Two-wheeler maker Bajaj Auto announced better-than-expected numbers for the quarter ended March, 2010.
The company managed to improve its operating profit margins by 90 basis points (100 basis points make one percentage point) sequentially to 22.86%. This is commendable considering analysts were expecting margins to decline on account of rising input costs.
Bajaj Auto maintains that margins got a boost from richer product mix and higher sales volumes, which led to a leveraging of fixed costs and effective cost management. A decline of 7.3% in employee cost and 17.5% in other expenditure also helped margins. Operating profit thus increased 7.4% to Rs 777.1 crore.
The company expects to clock operating margins of over 20% this fiscal. The June quarter would witness the full impact of higher raw material costs (steel and aluminium) and it would be interesting to see how margins shape up then. Part of the margin pressure is expected to be offset by higher margin bikes (such as Pulsar) and increased exports.
Bajaj Auto’s total operating revenues in March increased 3.1% to Rs 3,399.45 crore. Growth in revenues was helped by better product mix. Sales have remained flattish sequentially. At the net level, Bajaj Auto’s profit increased 11.2% to Rs 528.65 crore.
Profitability was helped by strong operating performance. The company paid Rs 45 crore toward the voluntary retirement scheme, a cost it won’t have to incur in the time to come.
The numbers were also helped by a doubling of production at the company’s Pantnagar facility, which enjoys tax benefits. In FY11, Bajaj Auto intends to increase production from Pantnagar by 50% to 9,00,000 units. Also, it plans to sell 40 lakh vehicles during the fiscal and export about one-fourth or a little more of that. The launch of new Discover is expected to boost domestic sales.
On a year-on-year basis, the March quarter numbers were spectacular with revenues rising 80% and net profit up four-fold, due mainly to the lower base of March, 2009.
At Rs 2,145.70, the stock trades at 16.4 times its estimated earnings for 2011. Analysts like the stock in the space and investors could consider it on declines.
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