Bajaj Auto's second quarter numbers look healthier than the 6.5 profit growth recorded.

First, setting aside the notional mark to market loss of Rs 95 crore on hedging contracts, profits for the Q2 stand at Rs 790 crore (net of tax), a growth of about 15.8 per cent over the same period last year. Secondly, the year-on-year growth in operating profits has been even better at 17.8 per cent, with operating margins staying at a strong 20 per cent.

The operational performance has been aided predominantly by higher export realisations, as the company derives about 36 per cent of its revenues from exports. Thanks to the depreciation of the rupee against the dollar during this period, average realisations have moved up to about Rs 47.8 in Q2 (it was Rs 46.5 in Q1).

In comparison to the operating profit growth, what has actually lowered the net profit growth is a 12 per cent fall in other income and higher interest expenses. A VAT refund of about Rs 880 crore received during the quarter has meant that the company has foregone the interest it has been receiving (shown under the other income head) on this amount so far.

A one-time interest paid on disputed tax demands has also pushed up the interest costs from about Rs 65 lakh in the September 2010 quarter to about Rs 20 crore currently.

Road ahead

Alongside improved realisations, a reasonably strong volume growth of 16 per cent has helped the topline growth of 20 per cent. However, volumes growth, for the second consecutive quarter remains below the aggressive target of 20 per cent laid out in the beginning of the financial year.

Sources indicate that while the company may miss out on this target on the domestic front, it will meet it on exports. Besides, export realisations could continue to better.

Bajaj Auto has already passed on the impact of the lowering of the incentive under the DEPB scheme by way of price increases to its customers, beginning October 1. A flattening out of input prices is an additional sweetener.

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