Having reported better-than-expected Q3 earnings, Bajaj Auto is confident of reporting 20 percent EBITDA margins going ahead. Speaking to CNBC-TV18 post earnings, President - Business Development and Assurance S Ravikumar said robust exports and increase in domestic commercial vehicle demand have led to good growth in third quarter of FY15.
“There is headroom for growth in export and we should continue to clock rates of around 18-20 percent,” he adds.
According to a poll by CNBC-TV18, the automaker’s profit was expected at Rs 850 crore on total income of Rs 5,591 crore for the quarter but the company reported 861.2 crore for the quarter ended December 31, 2014.
The company is also expecting its domestic share to hit 20 percent by March 2015 led by new launches and improvement in demand.
“Pulsars, KTMs, Platina and Discover 150 are well entrenching itself and more of the higher price version of Discover is doing its role there. So, in the next six months you will see a very different picture from us as far as domestic growth is concerned,” he adds.
Below is verbatim transcript of the interview:
Q: Can you take us through your margin performance this time around? What lead to the 21 percent margin that you have reported?
A: We are happy to report 21.1 percent EBITDA which is an industry leading number. The mix has been good for us, the exports have come in at 50 percent of the numbers coming from the overseas markets and we certainly had a good foreign exchange realisation to back it up.
The commercial vehicles - domestic have also done well and the high-end Pulsars and KTMs have done well, the spares business has done well. It is almost like I am repeating myself from the last quarter.
A big chunk of about 80 percent plus high margin contributing segments of our business continue to do well and has led to the margin performance there, 21.1 percent and going forward we should continue to maintain this industry leading 20 percent plus type of an EBITDA.
Q: You said that export realisations have aided the margins this time around. What are the hedges on the currency for next year? How much is hedged and at what rate?
A: Almost about 2/3rd of our next year’s exports are hedged but I am not allowed to talk about the future hedge rates otherwise it will become easy for you and for the analysts. So let us toss quarter by quarter, but we have done a good job in hedging as far as next year is concerned.
Q: What is the export potential because last time when we spoke to the company, you did indicate that you are getting into 13 new markets, you have whole set of new launches? What kind of export volume growth do you foresee in the first half of the new fiscal?
A: Let me talk about Q4. We should continue the current run rate and we should be targeting an export number of about north of half a million but that said you know how soft crude is and there are lot of markets that are important for us, which are oil producing and exporting countries like Columbia or Nigeria and Venezuela and second, we have some sort of a political situation in Bangladesh but we have been exporting to 50 countries and we find that something or the other is good in many countries.
Q: I wanted to ask you about oil dependent economies and also economies like Nigeria where we have seen a big fall in their currency. Are you planning to cut prices in any of these markets and will that have any bearing on your margins going ahead?
A: Right now we will play it by the year. We will have to watch the situation because it is a very dynamic situation. Till now not much of a price action was called for and we hope that at least in the next quarter it will run like this and beyond that we have to play by the year.
Q: Given the strong traction that you have seen in exports, do you still maintain your export guidance of 18-20 percent for FY15? Will FY16 be better in terms of export performance compared to this year?
A: There is headroom for growth in export and we should continue to clock at the rates that you have mentioned. But there are larger factors that are moving and we have to be watchful.
One good thing that we will be doing is –by addition of new markets and by the markets which have been added in the recent past maturing – that will keep adding to the kitty.
Second, the motorcycle and commercial vehicles being personal transport relatively low value item maybe they are a bit inelastic to the price movement and so, we may be protected to some extent there but we are hopeful that the export story, there is lot of headroom and will continue to grow.
Q: What exactly was the dollar INR realisation that you saw this time and how much do you think realisations could go up by in Q4?
A: It was north of 62 in Q4 and again it should be north of 62.
Q: Now you have a plan to launch the new Platina in Q4 of FY15. How much can the new Platina help you improve your market share in the economy segment because there are so many players who are doing extremely well in the segment, like Splendor, Dream Neo. What is the plan as far as the new launch is concerned?
A: Let me just give a flavour of the full domestic market segments. Like you said Platina has been a very strong brand at the bottom of the pyramid and at the top of the pyramid the Pulsars and the Discovers have been doing well. Platina is very well entrenched in a lot of markets and it is a very good brand.
The electric start version of Platina has already gone into production and has reached the markets and it is quite well received in the markets where it is been tested and we are quite hopeful that Platina will add to the kitty.
Going forward, almost month after month, there will be launches in the next five to six months. After Platina we are going into one more, a wildcard 100CC entry being played that that new model also add to our 100CC volumes. This 100CC area has been the trouble spot for us, but with new Platina and the new model that will be launched in this quarter itself by March we should see some significant improvements in the market share.
We have already seen the bottom of domestic market shares, it has bottomed out. In this quarter Q3 itself there has been a 50 bps type of an improvement in the market share and that is at the billing level.
If you look at December we have billed whatever we have retailed. In fact we have stopped a bit. So, if I look at the retail market share in December it was about 18 percent plus.
By March we should certainly add at least close to 20 percent type of market share in domestic. Other sectors are continuing to do well.
Pulsars, KTMs, Platina and Discover 150 are well entrenching itself and more of the higher price version of Discover is doing its role there. So, in the next six months you will see a very different picture from us as far as domestic growth is concerned.
Q: There was news about a fire at the research and development (R&D) plant at Bajaj Auto. What is the news and how significant the fire is?
A: It’s a new building and the fire has already been put out, have to get full details. I think because it’s a new building that is getting constructed, so it was not an occupied building.
Q: Out of your total revenues 49 percent comes from exports now. Since you did mentioned that the product mix is improving in the next one year how much of the total revenues you think could come from exports. Will the contribution rise further?
A: Next year we will see very good uptick in domestic and because of that maybe 50 percent plus share in export is a good thing to target for the next year but that said there is a lot of headroom in export growth and we will continue to do well in exports.
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