Bajaj Auto Q3 net rises 24 per cent; margins slip further

Bajaj Auto has reported third quarter results which are lower than market expectations. Though volume growth is impressive, the company continues to face pricing pressure and higher input costs which has resulted in a sharp decline in operating margins for the quarter.

For the quarter ended 31 December 2006, net profit has increased 23.73 per cent to Rs 345.19 crore or Rs 34.1 per share, from Rs 278.99 crore or Rs 27.5 per share, for the previous year quarter. Revenues at Rs 2,729.18 crore for the quarter were higher by 29.51 per cent as compared to Rs 2,107.32 crore a year ago.

Operating profits, excluding other income, has increased by a very marginal 1.53 per cent over the previous year quarter. Operating margins as a percentage of operating revenues has declined substantially to 14.16 per cent, as compared to 17.9 per cent for the previous year quarter. Operating margins for the previous quarter, ended September 2006, was at 14.99 per cent.

An increase of 34.89 per cent in input costs for the quarter was mostly responsible for the drop in margins. Staff costs were higher by 12.08 per cent while other operating expenses went up by 36.7 per cent.

The company managed to report a healthy bottom line growth only on account of a 51.3 per cent jump in other income to Rs 160.95 crore, as compared to Rs 106.38 crore for the previous year quarter.

Going forward, the company is planning to launch a new motorcycle platform in the entry level segment. Bajaj Auto would exit the 100 cc segment altogether as the company believes future demand would shift to bikes with higher engine capacity. The shift to higher capacity segments may increase pricing power and may see margins improve in coming quarters. However, such margin improvements would be modest at the best as input costs may continue to rise.