Bajaj Auto LimitedK two-wheeler (2W) volumes witnessed a further decline in March, falling 8% sequentially and 22% year-on-year (yoy) to 2.6 lakh units. Domestic volumes declined 41% due to severe shortage of semiconductors coupled with weak domestic demand in the two-wheeler segment. However, flat exports offset some of the decline.
Meanwhile, rising fuel prices are weighing on affordability.
The management of Bajaj Auto said that the overall demand for motorcycles in India remains soft. Analysts at ICICI Securities said in a report on March 31, “While showing either stagnant demand or declining bias in key 2W overseas markets, we expect Bajaj Auto’s 2W export volume to increase to 8 per cent in FY22-FY24E. % will grow at CAGR.” CAGR is the compound annual growth rate.
To be sure, Bajaj Auto peers also saw a year-on-year decline in sales volumes in March, even though they posted a gradual improvement. TVS Motor Co. Ltd reported 5% year-on-year volume decline in 2Ws, while Hero MotoCorp Ltd’s volume declined 22% year-on-year. However, both saw a gradual increase – 10% and 26% respectively. Eicher Motors Limited’s motorcycle volumes (Royal Enfield) grew 2.5% year-on-year and 14% sequentially.
Going forward, rural markets hold the key to the demand for two-wheelers. As such, sluggish demand conditions are not the only concern. Margins are likely to be impacted by rising raw material costs such as steel and aluminium and hence is a challenge.
For Bajaj Auto, “A nearly 15% increase in raw material basket cost would require an increase in prices of approx.” 9000/unit, to keep Gross Profit/unit neutral,” added ICICI Securities’ report. The majority of cost inflation will be reflected from Q1FY23. As a result, analysts at ICICI Securities before Interest, Tax, Depreciation and Amortization (Ebitda) ) margin estimates for fiscal year 2013 increased by nearly 300 basis points to 14.5%. One basis point is 0.01%
Meanwhile, in Bajaj Auto’s three-wheeler (3W) business, demand remained strong, with domestic volumes up 15% in March. Exports declined by 4% annually. “We expect 3W volumes to grow by around 22% annually in FY23,” analysts at Motilal Oswal Financial Services said in a report on April 4.
After a fall of around 6% in CY21, shares of Bajaj Auto have so far gained around 17% in calendar year 2022.
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