BAJAJ-AUTONSEQ4 & FY22April 28, 2022

Bajaj Auto Limited

9,135words
58turns
9analyst exchanges
3executives
Management on call
Rakesh Sharma
EXECUTIVE DIRECTOR - BAJAJ AUTO LIMITED
Dinesh Thapar
CHIEF FINANCIAL OFFICER - BAJAJ AUTO LIMITED
Anand Newar
DIVISIONAL MANAGER,
Key numbers — 40 extracted
rs,
siness structure of Bajaj Auto, which is a business trend across segments like entry level commuters, CNG three wheelers, KTM high-end bike, and across geographies, you know India and of course overse
2.5 million
of FY2022. The volume performance was over 200,000 units delivering an all time annual record of 2.5 million units export as well as revenue of just over $2 billion. I would like to call out a few other h
2 billion
delivering an all time annual record of 2.5 million units export as well as revenue of just over $2 billion. I would like to call out a few other highlights which are leading indicators of continued perfor
2%
are leading indicators of continued performance at this level. We grew our market share by about 2% point in the whole year in all the regions LATAM, Africa, South Asia and Middle East and ASEAN. A
80%
outh Asia and Middle East and ASEAN. All witnessed a 2% point improvement in market share. Over 80%, in fact close to 85%, of our revenue continues to come from markets where we are holding number
85%
East and ASEAN. All witnessed a 2% point improvement in market share. Over 80%, in fact close to 85%, of our revenue continues to come from markets where we are holding number one or number two posi
5%
Q4 compromised the performance even in exports; otherwise it should have been better by at least 5% or so. In motorcycle business in domestic the overall demand situation remained weak. At the VA
12%
situation remained weak. At the VAHAN, the estimated decline in registrations of motorcycles was 12% for the industry over Q4 of last year and this decline was visible across all segments. In fact,
18%
ndustry and declined less than the industry decline resulting in gain in retail market share from 18% in FY2021 to about 20% in FY2022 and these numbers I am quoting from VAHAN registrations. We can
20%
ss than the industry decline resulting in gain in retail market share from 18% in FY2021 to about 20% in FY2022 and these numbers I am quoting from VAHAN registrations. We can confirm there are new
22%
egment. In the middle segment, the NS125 which is the most expensive 125cc in its segment, almost 22% more expensive than the average 125cc bike, it is doing extremely well. Today, it is 45% of our 1
45%
, almost 22% more expensive than the average 125cc bike, it is doing extremely well. Today, it is 45% of our 125cc portfolio with big thumbs up from a youthful buyer. Almost 60% of its buyers are bel
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Guidance — 20 items
Rakesh Sharma
opening
“This is a very important point because it is a leading indicator about how we will be able to continue to harvest the post-pandemic return in each of these markets.”
Rakesh Sharma
opening
“I would also like to call out in the motorcycle business unit - the completion of a two-year project with our dealership which is put in place a robust system of measuring customer experience and using dynamic feedback to improve it in the moment as well as structurally.”
Rakesh Sharma
opening
“We will be building on this initiative in the months to come to redefine our processes and indeed to lift our culture in the showrooms and service centers and make it more customer friendly.”
Rakesh Sharma
opening
“The current cost economic for CNG versus diesel, the government focused on increasing the CNG penetration and by being highly preferred choice of CNG leads us to expect to outperform the industry through this natural transition.”
Rakesh Sharma
opening
“So, we expect that in the next 18 months or so, we will give guided by building capability, which hopefully will keep us in good stead to scale up and aspire for leadership not just in India but globally.”
Rakesh Sharma
opening
“We will be launching our electric three wheelers in a limited way by the end of this quarter probably in June.”
Rakesh Sharma
opening
“We expect a shortfall of about 15% to 20% of our requirements on account of semiconductors, which will impact mostly the domestic business units and to a smaller extent the sports brand and international markets offshore.”
Rakesh Sharma
opening
“As the demand environment remains fragile we will be observing it very carefully and we will be observing competition before we decide or move about recovery of the cost increases.”
