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Bajaj Auto may show small increase in Q2 profit, but revenue, EBITDA could fall on low volumes

Profit growth for the quarter is likely to be in the range of 3-8 percent compared to year-ago as the government slashed corporate tax rate by 10 percent in September.

October 23, 2019 / 10:19 AM IST
 
 
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Two-and-three-wheeler maker Bajaj Auto is expected to report a marginal increase in its profit for the September quarter due to a cut in the corporate tax rate, but the rest of the earnings parameters could show negative growth due to subdued sales volume growth.

Profit growth for the quarter is likely to be in the range of 3-8 percent compared to year-ago as the government slashed corporate tax rate by 10 percent in September.

According to brokerages, revenue in the quarter that ended on September 2019 may decline more than 8 percent year-on-year (YoY) as volumes declined 12.4 percent to 11.74 lakh units YoY.

The company reported a 25 percent YoY decline in the volumes of its domestic bikes, a 4 percent fall in the domestic three-wheeler market and a 19 percent YoY decline in the three-wheeler export market, but all this was offset by the 7 percent YoY increase in the volumes of the two-wheeler exports.

"We expect a revenue contraction of around 8.4 percent YoY led by a similar volume decline," Edelweiss said.

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But higher realisation, which could be in the range of 4-5 percent growth YoY, may support its topline for the quarter. Bajaj Auto has taken a price increase in select models.

At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) may decline more than 10 percent YoY with a contraction in margins.

"We expect EBITDA margin to decline by 90 bps on a YoY basis in Q2FY20 largely led by negative operating leverage and increase in discounting in the economy motorcycle segment," said Kotak Institutional Equities, which expects EBITDA decline of 10 percent YoY.

The stock gained nearly 14 percent year-to-date, outperforming the Nifty50 (up over 7 percent) as well as Auto index (down more than 13 percent).

Key issues to watch out for would be an update on the two-wheeler demand outlook from urban and rural areas; price increase in domestic markets across segments; export demand outlook and pricing in key currency market; comments on the three-wheeler demand momentum in domestic market and updates on its electric vehicle strategy.
Moneycontrol News
first published: Oct 23, 2019 10:19 am

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