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Bajaj Auto Q2 preview | Double-digit revenue growth expected, margins to decline

Bajaj Auto is expected to post double-digit year-on-year sales growth, although EBITDA margins are likely to contract owing to cost pressure

October 27, 2021 / 02:21 PM IST
Bajaj-Auto

Bajaj-Auto

Tw0-wheeler maker Bajaj Auto Ltd is set to announce its financial results for the three months ended September, the second quarter of the current financial year, on October 27. What are the expectations?

Double-digit revenue growth 

Analysts expect the company to report double-digit, year-on-year (YoY) growth in revenue for the quarter, driven by a combination of growth in sales volume and price increases.

BNP Paribas Securities India Pvt Ltd expects revenue growth of 12.2 percent YoY on the back of an 8.5 percent increase in sales and higher realisation from price increases and product mix.

In the second quarter of the last financial year and the first quarter of the current year, Bajaj Auto’s revenues was Rs 7,156 crore and Rs 7,386 crore, respectively.

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Kotak Institutional Equities expects Bajaj Auto’s revenue in the September quarter to increase at a relatively faster pace of 19 percent YoY led by a 9 percent increase in sales by volume and a 9 percent increase in average selling price.

Margin woes persist 

To be sure, higher input costs are a big worry on the margin front. Bajaj Auto increased prices during the quarter, which would help soften the blow to some extent.

Prabhudas Lilladher Pvt Ltd expects Bajaj Auto’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin to remain little changed quarter-on-quarter (QoQ) owing to commodity cost pressure.

In the first quarter of the last financial year and the first quarter of the current year, the company’s EBITDA margin was 17.7 percent and 15.2 percent, respectively.

EBITDA excludes taxes, the cost of capital investments, and expenses associated with debt like interest and serves purely as an indicator of corporate performance.

Kotak expects the EBITDA margin to decline by 20 basis points (bps) QoQ due to an increase in raw material (RM) basket (300-350 bp negative impact), partly offset by price increases during the quarter (200 bp positive impact), the benefit of Remissionof Duties and Taxes on Exported Products (RoDTEP) scheme (30-40 bp positive impact) and lower employee costs. One basis point is one-hundredth of a percentage point.

Management commentary 

Financial results in the previous quarter had suffered the impact of higher insurance costs on account of COVID-19.

Needless to say, investors would have to follow management commentary. Here, “guidance on 2W industry volumes for FY22 and FY23 (for domestic and export markets), reason for slowdown in domestic 2W market, visibility on festive demand, divergence seen between rural and urban demand, guidance on market share, margins for FY22 and FY23, comments on recovery in the domestic 3W market, discounting trends and strategy for the future” are some factors that investors should look for, says BNP Paribas.

Shares of Bajaj Auto have underperformed the broader markets in 2021. So far this calendar year, the Bajaj Auto stock has risen by around 10 percent versus a 30 percent gain in the Nifty 100 index.

Ahead of the results announcement, the stock was trading at Rs 3,810 at 11.34 am on October 27 on the National Stock Exchange.
Pallavi Pengonda
first published: Oct 27, 2021 11:36 am

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