Bajaj Auto, the country’s third largest bike maker, said today it is unable to pass on the raw material cost hikes to consumers as it fears that such a move will lead to contraction in margins this year.
The company has refused to hike prices of motorcycles and three-wheelers even as the two-wheeler market leader Hero Motocorp effected a price rise in the range of Rs 500-2200 from May 1.
"On the whole-year basis we will be at the 20 percent EBITDA level. Margins will come off by a percent from the current levels due to rise in raw material costs with impact of GST and the cost of acquisition getting higher,” said Kevin D’sa, President, Finance, Bajaj Auto on a conference call.
At the standalone level Bajaj saw its net profit go down by 15 percent following poor sales due to heightened discounts by rivals to liquidate BS-III stock especially towards the final days of March.
A charge of Rs 16 crore was absorbed by the company during the quarter towards discounts offered by the company to liquidate BS-III stock. In comparison, TVS Motors suffered an impact of Rs 57 crore. Bajaj will be investing Rs 200 crore this year towards capital expenditure.
“Our ability to pass on price hikes was restricted due to discounts offered by rivals. Steel, aluminium and other costs had gone up. It is very difficult to absorb costs. It is a question of time before we take the price hike,” added D’sa.
Further, Bajaj expects a muted performance in the current quarter compared to its rivals. “Q1 will show relative underperformance because we don’t have to refill the pipeline compared to Honda and Hero because they exhausted their inventory during the last three days of March whereas we had already transitioned to BS4”, added D’Sa.
Bajaj had shifted its entire model line-up to BS-IV much before the April 1 deadline. It had launched new models such as Avenger, Dominar, and refurbished Pulsar line up with BS-IV engines.
However, its dealers were still left with some BS-III stock which had to be liquidated before the deadline. The company had taken a price hike of Rs 500 on motorcycles and Rs 1000 on three-wheelers during the previous quarter on account of the switch to BS-IV.
Bajaj’s high margin three-wheeler segment has also come under pressure due to demonetization. “The domestic three-wheeler segment was very badly affected due to demonetization. While that phase is over there is a lot of pain in that segment. The CV segment will be slightly under pressure this year,” added D’Sa.
The company is hopeful of benefiting from the expected 40,000 new three-wheeler permits to be issued in Maharashtra, Delhi and Karnataka.
There would not be any significant change in prices of two-wheelers post the roll-out of the GST as motorcycles will be falling under the 28 percent tax bracket. Only bikes having engines bigger than 350cc will be slapped with an additional 1 percent cess.
On the product front the company wants the monthly run rate of the V Series and Dominar to rise from the current levels. “For the V series we expect both models (V12-V15) to stabilize at about 35,000-40,000 a month in 7-8 months while for Dominar we would like to see 4,500 and from July 7,000 a month (domestic and exports), added D’Sa.
For KTM a sales rise to 50,000 units is expected this year from 35,000 sold last year, said Bajaj Auto.