Bajaj Auto Q1 preview: Adverse product mix, discounts to weigh on profit

Bajaj Auto will declare its June quarter results on Friday. And, although the company has reported a rise in volumes in an otherwise subdued quarter for auto firms, analysts expect the inferior product mix and higher discounting to drag down the company's profit.


According to data, Bajaj Auto's overall volume grew 1.7 per cent on a year-on-year (YoY) basis to 12,47,174 units in Q1FY20. Total motorcycle volume increased 4 per cent YoY, while three-wheeler volume declined 20 per cent YoY.


Analysts at Motilal Oswal said the volume growth and a 0.4 per cent increase in realization to Rs 60,718 per unit, would push Bajaj Auto's revenue by 2.1 per cent YoY to Rs 7,572.6 crore. Net profit, though, may decline by 2.8 per cent YoY to Rs 1,083.6 crore, they said. Bajaj Auto had reported Rs 1,115.2 crore as net profit in Q1FY19.


Nirmal Bang expects revenue growth of 2.6 per cent YoY to Rs 7,710.5 crore for Bajaj Auto while PAT may drop 3.7 per cent YoY to Rs 1,074.1 crore 


Phillip Capital, however, sees a dip in revenue for the quarter under review. "Revenues to decline by 2 per cent YoY due to unfavourable volume mix: Three-wheeler export volumes declined by 23 per cent YoY and domestic three-wheeler volumes were down 9 per cent yoy," it said. Consequently, net profit may fall by 7.3 per cent to Rs 1,034.1 crore, as per the brokerage firm.


At the operating level, Motilal Oswal says earnings before interest, tax, depreciation, and ammortisation (EBITDA) may slip 1.8 per cent to Rs 1,173.3 crore as compared to Rs 1,281.4 crore in Q1FY19, adding that Ebitda margin may contract by 180 basis points (bps) YoY to 15.5 per cent.


Phillip Capital pegged Bajaj Auto's fall in margins at 190 bps YoY to 15.4 per cent due to inferior product mix and higher discounting in domestic 2W portfolio. Ebitda may come in at Rs 1,119.3 crore, the brokerage firm said.


The key issues to watch out for would be any update on 2W demand outlook from urban and rural areas, price increase in domestic markets across segments, export demand outlook and pricing in the key currency market, comments on 3W demand momentum in the domestic market, and update on EV (electric vehicle) strategy.