Pramod Kumar
qa
“Also if you can provide some guidance on whether it can do a double digit growth again in FY2023 as a segment for the industry?”
Rakesh Sharma
qa
“We have been clocking over 200,000 units as you know and we expect to continue this.”
Risks & concerns — 12 flagged
Overall performance in Q4 was a reasonably strong one, given the backdrop of weak domestic demand, rising cost and supply chain dislocations.
— Rakesh Sharma
So, this structure is risk mitigating, it ensures resilience and supports us to ride out volatility.
— Rakesh Sharma
In motorcycle business in domestic the overall demand situation remained weak.
— Rakesh Sharma
At the VAHAN, the estimated decline in registrations of motorcycles was 12% for the industry over Q4 of last year and this decline was visible across all segments.
— Rakesh Sharma
Bajaj Auto, however, fared slightly better than industry and declined less than the industry decline resulting in gain in retail market share from 18% in FY2021 to about 20% in FY2022 and these numbers I am quoting from VAHAN registrations.
— Rakesh Sharma
Secondly superior performance of better margin products in the export portfolio as well as domestic and in net positive impact of price increases, which was slightly ahead of the material cost increase.
— Rakesh Sharma
and then there is a commodity headwind and in that context just want to understand how do you see the domestic thing evolving with three wheelers coming back, but the intent is electric three wheelers which are taking more and more share and you are launching the EV electric which could have implications for your margin mix in that category and then there is a commodity overlay right which you kind of hinted too, so given this directionally how should one look at margins for the next fiscal?
— Pramod Kumar
The arrival of the electric three wheelers was not as much of a play because our objective in FY2023 is a cautious introduction.
— Rakesh Sharma
Now some of the downside, I agreed with you that arithmetically speaking the rise of the motorcycle business and that rate increasing; however, downward pressure on the overall blended margin.
— Rakesh Sharma
However, we are expecting a major price increase in CNG in the coming month and at the same time this reduction in cell cost, which was being assumed by the industry over the last five years or so of a consistent decline in cell cost has not been experienced this year.
— Dinesh Thapar
The second followup I have was on the export Sir, now I do understand there is a little bit of seasonality or let us say impact that we have seen in March quarter where volumes tend to be lower, but even if I look at versus last year there has clearly been decline, I am just trying to understand how should I read this?
— Gunjan Prithyani
Is this only a supply related challenge and if you can just refresh us on the region wise mix which you used to give around Africa and LATAM given these are the only two markets which are growing.
— Gunjan Prithyani
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Q&A — 9 exchanges
Q
Yes thanks a lot for the opportunity Rakesh and Dinesh and congratulations on excellent numbers and also welcome Dinesh to auto space and look forward to interacting with you. Rakesh, my first question is on the export outlook because it has been kind of more stable in terms of the volume trajectory off late though you have been talking about your retail being ahead of the market and they have also absorbed much price increases from the domestic consumers, so given that context and the growth what we have had this fiscal, how would you see export as a phase for FY2023 at the industry level vis
Rakesh Sharma
Hi Pramod, you meant double digit growth for the export business unit. Is that what your question was about for FY2023? Yes. The outlook for the export is quite steady. We have been clocking over 200,000 units as you know and we expect to continue this. Now like I mentioned in the opening remarks our competitive position in all our market is fairly strong; out of the 70 markets or so I would say at least in 65 we have very, very leading position. We have dealerships, service centers, manufacturing, all that is very well in position and most of the markets we are doing pretty all right; all the
Q
Hi team. Congratulations for good earnings in this environment. Two, three questions. Firstly, Rakesh could you share a little bit more about your second strategy, what kind of realization on rupee dollar did you get in the March quarter and how did the currency impact during the coming year? Secondly among your export market we have seen challenging environment in countries like Sri Lanka and Nepal, could you share what percentage of its 200,000 monthly run rate is coming from these countries and that is it for now? Thanks.
