BAJAJ-AUTONSEQ2 FY2023October 14, 2022

Bajaj Auto Limited

9,667words
67turns
9analyst 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
98%
educe dependencies. This project was completed, resulting in resumption of supplies to now almost 98% levels. There are still some remnant issues in the top-end models and some 3-wheelers, but we wil
rs,
now almost 98% levels. There are still some remnant issues in the top-end models and some 3-wheelers, but we will also get resolved within October. Now coming to the commentary on our main business
21%
otorcycles brands, Pulsar and Dominar increased their contribution in the portfolio of exports to 21% and the combined market share has also increased beyond 40% level, making us an undisputed leader
40%
bution in the portfolio of exports to 21% and the combined market share has also increased beyond 40% level, making us an undisputed leader in the sports category across all the emerging markets of L
INR 80
thereby deepen brand strength and improve profitability. Thirdly, the rupee realization at almost INR 80 per dollar, which is a 3% improvement sequentially is directly adding to our bottom line. Coming
3%
and improve profitability. Thirdly, the rupee realization at almost INR 80 per dollar, which is a 3% improvement sequentially is directly adding to our bottom line. Coming to domestic motorcycles.
5%
bottoming out of the negative performance zone. On a retail basis, motorcycles declined by about 5% in FY '22 and grew by 50% in Q1, but that is because of the base effect of COVID impacted Q1 in F
50%
ative performance zone. On a retail basis, motorcycles declined by about 5% in FY '22 and grew by 50% in Q1, but that is because of the base effect of COVID impacted Q1 in FY '22. I
6%
f COVID impacted Q1 in FY '22. In Q2, while the retail still shows a decline of 6% for the industry, recent most retail data appears to suggest that we can expect growth albeit sma
42%
towards this segment, and it now constitutes almost 50% of the industry, while it was just about 42%, 43% only 2 years ago and 40% 3 years ago. For Bajaj Auto, 60% of our portfolio as compared to in
43%
rds this segment, and it now constitutes almost 50% of the industry, while it was just about 42%, 43% only 2 years ago and 40% 3 years ago. For Bajaj Auto, 60% of our portfolio as compared to industr
60%
industry, while it was just about 42%, 43% only 2 years ago and 40% 3 years ago. For Bajaj Auto, 60% of our portfolio as compared to industry at 50% - 60% of our portfolio in Q2 was 125cc plus segme
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Guidance — 20 items
Rakesh Sharma
opening
“This project was completed, resulting in resumption of supplies to now almost 98% levels.”
Rakesh Sharma
opening
“In Q2, while the retail still shows a decline of 6% for the industry, recent most retail data appears to suggest that we can expect growth albeit small single-digit growth in the industry, aided by the festive season.”
Rakesh Sharma
opening
“This platform - the new Pulsar platform will be expanded further in the coming quarters, thus, completely and substantively upgrading the Pulsar portfolio.”
Rakesh Sharma
opening
“But overall, we expect the industry to come through with single-digit growth, and we expect to be in line with the industry.”
Rakesh Sharma
opening
“We expect industry to keep recovering though at a slow pace as it will be driven by the ability of drivers to improve earnings through better ticket prices to mitigate the higher TCOs, which will then make new purchase attractive.”
Rakesh Sharma
opening
“Supply chain visibility is much better, and we expect Q3 to be a lot better than Q2.”
Rakesh Sharma
opening
“Going forward, at a company level, we expect to hold this performance, and we have a few initiatives in play, and we will be actively seeking to actually improve on it.”
Dinesh Thapar
opening
“Now as we look up to the next quarter, the focus will clearly be to build volume-led revenue momentum with a very strong emphasis on market share gains and really underpinned by the work that we continue to do to drive our supply security.”
Dinesh Thapar
opening
“We will be consolidating 6 months into those respective quarters.”
Amyn Pirani
qa
“And given that now the focus will be on volume growth and market share, how should we think about you wanting to invest some of these tailwinds back into the business to grow volume and market share and hence, the revenue and the margin and the growth, how should it pan out?”
Risks & concerns — 15 flagged
In Q2, while the retail still shows a decline of 6% for the industry, recent most retail data appears to suggest that we can expect growth albeit small single-digit growth in the industry, aided by the festive season.
— Rakesh Sharma
Retail of CT 125 are showing weak-on-weak growth too, but it is early days.
— Rakesh Sharma
And secondly, I think the other development, which is more in the context of our financial results was a very weak macroeconomic environment in our export geographies that have dampened our export volumes.
— Dinesh Thapar
And the impact of this was almost entirely neutralized by the pricing that we have taken out early in the quarter.
— Dinesh Thapar
Because it's very difficult to do so given the circumstances.
