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Chairman's Speech (Bajaj Auto) Year : Mar '13
Dear Shareholder,
 
 In my last two years'' letter to you, I began with congratulatory
 words for the management.  This time, it may be useful to start with
 India''s difficult macroeconomic and policy landscape.
 
 A chairman''s letter to shareholders does not normally carry a graph
 or chart. But when you look at the steady decline in India''s real
 (i.e. inflation adjusted) GDP growth over the last eight quarters, you
 will agree that a pictorial depiction is in order. As the chart shows,
 India''s growth has declined by 3.3 percentage points over the last
 eight quarters.
 
 It is all too easy, almost convenient, to pin the blame on the
 post-Lehman global world for this sharp fall in growth. That is only
 partly true. For one, India''s GDP is much more driven by domestic
 demand than international trade. For another, China, a country with far
 greater exports than India, has turned around and has grown by 7.9% in
 October-December 2012.  Even Indonesia has grown faster than us in the
 last five quarters, posting 6.1% growth in October-December 2012.
 
 Unfortunately, the hard truth is that despite growing at over 9% for
 three successive years under the first Congress-led United Progressive
 Alliance government, we failed to create the necessary infrastructure
 and investments to maintain healthy growth in difficult times.
 
 Instead of focusing on highways, power, rail, ports and IT networks
 that are critical for sustained growth, we steadily raised the
 nation''s fiscal deficit to finance consumption-based subsidies and
 hand-outs; this in turn caused inflationary pressures; which led to the
 RBI imposing high interest rates and a tight monetary regime. Added to
 these were long bouts of inaction and uncertainty in governance,
 leading to a crisis in the power sector, lack of inter-ministerial
 clearances of key projects and an unfortunate reversal of a Supreme
 Court verdict through retrospective tax amendments.
 
 The outcome: fall in investment and overall bearish expectations
 leading to steady reduction in GDP growth.
 
 Those who produce and sell relatively high end consumer durables - such
 as motorcycles - can cope with falling growth over three to four
 quarters. Indeed, your Company successfully did so last year, and
 recorded its highest ever sales, exports and profits. To repeat such
 feats in what has been the second successive year of quarterly
 de-growth would have been extremely difficult. Even so, the results
 have been noteworthy, and let me share these with you.
 
 - Despite a difficult market, net sales and other operating income
 grew by 2.8% to an all-time high of Rs. 20,351 crore.
 
 - Sales in volume terms reduced marginally by 2.6%. Bajaj Auto sold
 4.24 million units versus 4.35 million units in the previous year. This
 consisted of 3.76 million motorcycles and more than 480,000
 three-wheelers.
 
 - Exports, too, were a bit lower than last year''s - 1.55 million
 units in 2012-13 vis-a-vis 1.58 million in the earlier year. In revenue
 terms, however, exports grew by 4.1% to Rs. 6,713 crore.
 
 - Your Company''s operating EBITDA, at Rs. 3,990 crore in 2012-13,
 was almost the same as in the previous year. The operating EBITDA
 margin was 19.6% of net sales and other operating income. Although this
 is 60 basis points less than the previous year''s EBITDA margin, I am
 proud of Bajaj Auto''s management not only earning such a margin in a
 year as difficult as 2012-13, but also continuing to maintain its
 top-of-the-league position in profitability.
 
 - Profit before tax (PBT) grew by 6% to Rs. 4,266 crore.
 
 - Profit after tax (PAT) was at Rs. 3,044 crore - marginally higher
 than the previous year.
 
 Let me touch upon exports which, in the past, have grown very strongly
 both in volume and revenue. This year saw a marginal volume shrinkage -
 1.55 million units compared to 1.58 million in the previous period. In
 large measure this has to do with a key market: Sri Lanka, which
 substantially raised import tariffs on motorcycles and three-wheelers.
 Such disturbances occasionally happen in the course of international
 business. I am sure your Company will recover from this and grow
 exports more significantly in the coming years, even as the global
 economic environment remains one of weak growth and uncertainty.
 
 We also need to note that during 2012-13, overall, the Indian Auto
 Industry grew by 2% and its domestic sales by 2.6%, despite negative
 growth in passenger cars and heavy trucks.
 
 And the domestic two-wheeler sales grew by 2.9%. So, even as we are
 focused on and committed to profitable growth, we need to redouble our
 efforts for it.
 
 How do I look at 2013-14Rs. I am neither a soothsayer nor his modern
 day counterpart - an economist. I am a simple businessman. Despite
 being an optimist, I do not yet see signs of substantial recovery in
 the near future. The decline in the growth may have bottomed out; but
 incremental growth will be modest. I shall be pleasantly surprised if
 India can grow its real GDP by over 6% in 2013-14.
 
 In such an environment, the domestic market for motorcycles will be
 very tough.
 
 Your Company will have to fight to gain market share - and yet do so in
 ways that do not erode its healthy EBITDA margin. It requires great
 ingenuity, superior tactics, huge capability and determination. The
 management and employees of Bajaj Auto, led by Rajiv Bajaj, the
 managing director, have more than enough capability to meet the
 challenge. I exhort them to do so, with the faith that they can achieve
 great feats in difficult times. All of us can race with tailwinds. The
 real champion races faster with headwinds. If a company can do so in
 our line of business, it is Bajaj Auto.
 
 So, join me in wishing everyone in your Company ''God Speed''. May
 they, along with the dealers, vendors continue delighting our customers
 and thus the shareholders through healthy returns.
 
 With warm regards,
 
 Rahul Bajaj
 
 Chairman
Source : Dion Global Solutions Limited
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