This is the second consecutive quarter when the company’s margins fell short of its historical levels. The margin for the June quarter was 17.3 percent.
Moneycontrol News
Bajaj Auto’s envious track record of 20 percent EBITDA margin was challenged in the September quarter as the strategy of cutting product prices weighed down profitability yet again.
The Pune-based maker of two and three-wheelers posted a 3.65 percent rise in net profit to Rs 1,152.48 crore for the second quarter compared to Rs 1,111.86 crore posted during the same period last year.
The company’s EBITDA margin was 16.8 percent during the September quarter, hit by higher contribution from the low-margin CT 100 model. Bajaj had cut the price of the CT 100, that alone accounts for a third of its total two-wheeler volumes, by Rs 2,000 at the start the financial year, leading to a surge in overall sales.
This is the second consecutive quarter when the company’s margins fell short of its historical levels. The margin for the June quarter was 17.3 percent.
Speaking to CNBC-TV18, Rakesh Sharma, Chief Commercial Officer, Bajaj Auto said the margins would be in the similar range in the coming two quarters if the ‘current environment’ continues.
“It is not a policy that we have embraced that we are going to get market share at the cost of margins. How exactly the chips fall depends entirely on the outcomes during the season, macroeconomic environment, consumer behaviour and balance of the export business. The outlook I would say if the current environment continues (it) would be similar. Margins should be around this region in the second half of the year,” said Sharma.
Bajaj closed last year with a margin of 20.2 percent after clocking 4 million units sales of two and three wheelers in the domestic and export market. The first half of this year saw Bajaj’s total volumes rise 31 percent to 2.56 million units. But despite the sales surge margins have shrunk during the two comparable periods.
Among its peers, TVS has a margin of 8.6 percent while Hero had 15.2 percent in the second quarter.
Price strategy
Price cut on the CT100 and a subsequent introduction of a new step-down Pulsar 150 (at a cheaper price tag) have propelled Bajaj Auto to garner a market share of 20 percent; the highest in four years. Bajaj Auto is now the market leader in the entry bike (CT 100) segment with a share of more than 50 percent. It is also the market leader in the premium segment (Pulsar) with a share of 40 percent.
Bajaj’s international business negated the margin loss in the entry bike segment posting a volume growth of 32 percent during the September quarter. Export share in total volumes remained unchanged at 42 percent. Commercial vehicle volumes also marked a robust growth of 32 percent during the quarter to about 112,000 units. Bajaj Auto makes maximum margins on three-wheelers.
Abhishek Jain, Analyst, HDFC Securities said, “Higher contribution of entry-level models (CT 100 and Platina, together contributed 58 percent of domestic 2W sales) in the sales mix weighed on 2QFY19 margins for Bajaj Auto. Despite 25 percent volume growth, EBITDA rose 3.5 percent YoY at Rs 1,343 crore at a disappointing 16.8 percent margin”.
