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Bajaj Auto likely to outperform peers in Q1 on volume growth

Overall brokerages expect three-digit decline in operating profit margin for June quarter YoY.

July 26, 2019 / 10:35 AM IST
Bajaj Pulsar NS200 | Rs 1.30 lakh | The Bajaj Pulsar NS200 may not be a fan favourite, but it is still up there with some of the best bikes in this category.

Bajaj Pulsar NS200 | Rs 1.30 lakh | The Bajaj Pulsar NS200 may not be a fan favourite, but it is still up there with some of the best bikes in this category.

 
 
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Two-and-three-wheeler maker Bajaj Auto is expected to report a better than industry performance, partly driven by positive volume growth, in the quarter ended June 2019.

The stock has also outperformed the two-wheeler industry in 2019. Bajaj Auto declined 7 percent, as against a 21 percent fall in Hero MotoCorp, a 25 percent drop in Eicher Motors and 33 percent drop in TVS Motor Company.

"For Q1 FY20E, Baja Auto is expected to report the best quarterly performance among auto original equipment manufacturers (OEMs) with steady 2 percent increase in total volumes (12.5 lakh units), muted commodity prices and operating leverage benefits," said ICICI Direct, which expects a profit growth of 2.8 percent and revenue of 2.7 percent YoY.

Total 2-wheeler sales volume for the quarter was at 11 lakh units, up 5 percent YoY, while 3-wheeler sales volumes were at 1.6 lakh units, down 16 percent YoY.

Overall volumes increased 2 percent year-on-year (up 4 percent QoQ) to around 12.47 lakh units due to a 2 percent YoY decline in domestic volume and a 3 percent YoY increase in export volume.

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Total motorcycle volumes increased by 4 percent YoY, while 3-wheeler volumes declined 20 percent YoY.

"We expect realisation to increase marginally by 0.4 percent YoY (down 2 percent QoQ), led by price increase. Consequently, net sales are expected to increase by 2.1 YoY (up 2.4 percent QoQ)," Motilal Oswal said.

Overall brokerages expect a three-digit decline in operating profit margin for June quarter YoY.

Kotak expects EBITDA margin to decline by 210 bps on YoY basis largely due to inferior product mix, higher commodity costs and an increase in discounting in the economy motorcycle segment, while Motilal Oswal expects EBITDA margin to contract by around 180bps YoY.

The company will be launching refreshed versions on existing models over next 6-9 months in both entry and 125 cc segments. There will also be launch of an electric vehicle in FY20.

Key issues to watch out for are updates on the demand outlook for 2-wheelers from urban and rural areas, a price increase in domestic markets across segments, export demand outlook and pricing in key currency market, comments on 3-wheeler demand momentum in the domestic market, and updates on electric vehicle (EV) strategy.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jul 26, 2019 10:35 am

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