BAJAJ-AUTONSEQ1 FY2023July 27, 2022

Bajaj Auto Limited

9,738words
57turns
6analyst exchanges
3executives
Management on call
Rakesh Sharma
EXECUTIVE DIRECTOR - BAJAJ AUTO LIMITED
Dinesh Thapar
CHIEF FINANCIAL OFFICER - BAJAJ AUTO LIMITED
Anand Newar
HEAD INVESTOR RELATIONS - BAJAJ AUTO LIMITED
Key numbers — 40 extracted
20%
st call in April and as anticipated, we faced significant shortfalls in ECU availability of about 20%. 20% to 25%, in fact, with the domestic business being hit the hardest with shortfalls of up to 4
25%
il and as anticipated, we faced significant shortfalls in ECU availability of about 20%. 20% to 25%, in fact, with the domestic business being hit the hardest with shortfalls of up to 40%. This has
40%
%. 20% to 25%, in fact, with the domestic business being hit the hardest with shortfalls of up to 40%. This has resulted in severe depletion of channel stocks and indeed some loss of market share a
10%
month to be precise. The ECU shortage also impacted exports by a lesser extent. We estimate about 10% impairment to plans there. And this impairment was unfortunately set most in the sports segment i
5x
amongst all the players. Cash sales were actually almost stagnant. The finance sales grew by 4 or 5x that of cash sales. Demand recovery in urban and semi-urban areas was experienced to be far ahe
15%
git decline in quarter 1, but this is a very good improvement from the declining rates of minus 15% to minus 20% being experienced in Q4 and Q3 of last financial year. So the trajectory is pointing
rs,
uct trials to include Delhi, engage with the drivers over there, to ensure we provide to the drivers, the right balance between convenience, assurance and earnability. We are very conscious of our lea
80%
n in 3-wheelers and in particularly markets like Delhi where we have traditionally commanded an 80% market share. We are very sensitive to our responsibilities, and we are going to take it step-by-
0.5 million
issioning of a new plant by Chetak Technology Limited in Akurdi and this new plant is spread over 0.5 million square feet. We put up in record time. And the investment in this financial year by Chetak
INR 160 Crore
the investment in this financial year by Chetak Technology will be above INR 160 Crores. It should have a capacity of 0.5 million units which we feel that should suffice in the short t
Rs.8,005 Crore
t. You would have seen our numbers from now. Our revenue came in at about Rs.8,005 Crores, was up 8% over same quarter last year and near flattish compared to the previous quarter. We de
8%
You would have seen our numbers from now. Our revenue came in at about Rs.8,005 Crores, was up 8% over same quarter last year and near flattish compared to the previous quarter. We delivered this
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Guidance — 20 items
Rakesh Sharma
opening
“And through quarter 2, we will not only build the inventories back to normal levels, but we will be in a position to meet demand.”
Rakesh Sharma
opening
“This rebuilding will not only be occurring in India, but also across the world whereas the only exception to this will be our electric scooter Chetak, where whilst month-on-month dispatches are improving, supplies will still trade behind demand in the short term.”
Rakesh Sharma
opening
“And combined, in the short term, we do anticipate challenges in managing a few markets in Africa because of this issue.”
Rakesh Sharma
opening
“We therefore expect the demand environment to continue to improve on the back of overall economic growth, which is now finally trickling down to our kind of segments.”
Rakesh Sharma
opening
“Our objective in Q2 will be to rapidly build up channel stock, like I mentioned.”
Rakesh Sharma
opening
“In commercial vehicle – domestic, the business again suffered a similar impairment of plan to the extent of 40%.”
Rakesh Sharma
opening
“In view of the release of permits for electric three-wheelers in Delhi, it is an important market for us to target and to get right.”
Rakesh Sharma
opening
“And hopefully, if these light product trials, as I would like to call them, in Delhi had too much turn out, then we will expand the volume beginning with Delhi in the next quarter.”
Rakesh Sharma
opening
“Like this, during the previous quarter, we have made substantial progress instilling capabilities, which will ensure leadership in this segment in the medium term and these include commissioning of a new plant by Chetak Technology Limited in Akurdi and this new plant is spread over 0.5 million square feet.”
