Bajaj Auto Q1FY18 preview: Drop in volumes likely to put brake on profits, experts say

Two-wheeler major Bajaj Auto is set to announce its financial year for the quarter ended June 30, 2017 on July 19, 2017. 

According to a report by Ambit, most auto and component companies should report decent revenue growth given Passenger Vehicle/2-wheeler volume growth and price hikes in the last six months.

They say Q1FY18 has been a decent quarter for two‐wheelers/three‐wheelers after last two quarters of decline. Domestic market for two-wheelers and three‐wheelers seems to have recovered from the demonetisation slowdown but was somewhat impacted by the expectations of fall in prices post GST.

Systematix, in their research report said, "In our view, 2Ws and PVs would continue with their growth trajectory, with high intrasegment growth diversity. GST implementaion has resulted in price cuts of 1-12% for most masspreferred models, which would further aid growth." 

How Bajaj Auto likely to perform?

Experts believe Bajaj Auto might have to wait for some more time before it reports positive numbers. 

Rohan Korde and Poorvi Banka of Prabudhas Liladhar in their research report said, "With a 10.7% decline reported in its total volumes for the quarter, we expect 9.7% YoY revenue decline for BJAUT during Q1FY18. Our EBITDA margin expectation is 19.5%; lower 100 basis points YoY but higher 100bps QoQ. We expect BJAUT’s adjusted profit in Q1FY18e to fall ~12% YoY to Rs 8.62 billion."

Having similar views, Emkay said that Bajaj Auto as volumes declined 11%/ YoY; Domestic volumes degrew 23% YoY and exports increased 11%, they expect operating margins to decline ~60bps YoY on account of weaker product mix. 

Ambit said, "YoY revenue decline led by 11% decline in volumes, offset by price hikes. QoQ revenue growth led largely by volume growth. YoY margin decline due to higher material costs. QoQ margin helped by operating leverage benefits and discounts in 4QFY17 to clear BS-III stock. Net earnings performance to largely reflect the trends at the EBITDA level."

Motilal Oswal in their report mentioned that 11% decline in domestic volume was due to pre-buy impact and postponement in purchases due to GST. They expect realization to grow 1.9% YoY (decline 5% QoQ), led by improvement in mix product mix. As a result, net revenues is likely to decline ~8.9% YoY.

"Further, we estimate 30bp margin impact due to compensation of input tax credit to dealers in 2QFY17. PAT is likely to decline ~9.7% YoY (grow 10.2% QoQ) to Rs 8.8 billion," Motilal Oswal said.

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