Analysts say a slowdown in rural demand, as well as a decline in export volumes, have hurt the company’s topline and any growth in revenue will be driven by price hikes.
Mumbai / January 19, 2022 / 08:56 AM IST
Bajaj Auto is likely to report a 23 percent on-year slump in net profit to Rs 1,195.7 crore for the quarter ended December due to weak festive demand, an average of estimates from six brokerages polled by Moneycontrol showed.
The two-wheeler manufacturer will announce its December quarter earnings later today.
The company’s sales, however, are expected to show meagre, 1 percent year-on-year growth to Rs. 8,994 crore for the reporting quarter despite a 10 percent decline in volume during the quarter. Nearly all of the growth in the topline of the company will be driven by price hikes.
A slowdown in rural demand, as well as a decline in export volumes, hurt the company’s prospects in the reporting quarter, analysts said. Where the two-wheeler segment underperformed, strong growth shown by three-wheeler operations provided relief for the company.
Sluggish domestic two-wheeler demand has been a hindrance for the company as consumers in the low-to-mid income segment remained affected by the scourge of the pandemic. In addition, the high cost of ownership of a vehicle has also deterred demand.
Muted demand was not the only concern for the company as it also faces a severe burden on its operating performance due to high raw-material prices. Brokerage firm Motilal Oswal Financial Services said that the company’s stock has faced downgrades due to lower volume and higher input cost estimates.
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Bajaj Auto is expected to post a 23.4 percent year-on-year decline in operating profit to Rs 1,325 crore for the reporting quarter. The company’s operating margin in the quarter is expected to shrink by 480-549 basis points on-year to 13.9-14.7 percent in the three-month period ended December because of high raw-material prices.
Besides the company’s earnings, investors will keenly be awaiting the company’s outlook on recovery in demand as well as margins in the coming quarters. “We believe Bajaj Auto is relatively better placed to face margin headwinds due to higher exports mix and lean cost structure,” YES Securities said in a preview note.
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–> Sluggish domestic two-wheeler demand has been a hindrance for the company as consumers in the low-to-mid income segment remained affected by the scourge of the pandemic. In addition, the high cost of ownership of a vehicle has also deterred demand.