Bajaj Auto Chairman's Speech > Engineering - Heavy > Chairman's Speech from Bajaj Auto - BSE: 532977, NSE: BAJAJ-AUTO
Bajaj Auto
BSE: 532977|NSE: BAJAJ-AUTO|ISIN: INE917I01010|SECTOR: Auto - 2 & 3 Wheelers
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Chairman's Speech (Bajaj Auto) Year : Mar '15
Dear Shareholder,
 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
 needs it.
 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,
 Rahul Bajaj
 21 May 2015
Source : Dion Global Solutions Limited
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