Rakesh Sharma
Let me take your second question first. See Sri Lanka is in the news recently because of the protest, etc., spilling over on to the street. It has been facing a foreign exchange crisis for some time now and Sri Lankan government in response to that had banned the imports of auto products and the rest of other categories. So, actually in FY2022, our exports to Sri Lanka were very small. There was one tender for three wheelers for the police and then we had commenced the export of CT 100, which is very popular product in Sri Lanka on the basis of localization and this would be less than 1% of th
Q
Thank you Sir and congratulations on good set of numbers and welcoming Dinesh Sir. Sir firstly on the Q4 results, the press release had mentioned deferral of raw material cost increase – can you quantify what was the positive impact in Q4 margin because of this deferral?
Dinesh Thapar
I am not going to quantify the number but let us give you a directional sense of what we had said. We had anticipated that we are going to be getting some amount of cost inflation. What the team was able to do was on the negotiated part of the cost portfolio able to push that out into Q1. So, a lot of that inflation is what we are going to be seeing in Q1 as Rakesh has just mentioned. We think material inflation in Q1 as things currently stand could be in the range between 3.5% and 4%, but that is now with metals. The metals portfolio continues to inflate. You would be aware that on just some
Q
Hi sir, thanks for the opportunity. Could you talk about what were the spare parts and export revenue for the quarter and also, we have seen a dip in the employee cost on a q-o-q as well as y-o-y basis so some colour and outlook for next year for the same?
Rakesh Sharma
In fact, we have had very good performance by our domestic spare part business unit and the penetration percentage is now increasing quite smartly. Two years back, if you see it was 14% now it is about 18% and the spare parts profitability again is very high and we expect this 18% can probably be moving into the 20% zone. I think that this is fairly ahead of our competitors. Okay so let me take the question on the employee benefit expenses, so just to put the numbers up. We were at 305 Crores this quarter. Last quarter was 339. You see us mentioned in the press notes that we have got a benefit
Q
Hi Sir couple of questions from my side. One is with respect to the 31 Crores incentive which you had mentioned how much of that is pertaining to previous nine months of FY2022 and how much is fourth quarter and second question on the price hikes which you have taken in fourth quarter?
Dinesh Thapar
Hi Jinesh, to your question on the incentives, let me just take a minute and actually explain this for the benefit for everyone. This is the Package Scheme of Incentive that was announced by the Government of Maharashtra in 2007 to provide certain benefits to eligible entities who are making a certain investment and Bajaj Auto had made an investment in the Waluj plant middle of Aurangabad. So, we have now received the eligibility certificate after much to and fro that happened with the authorities. This benefit is for vehicles that are manufactured in our Waluj plant and sold and registered wi
Q
Hi thanks for the opportunity. My question is actually on the domestic three wheelers. Rakesh you mentioned that these three wheeler EVs that you will be launching in June, it will be a limited launch initially. So, my question is, as we look at the next two to three years would it be fair to say that both CNG and EV could be eating into the share of diesel instead of really competing with each other? Or are there used cases, in your view, where EV could actually be more beneficial than CNG as well?
Rakesh Sharma
I did not get the last bit, used cases where? Where EV is more beneficial than CNG itself. Yes. Initially CNG has obviously eaten into diesel and I gave you those numbers which show you the tremendous turnaround of the CNG based three wheelers and their component increasing in last year particularly in Q4. Now at this point of time given where the CNG prices are and given the electricity cost and the cost of EV three wheelers, we feel on total cost of ownership there is almost parity. However, we are expecting a major price increase in CNG in the coming month and at the same time this reductio
Q
Hi team thanks for taking my questions. Just two followups from my side firstly on the supply shortages that you all spoke about. Can you give some more colour on which models is this fall because my understanding was it was mostly for ABS models. Right? Above 125 cc. And just the related point if you can give us some sense of where is the channel inventory level now? Is it, you all are losing out on the retail demand in the market because of shortages?
