Despite the very impressive growth in volumes and gains in market share, Bajaj Auto has delivered a disappointing performance for the second quarter. Eroding pricing power because of stiff competition and higher input costs led to considerably lower operating margins for the quarter. Bottom line growth of less than 10 per cent is way below market expectations and the stock was promptly beaten down more than 7 per cent yesterday.

For the quarter ended 30 September 2006, Bajaj Auto has reported a standalone net profit of Rs 317.59 crore or Rs 31.4 per share – an increase of 9.76 per cent over Rs 289.36 crore or Rs 28.6 per share reported for the previous year quarter. Standalone revenues for the quarter increased 30.48 per cent to Rs 2,435.97 crore from Rs 1,866.95 crore for the year ago quarter.

Operating profits, excluding other income, increased by a modest 14.47 per cent to Rs 361.19 crore from Rs 315.54 crore for the previous year quarter. Operating margins as a percentage of net sales declined by more than 200 basis points to 14.83 per cent from 16.9 per cent.

The main reason for the sharp decline in operating margins was a substantial 36.28 per cent rise in input costs for the quarter. Input costs as a percentage of total operating costs climbed to 85.44 per cent from 83.68 per cent for the previous year quarter.

Staff costs increased 11.26 per cent, excluding Rs 12.6 crore spent on voluntary retirement schemes. Other operating expenses increased 19.41 per cent over the previous year quarter.

Other income for the quarter was at Rs 142.43 crore as compared to Rs 136.2 crore for the previous year quarter. Market value of the company's investments as of the end of the quarter stood at Rs 7,882.5 crore, against a cost of Rs 6,018.8 crore.

Bajaj Auto sold a total of 7.08 lakh units during the quarter an increase of 27 per cent over the previous year quarter. Motorcycle sales expanded at an impressive 40 per cent while three-wheelers recorded a volume growth of 18 per cent. The company's export performance was very commendable with an volume growth of 81 per cent.

Bajaj Auto retained leadership position in the entry-level and premium segments of the motorcycle market, with market shares of 43 per cent and 63 per cent respectively. In the mid-priced or value segment, the company has managed to improve its market share to 21 per cent. The company has been the undisputed leader in the 3-wheeler segment for decades.

The company's insurance ventures continue to see good growth in gross written premium. The general insurance unit recorded a growth of 28 per cent for the quarter while growth at the life insurance unit was a very impressive 64 per cent. However, profits at the general insurance unit declined on a year-on-year basis while the life insurance unit reported higher losses for the quarter. The company holds 74 per cent each of the insurance ventures while Allianz holds the balance.