Will miss 5m vehicle sales forecast for FY13: Rajiv Bajaj

Bajaj Auto will miss its forecast of 5 million (50 lakh) unit sales for the current financial year as demand for two-wheelers continues to remain sluggish, especially in the domestic market, Rajiv Bajaj, MD said on Wednesday.

The company is now only likely to sell only around 4.3 million (43 lakh), flat growth year-on-year, he added. The India's second largest two-wheeler maker reported a net profit of Rs 819 crore in the third quarter, up 3 percent year-on-year and largely in-line with street expectations. Its sales rose 9 percent from a year ago to Rs 5413 crore. Last quarter, Bajaj Auto sold 11.28 lakh units, up 5 percent year-on-year. Its domestic motorcycle sales rose 7 percent to 6.87 lakh units, while exports declined 2 percent 2.99 lakh units. Bajaj told CNBC-TV18 that there is "no reason to believe that the slowdown has stabilised." On the three-wheeler commercial vehicle front, Bajaj Auto's domestic sales accelerated 23 percent to 64,168 units. But exports rose just 1 percent at 77,310 units. The total three-wheeler sales at over 1.41 lakh units were highest ever CV sales, highest ever for the company. Below is an edited transcript of the interiview on CNBC-TV18 Q: What was the growth in volumes achieved and are you in step for achieving your yearly target of 5 lakh units?
A: We have achieved a volume of 1.13 million and this has been the sixth quarter in a row that we have exceeded total sales of 1 million. In terms of revenue, I believe the figure of Rs 5,300 crore that you have quoted is the highest quarterly revenue ever for Bajaj Auto. So that's another positive. But what has been really heartening is the EBITDA at 20.1 percent which is ahead of most estimates and at an absolute figure of Rs 1,105 crore. This is the highest EBITDA ever for the company.
The bottom-line of Rs 819 crore is the highest quarterly profit ever. I think some estimates may have factored-in a tax rate of 25 percent, but this year the tax rate is up because the breaks that we had at the Pantnagar plant ended on April 1, 2012. That is why this quarter has a tax rate of 30 percent. And that is why perhaps though the EBITDA is ahead of most estimates, the PAT is in line with expectations. Q: Do you expect this tax rate of 30.2 percent to remain for the following quarters as well?
A: Yes, it will remain in this range. In the first quarter it was around 28 percent and around 29 percent in the second. So it will remain in this region. It will change a little bit depending on the exact mix particularly of three-wheeler and exports, but you could say the tax rate would be around 29 percent. Q: Your results indicate an improvement in export realisations by about 10 percent sequentially. What led to that improvement?
A: There have been two factors for the improvement in exports. One, although there has been a big impact in this quarter both on the top- and the bottom-line of exports due to the reduction and the drawback rates from October 10, we were able to offset that with price-increases and passed on almost 80 percent of that reduction.
More importantly it has been a very good quarter for exports particularly for three-wheelers because after being a little down and out in the first couple of quarters, markets like Sri Lanka and Egypt recovered very strongly and sent the three-wheeler sales to very high levels. As a result, three-wheeler sales in Q3 were the highest ever in any quarter of Bajaj Auto resulted in a significant boost to export realisation. Q: Will you be able to maintain the margins at 20 percent considering the very aggressive competition?
A: The competition has been aggressive for a long time. What keeps our margins at 20 percent, when a majority in the auto industry is closer to just half of that, is the fact that we have built some very strong brands.
The motorcycle-brands Pulsar and Discover and three-wheeler brand RE are particularly relevant for the Indian market. Our products are so differentiated that there is no pressure to reduce prices or incur considerable marketing expenditure to push sales. Therefore, it is by virtue of these strong brands that we continue to sustain these margins. I think this must be the fourteenth quarter in a row that we have done so.
I would even venture to say that on a sequential basis, the EBITDA percentage has marginally gone up, from Q2 to Q3, by as much as about 0.4 percent. I am very hopeful with the recent launch of a very nice new 100cc motorcycle on January 7.
If that brings in big numbers because that participates in the real volume space of the market, then I would like to put all of us under pressure, stick my neck out and say that we can improve things from here, on that basis. Q: I assume that in the entry segment, in 100c you are still doing well. But what is your market share in that segment as well as the executive segment?
A: I will split it like this – in the 125cc and above i.e. 125cc, 150cc, 180cc etc, which is where Bajaj is mainly focused, our market-share continues to be in the region of 40 percent. We are a clear market leader in that space and in terms of volume is about 35 percent of the industry and growing every year.
In the other 65 percent, which is the 100cc space, we have now come up to a 20 percent market share, thanks to the recent success with the Discover. Overall, for domestic and exports put together, our market share, to be precise, is 32.1 percent for motorcycles for this period. Q: Analysts have observed that that Honda's Dream Yuga has come down on a quarter-on-quarter basis and in Q3 there has been a 5 percent decline despite the industry's volume growing 11 percent. How does that augur for your new 100-cc launch and what are the trends that you observe at this point?
A: Ours is a strategy of differentiation. We win market-share by being different while Honda’s is a strategy of familiarity. Though it is true that in November and December Honda's Dream Yuga volumes have slightly tapered, I would be almost certain that this is more to do with production due to a few days off in November for the festive season and some year-end breaks in December.
But we were shut for four days in December for annual maintenance as usual. However, I have seen nothing to suggest that the Dream Yuga is a super success nor have I seen anything to suggest that it is beginning to wane. I think it will remain stable and steady. Q: So you will be able to maintain the market-share in Q4 and FY14?
A: I think the market-share can be improved it because with new Discover-100, for the first time that Bajaj has a truly differentiated product in the volume space. We are giving people, for almost the same amount of money and mileage, 30-percent more power and we think that is very meaningful in the 100-cc space.
Our profitability will also rise for many reasons and going into the next year, we are going to realise about Rs 54 to the dollar whereas throughout this financial year including Q3 and Q4, we have realised Rs 49 to dollar. So, Rs 5 on 50 is a 10 percent improvement on exports which is one-third of our sales. So, theoretically the company’s EBITDA should go up as a weighted average by 2-to-3 percent. So, in my view unless the situation changes dramatically, I think Bajaj is headed for a super year in 2014.