Rakesh Sharma
opening
“And the investment in this financial year by Chetak Technology will be above INR 160 Crores.”
Risks & concerns — 11 flagged
If you normalize for that effect, we believe the industry would still be in low single-digit decline in quarter 1, but this is a very good improvement from the declining rates of minus 15% to minus 20% being experienced in Q4 and Q3 of last financial year.
— Rakesh Sharma
When we spoke the last time around in April, we were expecting margins for Q1 to remain under some amount of pressure driven by the outlook then on material inflation.
— Dinesh Thapar
And there is still some amount of pressure on that part of the input costs.
— Dinesh Thapar
In the previous call, we had sort of guided for margin pressure in Q1, and we saw some of that in the quarter.
— Binay Singh
You are absolutely right that as supplies improve and the lower margin domestic business starts to come back, there could be some challenges on the mix and while the mix have been the contributor in the past that could be a bit of challenge as we look forward but I think, on balance, the rupee depreciation and the commodity context does offer some amount of comfort on the margin front.
— Dinesh Thapar
Recent uneven spread of rainfall – is it leading to any concern on the rural demand, especially in the North and East regions?
— Raghunandhan NL
So, on that basis, the minus 15% decline has now come down to minus 3%, minus 4%.
— Rakesh Sharma
So an outright ban across Nigeria of motorcycle is it is a huge, huge challenge for whoever does it, but we will see how it unfolds.
— Rakesh Sharma
So, I think we have said we are not really under pressure to pass on any benefits.
— Rakesh Sharma
And here, I would say that because the domestic market is just recovering, we will be a bit sanguine, we will be a bit cautious.
— Rakesh Sharma
Export inventory in the international market, it is a very difficult one with the inventory spread out into many countries.
— Rakesh Sharma
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Q&A — 6 exchanges
Q
Thanks for the very comprehensive information on Bajaj Auto. My first question is on the margin side. In the previous call, we had sort of guided for margin pressure in Q1, and we saw some of that in the quarter. Now from here on, how do you look at the margins going ahead because on one side, domestic, which we perceive as low-margin business will pick up, we will also have some commodity tailwinds. But on the other side, the high-margin export business could be slowing down. So could you comment a little bit about margins going there? That is the first question.
Dinesh Thapar
Thanks Binay for your question. This is Dinesh. Let me take that. I did make a mention there are two upsides that we are potentially looking at. One of course the commodity situation as it currently stands looks a lot more comfortable then where we might have been a few months back right. The metal complex has cooled off and we are hoping that those benefit start to translate into the current quarter as well and that therefore provides some cushion. I think the other is the direction of the rupee at the moment and that has been a key enabler for us to have delivered the margin improvement in t
Q
A couple of queries. Firstly, how do you see the outlook for the domestic 2-wheeler market this year? And given the low base, what is your sense on the urban and rural demand? Recent uneven spread of rainfall – is it leading to any concern on the rural demand, especially in the North and East regions? And my second question is a clarification on the raw material or the commodity cost impact. For Q1, the earlier expectation was the hit could be up to 300, 350 basis points. Just if you can quantify how much was the hit in the quarter given that there was a correction in the months of May and Jun
Rakesh Sharma
So, let me take the first part of your question which was about demand for motorcycles and domestic going forward. And then Dinesh can come in on the commodity cost side. The outlook for retail demand in our opinion, is improving in motorcycles. You see there is no point doing a simplistic comparison, like I said in my opening remarks, because the last year quarter 1 was very bad, and the growth rates are looking quite astronomical. But if I take a 5-year sort of ratio and sanitize the base effect, then what you can see is the industry is still in the minus 3% to minus 5% growth region, if let
Q
Thanks a lot for the opportunity, Sir. I have a couple of questions. First is on our EV volumes. So how is the line of sight of ramping up EV volumes now that we are adding capacity of 0.5 million. Our ramp-up has been slightly slower as compared to peers. So, is there a specific issue on the availability in the supply chain or are there any product development program issues that you are facing with vendors? And if yes, what is the expected resolution timeline?
