• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Krishnakurmar

Mr Rajiv Bajaj, President, Bajaj Auto, at the launch of Bajaj Caliber 115... Bumpy ride ahead.

REFLECTIVE of the growing competitive pressure in the two-wheeler industry, Bajaj Auto reported a marginal increase in turnover and net profit for the year ended March 2003. Aided by a 6 per cent increase in sales volume, the total income from operations rose 15 per cent to Rs 4,895.3 crore.

For the year ended March 2003, motorcycle sales rose 32 per cent to 8.68 lakh units while three-wheeler sales rose 21 per cent to 1.94 lakh units.

However, the other two-wheeler segments such as scooter and step thru saw a net decline in sales volume. As a result, the total two-wheeler sales inched up by 4 per cent despite a robust 21 per cent increase in motorcycle sales.

Financials

The operating profit margin (OPM) rose to 18.9 per cent from 17.5 per cent. The cost-control measures undertaken by the company along with the increased offtake of higher value products such as Pulsar, Caliber 115 and three-wheelers helped the company achieve a higher OPM.

The increase in turnover and the improvement in profitability have helped Bajaj record a 3.3 per cent increase in post-tax earnings to Rs 5,38.42 crore. The company has maintained the dividend at 140 per cent for the year ended March 2003.

Competitive forces

at play

Bajaj Auto's performance reflects the mounting competitive pressure in the two-wheeler industry. The ever-growing number of motorcycle models, sub-normal monsoon in the previous year, and the steady increase in the overall cost of operation have stunted Bajaj Auto's performance.

The impact of the competitive forces is evident in Bajaj's performance in the fourth quarter of the previous fiscal. The turnover for this period rose by just 10 per cent while the operating profit margin saw a net decline. Over the past few years, Bajaj has been fairly successful in segmenting the motorcycle market.

It took the lead by launching Boxer at the lower price spectrum and came up with Eliminator and Pulsar, which were positioned in the premium price band.

However, Hero Honda and TVS Motor have launched products that compete with Bajaj's range in almost all price segments. As a result, the company might find its growth rates getting stalled. Such a trend is already evident in the sales volume recorded in the recent months.

Outlook

Going forward, the scope for further improvement in margins would be limited and the increase in sales volume would be the key driver of earnings. This again hinges on the degree of success of models the company proposes to launch.

Bajaj's share price has ruled weak, in line with other two-wheeler stocks. However, in the past couple of weeks, TVS Motor and Hero Honda's share price recovered some ground while Bajaj has been left out.

Taking into account the models launched and those on the assembly lines of competitors, Bajaj's performance will continue to be under pressure. The scope for any significant increase in earnings or valuation appears limited at the current price levels. Shareholders can reduce exposures. Fresh buying may be considered on price declines or on evidence of sustained increase in motorcycle sales.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Vickers Systems: Accept

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line