Rakesh Sharma
So Gunjan, this is affecting all models. This is not about ABS. That period of shortages on the ABS side, we have faced and we have overcome by broadening our supplier base. So, we are not having that issue, but this is injection system, carburetors, so there are multiple chips and we are facing shortages across in entry level, sport brand and even in CNG three wheelers. The channel stocks at this point of time are dwindling as we speak. I do not see an issue in the motorcycle business in April, but I definitely see an issue in the retail level operation in the motorcycle business in May and J
Q
Thanks for the opportunity and congrats for a good set of numbers. Sir, my first question is a followup on shortage commentary that you would be able to procure 15% to 20% lesser than what you intend to. If I look at last whole year, how should we look at the volume build up for this year because last year itself we were having surplus challenges either ABS or both combined at some point of time. So our base is already suppressed. Can we expect a growth over the last year at least that kind of surprise for you or you see a double digit growth for the last year or even back to the shortages tha
Rakesh Sharma
So, let me summarize that for you by just commenting on each of the business units. Exports I have already told you I think Pramod has asked this question right in the beginning and Gunjan also asked this question just now on the back of our competitive positions, improvement in retail performance we definitely enter in to some new market, which we will continue to drive for a double digit growth in the export business unit and export business is about 50% to 60% depending on how the order is. So, that half of the business will grow very firmly on a double digit growth track. We have got three
Q
I thank everyone for joining the call. I see quite a few messages. I will be taking calls after half an hour from now. On certain numbers that I have got asked on the messages I will just quickly run through them. The spare revenue is about Rs.980 Crores, the split is 80:20 between domestic and exports. Our export revenue is about $500 million translates into somewhere around Rs.4000 Crores and on the financing bit it is close to the same number that we have last time which is about 55% of our two wheelers are financed and most of it about 75% of it is financed through Bajaj Finance and just o
Management
Speaking time
Rakesh Sharma
16
Moderator
11
Dinesh Thapar
8
Jinesh Gandhi
4
Pramod Kumar
3
Anand Newar
3
Kapil Singh
3
Binay Singh
2
Raghunandhan NL
2
Amyn Pirani
2
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Opening remarks
Rakesh Sharma
Good morning ladies and gentlemen. This is Rakesh Sharma here. Thank you for taking the time to join us for the call today. We announced our Q4 and annual results last evening. I am sure by now you would have gone through the details and may have questions. After brief opening remarks we can move to the Q&A, but foremost let me introduce our Chief Financial Officer, Dinesh Thapar. Many of you may already know of him or know him. Dinesh has joined us from Reliance Retail where he was the Group CFO, prior to that Dinesh spent a couple of decades with Hindustan Unilever Limited where he held a range of leadership roles across corporate finance, business finance, investor relations, supply chain and even in managing JVs. We are really delighted that Dinesh has come on board Bajaj Auto’s top team and I am sure you all will enjoy your engagement with Dinesh.
Dinesh Thapar
Thank you Rakesh. Good morning everyone and it is an absolute pleasure to be here on the first earnings call. I have been into the business now for about six weeks and really coming on board and I look forward to engaging with you offline in the months ahead. Thanks and absolutely look forward. Thanks Rakesh back to you.
Rakesh Sharma
So let me begin with the highlights of Q4 performance. Since we have regular interactions every quarter, I am refraining from going into a commentary of the full year and pressing to remain with recent most events. Overall performance in Q4 was a reasonably strong one, given the backdrop of weak domestic demand, rising cost and supply chain dislocations. Amidst this, we reported our second highest quarterly as well as annual profit. I would like to attribute this to the inherently robust business structure of Bajaj Auto, which is a business trend across segments like entry level commuters, CNG three wheelers, KTM high-end bike, and across geographies, you know India and of course overseas and all the emerging regions of the world. So, this structure is risk mitigating, it ensures resilience and supports us to ride out volatility. Now let me talk about each of the business units. Exports remained strong and steady almost each month of FY2022. The volume performance was over 200,000 unit
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