Adjusting for the notional mark-to-market loss of Rs 59 crore on hedging contracts, Bajaj Auto's third quarter profits have grown by a very healthy 28 per cent, year on year. A strong operational performance coupled with flat depreciation charges and lower interest costs have been the major reasons behind this growth.
Rupee fall helps
The operational performance has been aided predominantly by higher export realisations as the company derives 35 per cent of its revenues from exports.
Thanks to the continued depreciation of the rupee against the dollar during this period, exports fetched an average of Rs 49.4 to a dollar against Rs 46.5 in Q1 and Rs 47.8 in Q2.
This, coupled with price hikes, has helped the margins. Through these price hikes, the company was able to shield itself against increase in input costs (due to import content of raw materials) and make up for the reduction in benefit under the DEPB scheme.
Operating margins in the third quarter expanded to 20.9 per cent, compared with the 20.3 per cent in the same period last year.
Volume concerns
However, these factors hide the not-so-strong performance on the volume front. For the third successive quarter, volumes have fallen short of the company's target of 20 per cent growth.
Volumes now have grown only by 13.6 per cent. Domestic motorcycle sales, showing only a 7 per cent year-on-year growth, have been the dampener.
While this may be in tune with the industry growth itself moderating since mid-November, it is too early to predict whether this is a one-off factor or a trend that will continue.
A portion of the tapering off of demand can also be attributed to the lull after the festival season sales; hence, the need to wait and watch.
But the company has scaled down its volume growth target for this fiscal to 16 per cent.
While this may still become difficult to achieve if the moderation witnessed in December continues, a couple of things may help the company.
One, the soon-to-be launched KTM 200 and the upcoming Pulsar upgrade. Two, sustained export performance.