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Bajaj Auto Holds on to Profit Margins, Has Positive Outlook this Year

As the price of raw materials continues to escalate, many auto companies are already announcing their second price hike. Bajaj Auto, the second largest two wheeler manufacturer in India, is also bearing the brunt of increasing input prices, however they have high hopes this year, that it won’t turn out like the last fiscal year.

Indian auto manufacturers are reportedly expecting to more pressure on their operating margins are the rise of commodity prices sees no signs of waning. Because of the rising cost of rubber, steel and other commodities, Indian auto manufacturers have been forced to opt for price hikes in the past few months.

According to reports, Bajaj Auto managed to beat forecasts, as the company posted gains in their net profit around 14bn Rupees for the last fiscal quarter, in comaparision to the 5.32bn Rupees it posted a year ago in the same period.

The ability of the company to hold on to their profit margins is a result of two factors. The first being the company’s strong brands in the mid-to-luxury bike segment. The second factor is their hold on in the three wheeler segment where their margins are up by 30%. Moreover, the company earns more than 25% of their revenue through exports with higher margins of above 20%.

Because of this unique positioning, the company was able to keep their pricing low and able to pass the major part of price hikes through periodic increases of prices to customers.

Bajaj already opted for a price hike this year in the period of April to May, in both the export and domestic markets, which will help provide support to their margins in the nearing term. The bigger challenge for the company is to be able to sustain their growth in volumes. After witnessing high growth for two successive years, the company is expected to witness a growth of 20% this fiscal year according to the SIAM, with this industry witnessing 12 to 15% growth.

All the remains now is whether Bajaj will be able to meet expectations. A series of launches priced aggressively could help support the company’s volume growth. Their Discover 125cc bike which targets the deluxe commuter segment where they won’t face as much competition from Hero Honda’s Glamour and Splendour was recently launched in the market.

Their new 150cc Boxer which has a competitive price of Rs.40,000 and new upgrades for their Pulsar range can be expected shortly. Bajaj is also bringing new KTM premium bikes and Kawasaki bikes to the market. with the increasing rates of interests, the company’s 50% market share of the 125 to 250cc bikes segment, where buyers are less sensitive to rates, will be a boon and help to keep their volumes consistents.

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