by Suhani Adilabadkar

Bajaj Auto’s stock price rose nearly 2% after the company released its November monthly sales data. November sales were up 12%, helped mostly by exports as domestic sales growth remained muted. The company is the second-largest player in the Indian motorcycle market with 18% market share. It has four manufacturing plants--three in Maharashtra, one in Uttarakhand, and an installed capacity of 6.33 million units per annum. Bajaj Auto exports to more than 70 countries across the world, garnering roughly 40-45% of its sales from exports.

Quick Takes:

• Revenue from operations fell 7% YoY in Q2 FY21 to Rs. 7,156 crore, with net profit (PAT) falling 22% YoY impacted by lower other income and low effective tax rate

• Operating profit declined 1% with margins expanding 110 bps YoY

• Domestic motorcycle sales grew 6% YoY while domestic commercial vehicles sales fell 78% YoY in Q2

• Pulsar, constituting 33% of total volume, reported its highest-ever quarterly sales of 3,48,561 units 

• In October, Bajaj Auto’s overall motorcycle sales rose 18% YoY, with domestic sales rising 11% YoY compared to Hero MotoCorp’s 33% and TVS Motors’ jumped 38%

• In November, Bajaj Auto’s overall sales growth was 12% YoY; domestic sales growth was 7% YoY, while Hero and TVS grew 14% and 26% respectively. 

September Quarter FY21

Bajaj Auto reported steady September quarter numbers as realisations jumped 3% YoY despite a 10% fall in overall volumes. Revenue from operations fell 7% YoY to Rs. 7,156 crore. Operating profit was down 1% YoY at Rs. 1,266 crore due to a reversal of an export incentive worth  Rs 78 crore. The company undertook cost control measures which led to lower marketing and advertising expenses. The company was also helped by a better product mix because of higher Pulsar sales. Operating margins expanded 110 bps YoY to  17.69% during the quarter. PAT for the quarter stood at Rs. 1,194 crore against Rs. 1,523 crore a year ago, falling 22% YoY. The profits were impacted by lower other income during the quarter.

Stuttering Growth in Motorcycles

Two-wheeler makers and the auto sector, in general, were seeing cloudy skies even before Covid-19. In FY20, the two-wheeler market saw an 18% fall in sales. There were mandatory safety features added in all two-wheelers last year, and a hike in third-party insurance costs. Then there was a BSVI emission norms induced price hike in April 2020 (10%-15% of ex-showroom price). After that came the pandemic.

All this culminated in Bajaj Auto’s June 2020 quarter revenues and PAT falling 60% YoY. There was also a 64% fall in volumes in the quarter ended June 2020, but the September quarter turned out to be better. Although July 2020 saw a 11% YoY fall in Bajaj Auto’s domestic motorcycle sales, and a 33% decline in overall volumes, sales in August improved with volumes falling by just 9%. Domestic motorcycle sales rose 3% YoY. 

In September 2020, domestic motorcycle sales rose 24% YoY, while exports rose 16% YoY and commercial vehicles sales fell 76% YoY. As a result, the company reported a 10% YoY jump in overall sales volumes in September.

Pulsar Driving Sales

Apart from being the second-largest motorcycle player with 18% market share, Bajaj Auto is the world’s largest manufacturer and seller of three-wheelers, and the market leader in domestic 3-wheelers with about 53% market share. In Q2 FY21, motorcycle sales registered a strong turnaround driven by pent up demand with domestic volumes growing 6% YoY constituting 52% of total volume mix in line with industry growth of 7% while export volumes (39% of volumes) fell 11% YoY. The decent September quarter performance was helped by sales of the Pulsar 125 cc. It is the most expensive bike in the 125 cc segment with around 16% market share in 125 cc segment. According to the management, standard Pulsars in the 150-220cc range also performed well, but the company could not fulfil demand adequately because of supply chain issues. 

Speaking on Pulsar’s strong performance amidst Covid headwinds, Rakesh Sharma, Executive Director at Bajaj Auto said, “Pulsar is not an urban phenomenon but a pan India product”. He added that though customers are cautious and evaluate brand value robustly, they are ready to spend money to get a good brand and quality. The company did not witness downtrading - instead, Pulsar reported its highest-ever quarterly sales of 348,561 units constituting 33% of total volume mix in Q2 FY21. The motorcycle segment also witnessed strong demand for high-end vehicles with KTM and Husqvarna together reporting their highest ever quarterly sales of 20,200 vehicles in the September quarter. During the quarter, the company introduced Pulsar 125 drum split seat, refreshed versions of Platina 100 ES and Duke 50, and expanded the footprint of Pulsar 125 Disc split seat. 

In commercial vehicles (three-wheelers and quadricycles), domestic sales fell 78% YoY, but made up just 2% of overall volumes. Exports (6% of volumes) fell 20% in Q2. Domestic CV volumes continue to remain muted and recovery in sales is highly dependent on the return of adequate short distance mobility demand. As 90% of vehicles are financed, lower earnings in the present pandemic scenario have impacted 3-wheeler financing, leading to lower volumes for Bajaj Auto. Cargo commercial vehicles have fared better than the passenger segment. Bajaj Auto’s market share stood at 37% in cargo, the highest ever for the company.

Hamara Bajaj – Distinctly Ahead?

Forecasting demand in the present scenario is forecasting Covid. And no algorithm will be able to come up with a clear answer in the face of so many moving parts for the auto industry. For Bajaj Auto, there are three revenue levers - motorcycles, commercial vehicles, and the international business. In CVs, the management said there is no silver bullet, and that volumes will return when schools, colleges, offices reopen, and traffic returns to its normal. Government policy action, however, can encourage revenue growth by introducing the long-awaited scrappage policy replacing old vehicles, and disallowing the running of cheaper lead acid-based Chinese three-wheelers. 

Exports rose 14% YoY in September 2020, the highest monthly number. Speaking on the strong export growth, Sharma said, “Through the strong leadership position of our brands, we have enjoyed a disproportionate share of recovery by increasing market share in at least 30 out of 70 markets.”

Sharma said that pent-up demand is almost over and the future trajectory of sales will only become clearer from December 2020 onwards. Bajaj Auto’s overall motorcycle sales rose 18% YoY in October, with domestic motorcycle sales growing 11%. Hero MotoCorp and TVS Motors sales rose 33% and 38% YoY, respectively. 

Exports make up 40-45% of Bajaj Auto’s sales, while TVS gets 22% of its revenues from exports and Hero Motocorp around 2%-3%. In November, Bajaj Auto lagged with overall volume growth of 12%, with domestic sales growing  7% YoY. Hero Motocorp and TVS saw their sales grow at 13% and 26% YoY, respectively in November 2020.

Bajaj Auto’s target of achieving 25% market share target of the motorcycle market, is still a work-in-progress, and for now at least, a distant possibility.