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Sunday, May 12, 2002

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Bajaj Auto: Powered by motorcycles

B. Krishnakumar

BAJAJ Auto has reported a sharp growth in performance for the fiscal ended March 31, 2002.

Riding on the back of an improved motorcycle offtake and higher profit margin, the company's post-tax earnings have more than doubled to Rs 518.16 crore from Rs 249.95 crore recorded in 2000-01.

Aided by a sharp improvement in sales volume of the Boxer model, Bajaj's Auto's motorcycle sales increased by about 55 per cent to 6.55 lakh units for the year ended March 31, 2002.

Motorcycles accounted for about 55 per cent of the total sales volume for 2001-02 as opposed to about 40 per cent in the previous year.

The improvement in motorcycle sales has resulted in a change in product mix in favour of relatively higher value products. This is reflected in the form of a higher average per unit realisation of Rs 27,402 this year in comparison to Rs 25,684 last year.

The improvement in motorcycle sales has been achieved through aggressive pricing strategy and a spate of new product introductions. The company has launched seven new models in the last couple of years. Its recent introductions such as Boxer CT and Caliber Croma have turned out to be successful at the market place.

However, the company has not enjoyed similar kind of success in other product segments such as scooters and step-thrus. The sales volume in both these segments recorded a decline during 2001-02.

Sales volume of geared scooters declined by 6 per cent to 4.08 lakh units while the ungeared scooter segment saw a drop of about 12 per cent to 66,601 units.

The growing success of the Activa model (launched by Honda) appears to have dented Bajaj's scooter sales. However, the drop in scooter and step-thrus segment has been more than compensated by the improvement in motorcycle segment.

The 55 per cent jump in motorcycle offtake has resulted in better economies of scale for the company. The improvement in per unit realisation coupled with relative lower raw material cost has pushed up the company's operating profit margin to 20 per cent from 18 per cent.

Apart from the improvement in profitability, a couple of extraordinary items have also played a major role in the 107 per cent jump in post-tax earnings. The company had taken into account an extra ordinary income of Rs 117 crore representing premium on the insurance venture while there was no such revenue from this source in the previous year.

During 2000-01, Bajaj has taken a one-time charge of Rs 79.94 crore representing expenses incurred towards the voluntary retirement scheme.

A combination of these factors pushed up Bajaj Auto's post-tax earnings to Rs 518.16 crore from Rs 249.95 crore. This translates into a per share earnings of Rs 51.21.

Devoid of the above-mentioned extraordinary items, the company's profit before tax saw a relatively modest jump of about 59 per cent to Rs 404.09 crore. The profit after tax (excluding extraordinary items) recorded a much smaller increase of about 18 per cent to Rs 404.09 crore on account of the sharp jump in tax outgo to Rs 183.68 crore from Rs 27 crore.

However, the sustained increase in volume growth in April 2002 coupled with the hike in dividend payment to 140 per cent (including a special dividend of 20 per cent) from 80 per cent indicates the management's confidence about the near term growth prospects.

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