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Bajaj Auto Q1 net seen up 3% YoY at Rs 741 crore

The India's second largest motorcycle maker is expected to report a marginal drop in revenue in April-June quarter, but margins will be boosted by price hikes, favourable currency hedges and increased export realisations.

July 19, 2013 / 08:33 AM IST
 
 
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Moneycontrol Bureau


Two-wheeler makers are expected to report tepid results in the first quarter amid sluggish demand and increasing competition. Come Friday, all eyes will be on Bajaj Auto, which will be the first to flag-off its April-June quarter earnings announcement.


The India's second largest motorcycle maker is expected to report a net profit of Rs 741 crore, up 3 percent year-on-year, while revenue is seen falling 0.3 percent to Rs 4,850 crore, according to a CNBC-TV18 poll.


The company's volumes declined 9 percent year-on-year in the first quarter to 9.72 lakh units. Apart from sluggish growth in the domestic market, exports to Sri Lanka too have taken a hit, although there seems to be some pickup in African and Latin American markets. 


"The two-wheeler space is facing a tough time with MNC players eating into the market share of domestic players in a difficult operating environment," according to a report by HDFC Securities.


Honda Motorcycle & Scooter India, Hero MotoCorp's erstwhile partner, in particular, has been very aggressive. It launched thew new scooter Activa-I and the new edition of Dream Yuga motorcycle last quarter.


On top of it, Bajaj Auto is under pressure due to the strike by workers at Chakan plant near Pune.


The workers are on a strike from June 25 demanding higher wages and employee stock options.


Bajaj Auto says it has shifted some production of the Pulsar motorcycle to its plant at Waluj near Aurangabad and hired trainee and contract labourers at Chakan so that production is not hampered. But the production at Chakan still lower than what it produces normally.


Despite the pressure on volumes, marginal price hike taken in April, favourable currency hedges and increased export realisations should help the Pune-based company stay profitable and boost margins.


Analysts on average expect Bajaj Auto's EBITDA (earnings before interest, taxes, depreciation and amortization) to increase 4 percent to Rs 906.5 crore, while operating margins are likely to expand to 18.6 percent from 17.9 percent, according to the CNBC-TV18 poll.


Its average realisations too are expected to rise 8 percent YoY to Rs 49,419.


KEY THINGS TO WATCH


- Volume Outlook for the rest of the financial year, especially given that a good monsoon rain is expected to revive rural demand
- Growth expected in Sri Lanka, Egypt and other African and Latin American markets
- Sales at Austrian bike maker KTM
- Margin guidance
- Currency hedges for FY14
- The impact of Chakan plant strike
- New product launches this year


Also Read: Axis Bank Q1 beats street; net up 22% to Rs 1,409 crore


STOCK WATCH


Bajaj auto shares closed down 0.7 percent at Rs 1,896.70 on NSE on Thursday. Since March-end, the stock has gained 5.4 percent, compared with the wider CNX Auto index, which is up 5.6 percent.


Brics Securities has a "buy" rating on the stock, with a target of Rs 2,123 a share.


"We like Bajaj Auto's strong positioning in premium motorcycles, high margins (highest in the industry), rising exports and high return ratios...We expect the stock to trade in line with the peer average and value Bajaj Auto at 16 times our FY14 (estimated) earnings (Rs 1,723 a share)," according to Brics Securities.

Other brokerages like Emkay Global Financial Services and ICICI Direct.com, advise investors to "hold" the stock.

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