Rakesh Sharma
Aditya, I must point out one thing, that every call I say that our objective in this phase are not volumetric. And I am surprised that and I am relatively speaking, if I was an analyst, I will be looking and critically examining how the company's capability is shaping up. The more I find is the way that the analysts are so crude onto what volume one is selling which is a very short-term approach, if I might say so. But having said that, I would urge you guys to look at critically. I want to deal with this question a little bit comprehensively so that, hopefully, next time, our engagement is a
Q
Good morning Sir. Sir, so on the balance, when you put together all the information on the export markets, what kind of growth are you looking at for this year?
Rakesh Sharma
So I think like I said, definitely, quarter 2 might be a little bit tough. We have to see largely the dollar availability thing in Africa, like I mentioned. That part in Africa, by the way, is about 50% to 55% of our total business. So that will definitely put some brakes on growth. But we had planned for about 10% growth depending on how this goes. We should be getting back at least in the exact 4, 5 months back to that 10% number. But I think because these markets the international markets move almost like a snake in a tunnel, it goes up and down. But directionally, it is sort of pointing no
Q
Rakesh and Dinesh, first, a clarification on the spares, sir, if you can just remind us what are the absolute spares in this year? You said 40% jump and 20% of revenue. So if you can just elaborate a bit more as towards the absolute number?
Dinesh Thapar
Spares. Just for quarter 1, we have 1,035 thereabout, Pramod. This is domestic and export put together right? This is the total sales. And exports would be what Dinesh for the quarter export including Nepal rupee exports and the dollar export everything put together? Are you asking overall exports or export within the spares segment? No, no, no. Overall exports, sorry, overall exports. And yes, if you can spread the domestic and export spares, that would be great, but yes. It is about Rs.4270 Crores. Okay. Rs.4,270 Crores, right? And my first question or rather the second question is regarding
Q
Thank you, everyone, for joining the earnings conference call. I see quite a few questions still pending, more than a dozen of them. We can take up calls one after the other after half an hour from now. Thank you so much.
Management
Speaking time
Rakesh Sharma
13
Dinesh Thapar
11
Pramod Kumar
10
Moderator
8
Kapil Singh
4
Binay Singh
3
Raghunandhan NL
3
Aditya Jhawar
3
Anand Newar
2
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Opening remarks
Anand Newar
Thanks, Michelle. Good day, everyone and welcome to Bajaj Auto's Q1 FY 2023 Earnings Conference Call. I trust that you all are keeping safe. On today's call, we have with us Mr. Rakesh Sharma, Executive Director; and Mr. Dinesh Thapar, Chief Financial Officer. We will begin our call with opening remarks from Rakesh on the business and operational performance of the quarter. Then Dinesh will take you through the financial highlights. We will then open the forum for Q&A. Over to you, Rakesh!
Rakesh Sharma
Thank you, Anand. Good morning, ladies and gentlemen, and thank you very much for taking the time to join us for the call today. Let me begin with the highlights of our performance in quarter 1. Overall, Q1's effort and outcome was defined by supply chain management, in particular, the management of ECU availability. As we had informed during our last call in April and as anticipated, we faced significant shortfalls in ECU availability of about 20%. 20% to 25%, in fact, with the domestic business being hit the hardest with shortfalls of up to 40%. This has resulted in severe depletion of channel stocks and indeed some loss of market share at a retail level. Our booking system across all business units has indeed helped to mitigate the shortfall to some extent. We have also discussed earlier about our very robust effort launched through broad-based sourcing, ensure testing, validation and integration of new sources into our production systems. I am delighted to confirm that this plan ha
Dinesh Thapar
Thanks, Rakesh. Good morning to all of you and thank you for your participation. Let me say at the outset that this quarter has had its fair set of challenges from an operating environment perspective. As you have just heard, we continue to have significant constraints on semiconductor availability, although the situation improved in the latter part of the quarter with newly developed supply sources kicking in. But it was yet another quarter of rationing where we were not able to fulfill demand in its entirety. What is the heartening is that the retail numbers as we see it, are way ahead of what we had built out. But that has led to a significant depletion of stocks in the trade pipeline, and we hope to start building this back in the current quarter. Clearly, with an improved outlook on supplies that is now coming in from the very decisive actions that are being taken between us and our vendors. I think the other notable trend that I want to call out, that appears to be emerging in a
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