Bajaj Auto may hike prices in Jan, expects Maha govt to reimburse Rs 1500 cr in tax

The automotive industry may look to ease some financial pressure in the final quarter of this year through some slight increase in prices despite the festive period not being as robust as expected.

Pune-based Bajaj Auto is contemplating a hike across its product range, which will perhaps come in January, to offset some of the input cost pressures suffered in the second and third quarters. Utility vehicle major Mahindra & Mahindra has already signaled that it too will revisit prices in the coming months.

Kevin D’Sa, Chief Financial Officer, Bajaj Auto, said, “There is an input cost pressure and it will be seen in Q3 and Q4 because steel [prices] have gone up a bit and aluminium has gone up substantially. The industry is in a position to absorb the price hike so at an appropriate time we will be able to take a call on the increase in price.”

Following the changeover to Bharat Stage IV (BS-4) from April 1, 2017 the two-wheeler industry has seen muted growth overall. According to data provided by the Society of Indian Automobile Manufacturers (SIAM) two-wheeler sales grew 10 percent (motorcycle grew by 7 percent) during the six months ended September 2017.

Bajaj’s domestic sales fell 10 percent during the same period during which time it had to incur higher consumer acquisition expenses through discounts and promotional schemes.

Several potential buyers advanced their purchase to the final days of March to benefit from the fire sale held by all manufacturers. Two-wheeler makers were liquidating their BS-3 stock at a huge discount thereby creating a vacuum in the following months.

“Factoring higher customer acquisition costs in Q2 such as discounts on bikes and also factoring higher raw material costs, [there could probably be] a price hike in January; we will be able to maintain a margin of 21-22 percent in Q3 and Q4,” added D’Sa.

Further, Bajaj Auto is hoping for a reimbursement of some taxes from the Maharashtra government which rose due to the roll-out of Goods and Services Tax (GST) from July 1.

“The total amount of money lying with the government is Rs 1,500 crore. Rs 1000 crore is on account of value added tax for the state of Maharashtra. Of this, Rs 600 crore is for 2016-17, Rs 300 crore for Q1 2017-18. Transition arising out of GST is Rs 400 crore,” added D’Sa.

Bajaj is hoping for an increase in treasury income if the said amount is released by the government in the on-going second half of the current year.

“We only wish that the systems are much more simplified. Whatever the government has announced till now is for merchant traders; it is not for those who are into exports. I believe that by December a major part of this will be behind us. That should release cash flow. And that’s why my H2 will show better treasury income,” added D’Sa.