— Rakesh Sharma
But because our supply fell dramatically, as you know, in quarter one, we also lost retail market share, and it has committed to about 14% to 15% during the quarter, which, of course, was causing us concern.
— Rakesh Sharma
Or is it more to do with LATAM and ASEAN and Africa still under pressure?
— Jinesh Gandhi
There has been a slight decline in the LATAM sector, which is at about 5% levels.
— Rakesh Sharma
There was almost a 20% decline in Africa - in most countries of Africa - in the period of, April to July or so.
— Rakesh Sharma
I mean it was eroded by 2, 3, 4 percentage points and which was causing us concern because we are, at the end of the day, the leaders in that segment.
— Rakesh Sharma
Clearly, what aided that the bridge between volume to value is better mix with clearly a number of the African geographies showing some amount of pressure.
— Dinesh Thapar
One, staff cost, there is a value decline.
— Chirag Shah
I think sequential decline, Q-on-Q decline?
— Chirag Shah
And any comment on gross margin Q-on-Q decline if sales minus raw material, actually, the margins have declined sequentially despite a better dollar realization and some of the aspects.
— Chirag Shah
Yes, because it's 120 bps, it's a reasonably sharp decline for -- that's not been the general trend for you.
— Chirag Shah
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Q&A — 9 exchanges
Q
Yes. Hi, good evening. Thanks for the opportunity. And congratulations on a good set of numbers. My question was on the fact that you mentioned that both commodities and currency will potentially be a tailwind for you. And given that now the focus will be on volume growth and market share, how should we think about you wanting to invest some of these tailwinds back into the business to grow volume and market share and hence, the revenue and the margin and the growth, how should it pan out?
Rakesh Sharma
Thanks, Amyn. The thrust for volume and market share continues. I'm not saying it is completely delinked from whatever opportunities are getting created by commodities and exchange realization. But it is not our automatic choice to pass these on. We will be very selective. We have a very good understanding of those product market segments where we believe that we need to deploy pricing as a strategy or promotions as a strategy, and we will use these opportunities over there. But there are many segments where we think we need to attack these through product solutions, through distribution solut
Q
Yes. Thank you very much. Sir, thanks a lot for very detailed commentary. That's quite helpful. I had a couple of questions. So firstly, on the export market. Could you share what is your outlook for the export volumes? And also, what is likely to happen in terms of export pricing? Are you likely to retain those benefits? Because you mentioned that some of the currencies in those countries are also depreciating quite rapidly. So, given your experience of last many years, how do you foresee that?
Rakesh Sharma
Yes. So, Kapil, as I had mentioned that we expect quarter 3 in exports to be better than Quarter 2. While I would not specify a precise number. Because it's very difficult to do so given the circumstances. But why I'm saying that it should be better, other things remaining the same, is because in Q2, we had taken the hit of adjusting the stock in the channel. You see that there is almost 3 months to 4 months of stock in the case of overseas markets, which is either under shipment, on water or in the plants of the distributor. When there is dramatic fall in retail, there is a sort of a bullwhip
Q
Thanks a lot for the opportunity. And congratulations on a great financial result. Before I move to the question, just a clarification on the other operating income. You did mention that there was a slight change in accounting and the slight lift which came because of the fact. So, if you can just help us understand what should be the normalized other operating income as a percentage of revenues or other way is like what are the kind of additional benefit which you had in the quarterly press on account of that?
Dinesh Thapar
There isn’t a change in accounting. It is the way it is accounted for. So, when you make an export in the yesteryear that used to be MEIS scripts that used to get us an incentive, you now get got RoDTeP. You could either use this for your own imports or technically, you could sell them out. When you sell it out so there is a such realization that realization percentage has accounted for quarter-by-quarter depending on what the market prevailing rate is. That market was a subdued market in the past. Those realizations have improved, right? And duration that we've had on our scripts and their ex
Q
My question pertains to the export demand. So, you alluded to the fact that we are seeing some signs of recovery in August and September. Are you seeing these things across markets? Or is it more to do with LATAM and ASEAN and Africa still under pressure? Can you throw some light on that?
Rakesh Sharma
Yes. Sure. So, ASEAN did not experience a downturn. In fact, the market improves because the pent-up demand because they finally emerged out of the COVID situation and demand has actually improved. There has been a slight decline in the LATAM sector, which is at about 5% levels. There was almost a 20% decline in Africa - in most countries of Africa - in the period of, April to July or so. It's not easy to get data. It's not that African countries have VAHAN kind of thing. So this is all put together. So, I am quoting our internal assessment. Now this minus 20% has sort of eased off and come do
Q
Thank you sir, for the opportunity. Congratulations on great set of numbers. Two questions. Firstly, on the EV side, company's volumes and EVs are increasing, and there was a media interview, which highlighted 6,000 units per month by March '23. Can you indicate efforts on supply chain and production ramp-up? Also, if you can talk about upcoming EVs and 2- wheelers, 3-wheelers. And are you seeing any delays versus the initial plans? Thank you.
