What to expect from Bajaj Auto Q4 earnings?

Moneycontrol Bureau

Two-wheeler makers, which saw good growth for most of 2011-12, have hit speed bumps in the last few months. Competition has also increased with Honda Motorcycle & Scooter India (HMSI) becoming aggressive post the break-up of Hero and Honda. How is the overall  market scene now and what's the outlook going ahead? We shall know on Thursday with the earnings of Bajaj Auto, India's second largest two-wheeler maker.

Analysts expect the maker of Pulsar and Discover motorcycles to report net profit growth of 13-20% year-on-year, while net sales are seen rising 13-17%. On a sequential basis, net profit is seen down 4-8%, while sales are expected to fall 4-7%.

The country's top two-wheeler manufacturer Hero MotoCorp's fourth quarter net profit rose 20% year-on-year to Rs 604 crore, helped by highest ever sales in the quarter. The company's total turnover was up 12% from a year ago to Rs 6,035 crore in Jan-March.

"Bajaj has been facing increasing competitive heat in the domestic market. Q4 volumes have been tepid at 1.02 million units, lower than revised management estimates of 1.07 million," say Karan Mittal and Nishant Vass of ICICI Direct.com.

It sold 8.97 lakh motorcycles in the quarter, up 7% year-on-year and down 5.2% quarter-on-quarter. Three-wheeler sales were up 7.5% from a year ago, but declined near 7% sequentially to 1.20 lakh units, according to a report by Standard Chartered. On the exports front too, the company has seen some slowdown. Shipments to overseas markets fell 9%, compared to that in Oct-Dec, although they were up 26% year-on-year.

The company's margins are also seen under pressure due to lower realisations.

"We have assumed a quarter-on-quarter decline in average realisation as we believe that discounts would have increased in fourth quarter in a bid to push volumes in the domestic market," say Amit Kasat and Aniket Mhatre of Standard Chartered.

Jinesh Gandhi and Mansi Varma of Motilal Oswal expect Bajaj Auto's EBITDA margins will rise 40 basis points year-on-year, flat sequentially.  Many others expect margins will be flat compared with a year ago.

Bajaj began sales of its KTM Duke motorcycle a couple of months ago, and earlier this week launched a new 125 cc model of its Discover motorcycle. It will also soon launch the new Pulsar 200 NS, which was showcased in the fourth quarter. Bajaj Auto also unveiled its four-wheeler RE60 in the quarter, which is expected to go on sale later this year. These new launches are expected to boost its sales going ahead.

Key things to watch

- Current demand environment and sales growth forecast for the current financial year.
- Competitive intensity. Bajaj Auto lost its No 2 position to Honda in March, but regained it back in April.
- Input cost scenario and pricing action if any. Hero MotoCorp raised prices by up to Rs 1,000 earlier this month to offset raw material cost pressures.
- Margins in fourth quarter and outlook going ahead.