Bajaj Auto’s March quarter (Q4) performance was marginally ahead of estimates. On a low base and more than doubling of commercial vehicle volumes, the company posted a 38 per cent growth in revenues for Q4. While overall volumes were up 33 per cent, realisations were up over 4 per cent, given the higher three-wheeler mix. While domestic motorcycle sales were up over 20 per cent, growth was a stronger 25 per cent on the exports front.
Recovery in African markets on the back of rising crude oil prices has helped improve the economy and demand in those countries. Three-wheeler exports, too, ended the quarter up 83 per cent. The company indicated that higher two-wheeler exports was due to a recovery in Nigeria, sports segment demand in Latin America and new product launches in the Philippines and Malaysia, while growth in commercial vehicles was led by Egypt and new markets.
The company has been de-risking its export revenues after the currency and demand problems in Africa as well as regulatory issues in other countries by expanding its geographic base. New markets now constitute around 14 per cent of its volumes in FY18 as against 10 per cent in FY17.
In the domestic two-wheeler segment, growth (especially in the rural segment) is expected to come from the entry level segment, which has been an outperformer in the two-wheeler space. For FY18, the company sold nearly one million units on the back of a 14 per cent jump in sales of CT, Platina and new Discover 110. The company has a 29 per cent share in this segment. Three-wheeler segment volumes, which have risen 144 per cent in the domestic market, are expected to be strong going ahead, given the removal of the three-wheeler permits by the Maharashtra government.
While the company posted a strong operating profit margin of 19.4 per cent given the improving share of higher margin three-wheelers and operating leverage, further gains could become difficult going ahead. This is due to the higher commodity prices as well as worsening competitive intensity in the market. Sharekhan believes intense competition in the domestic market will lead to continued market share erosion for the company.