Rakesh Sharma
So, you're right, the volumes are ramping up quite smartly and largely because we've got better supply chain visibility. See the issue with supply chain visibility is also that it restricts the advancement of the network. Our model is that we think that it is important to have touch and feel in the network and dealerships and service centers. And we don't want to go and establish them before we have the ability to service that network with volume. The certitude of volume is very important before we ask the dealer to invest in new network. So that is why we've been calibrating the advancement o
Q
Thanks for taking my questions. Most of my questions have been answered. I just have 2 follow- ups. One on the export side. There, I mean you did mention these currency volatilities impacting the outlook, but there was also this press talking about regulatory ban. Could you just share some thoughts on that what is it really happening on the ground? Is there an order in place? Or how should we read that ban? And in the same on the export side also, if you can explain the Q-on- Q realization, it seems to be almost 13%, 14% up. So that's on the export business?
Rakesh Sharma
Sure, Gunjan. I think that the regulatory ban, which you are referring to pertains to the news emanating out of Nigeria and not Egypt because Egypt is old news, which is kind of was put into effect for 3-wheeler in October last year, though we continue to ship out where the government had allowed relevant orders to be shipped and that went on to March. So, I assume you're not getting to that is viewed as referring to the motorcycle ban in Nigeria, which is the largest market in Africa. Here, there is no gazette, but a lot of governorate and municipalities take their own course of action. And t
Q
Thanks for opportunity, sir. Just a first housekeeping question. One, staff cost, there is a value decline. Is there anything to call out in that? Or it's a normalized trend? I think sequential decline, Q-on-Q decline?
Dinesh Thapar
Yes. So, Chirag, if you're looking at the previous quarter versus the current quarter, a couple of things. One is the last quarter was a quarter of increments. And therefore, when you pay out increments, you also restate liability for various retiral benefits. And so therefore, that was a onetime charge that got taken with the increment cycle last quarter. It did not reflect this time. And the second was, of course, true-up of various performance pay and other payoffs that had to happen, which have flown into the current quarter. So really these 2 have covered relative to a charge of last quar
Q
Thank you very much for joining the call. I'm happy to take the questions after this call with all those who wanted to have a conversation. With this, thank you everyone and a very happy Diwali.
Management
Q
Thank you. This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.
Management
Speaking time
Dinesh Thapar
16
Rakesh Sharma
12
Moderator
10
Chirag Shah
6
Pramod Kumar
5
Kapil Singh
4
Anand Newar
3
Amyn Pirani
3
Gunjan Prithyani
3
Jinesh Gandhi
2
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Opening remarks
Anand Newar
Thanks, Yashashri. Good evening, everyone, and welcome to Bajaj Auto's Q2 FY '23 Earnings Conference Call. 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 from the business and operational performance of the quarter and 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 and good evening, ladies and gentlemen. Thank you very, very much for taking the time to join us for the call on a Friday evening. Our results were announced a couple of hours back, and I hope you've had a chance to produce them. We wanted this conversation to be fresh and not stand by Monday hence this late call, but we'll try to close the call by 7:00 p.m. so that you can head out for your weekend. Let me begin with the highlights of our performance in Quarter 2. Quarter 2 was an outstanding quarter with record breaking top line and bottom-line outcomes. As you know, there have been serious macroeconomic issues overseas and also supply chain challenges, so this performance in Quarter 2 yet again demonstrates the resilience of Bajaj Auto, arising out of our well- diversified portfolio, robust operational management and a strong competitive position in most key segments in India and overseas. The main story in the quarter was the -- finally, the restoration of ECU supp
Dinesh Thapar
Thank you, Rakesh. Good evening to all of you and thank you for joining us on a Friday evening at this half of this call. At the outset, let me emphasize that in the 2 quarters that I've been with the business, it's proven 1 thing about Bajaj Auto, and that's -- this company has a well-balanced and diversified business and arguably better than many others, which has allowed us to absorb shocks and still deliver a resilient performance in the aggregate through these challenging times. Now the quarter in discussion really has had 2 more events. I think first, we had supplies from the new vendor. You recall that we've spoken about this when we were talking in July that we had developed new supply sources, and that's coming very handy for the business. That kicked in and allowed us to really build channel inventory that's significantly depleted and hit a low in the month of May. And so therefore, ahead of festive season, we think we are well placed with the channel inventory that's built b
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