
extra growth was on account of a larger basket of services.
I am neither an economist nor a statistician. However, as an
industrialist who has run a business for several decades and observed
others who manage different enterprises across many sectors, I find it
challenging to reconcile 7.5% growth in GVA with what one sees in
industry today. Over the last couple of years, there has been little or
no growth across many segments of industry and the annual financial
results of corporates for 2014-15 (FY2015) show this quite clearly.
There has been little or no uptick of either consumer or industrial
demand; and despite soft energy prices from the second half of FY2015,
companies have struggled with their revenues and profits. Some sectors
have suffered less; others more. But the sense on the street is that it
has been a difficult year quite removed from what one expects out
of 7.5% growth. I hope that the government under the premiership of
Shri Narendra Modi will usher in higher growth in FY2016. The country
Given the difficult macroeconomic circumstances of FY2015, I feel
reasonably satisfied with your Company''s performance. While the details
are in the chapter on Management Discussion and Analysis, let me share
with you some key numbers:
- Despite a dull and sluggish market, Bajaj Auto''s net sales plus
other operating income grew by 7.2% to B 21,817 crore.
- Operating EBITDA rose by 1.7% to B 4,379 crore, which is the
highest in the Company''s history.
The operating EBITDA margin was at 20.1% of net sales and other
operating income, which continues to be the highest in the industry.
- Exports of two-and three-wheelers increased by 14% to 1.81 million
units. In terms of value, exports grew by 14.6% to more than US$ 1.5
- Profit before tax (PBT) reduced by 11.8% to B 4,085 crore. This was
largely due to higher depreciation arising out of the Companies Act,
2013; lower treasury income from your Company''s surplus funds; and a
one-time charge in the form of the National Calamity Contingent Duty
levied on Bajaj Auto''s Pantnagar plant. Consequently, Profit after tax
(PAT) decreased by 13.2% to B 2,814 crore.
- Surplus cash and cash equivalents as on 31 March 2015 was B 8,455
I must applaud the fact that in such a testing environment your Company
has grown sales while taking EBITDA to a record high and maintaining
best-in-class EBITDA margins.
Let me briefly share with you how I have seen Bajaj Auto''s business in
FY2015. In the domestic market, your Company has done better than
before in the entry level segment through its Platina and the new CT
100. It has also improved its performance in the upper end ''sports''
segment with various models of the Pulsar and its exciting KTM bikes.
It has dramatically improved its domestic sales of three-wheelers at a
rate that is significantly higher than of the industry as a whole. It
has also performed excellently on the export front increasing the
number of two-and three-wheelers sold by 14% to 1.81 million vehicles,
and revenues by 14.6% to exceed US.5 billion. These are all great
However, there has been an overall fall in the volume of motorcycles.
This has been mainly on account of Discover, which occupies the middle
segment, between entry-level motorcycles on the one hand and the
premium segment sport or super-sport bikes on the other. Given the
weight of this segment in the overall domestic market, the fall in
sales of Discover has dragged down the otherwise excellent performance
of your Company in the two-wheeler front. Consequently, Bajaj Auto''s
motorcycles have lost domestic market share from 24.4% two years
ago to 20% last year, and then to 16.5% in FY2015.
Your Company''s Management led by Rajiv Bajaj and his team are
addressing this issue; and I hope to see a more vigorous performance in
this part of the business in FY2016 and thereafter.
But let me not peg expectations at too high a level. As of now, I have
not seen the kind of sustained demand pick-up that translates to a
healthy double-digit growth for motorcycles. I refer to the industry as
a whole, and not just to your Company. Given the possible prospects of
a poor monsoon in FY2016 and with interest rates still remaining high,
I am not sure about the strength of consumer durable demand in rural as
well as urban India. At a macroeconomic level, I see probably two more
quarters of relatively muted growth. Hopefully, I will be proved wrong.
But if not, one might witness a more sedate growth trajectory for cars
as well as motorcycles in FY2016.
I have written this earlier but bears repeating. As your Chairman, I
have huge faith and confidence in the capability of your Company''s
Management. If it could achieve 7.2% growth in operating income in a
challenging year and with it record EBITDA and a 20% EBITDA margin
it can definitely produce higher sales and a greater market share
in better times. As I am sure it will.
Let me end with my thanks to our customers, dealers, vendors and
employees who have always done their utmost for your Company. And my
thanks to you for your support.
With best regards,
21 May 2015