Bajaj Auto ends the last quarter on a dull note, plans to retain its dominant share

One of the India's leading two-wheelers manufacturers, Bajaj Auto Limited has reported low revenues during the first quarter of current fiscal, followed by reduced sales volume due to hike in rates of taxes. The net profit of the company stood at Rs. 718 crore, against the Rs. 711 crore earned in the same period of 2011. At the same time, the sales volume of Bajaj Auto surged from Rs. 4,535.38 crore to Rs. 4,713.64 crore. The cumulative sales of the auto maker witnessed a downfall of 1 per cent, amounting to around 1.08 million units.

As per Mahantesh Sabarad, Senior Vice-President (Equity), Fortune Equity Brokers Limited, the major reasons behind the low profits of Bajaj Auto were the increased rate of taxes as well as hiked costs of labour and raw materials. However, he expects that in upcoming quarters, the company will reap better profits in the Indian market with a handful of new launches.

The hike in import tariffs in Sri Lanka and the political turbulence in Egypt has reduced the exports of two-wheelers and three-wheelers by 7 and 41 per cent, respectively in the quarter. 22 per cent of the company's overall sales volume in FY 2012 came from the aforementioned countries with exports contributing around 30 per cent to its total sales.

In Sri Lanka, the company has brought down the prices of its products after a hike in the same, following with the raised import duties. This affected the sales, and thus the manufacturer was forced to stop the exports in the region during the months of May and June 2012. The reduction in the prices has been levied more on the three-wheelers than the bikes, and thus it will take a while for the latter to revive the sales.

The auto maker is hoping that the volumes will rise gradually during this quarter in Sri Lanka as well as Egypt, wherein the circumstances are gaining a political stability and showing potential to ramp up sales.

According to a research by Emkay Global Financial Services Limited, “The raw material to sales at 72.1% (up 90 basis points quarter-on-quarter) was higher than anticipated. The staff cost at Rs. 160 crores (3.3% of sales) was also higher than the estimate.”

In India, Bajaj Auto is banking on its recently launched motorcycles, Pulsar 200 NS and Discovery 125 ST, coupled with the widespread dealership network and the festive season which will help the company in generating sales.