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Drop in other income and volumes hit Bajaj Auto's Q3 net

NetScribes/Mahesh Shetty

Shares of Bajaj Auto, the country's largest two and three-wheeler maker, slipped by more than 8 per cent on Tuesday, after the company reported a 78 per cent drop in net profit for the quarter ended December 31, 2000.

Increased cash outgo on VRS (voluntary retirement scheme) payments, its recently concluded share buyback and a reduction in other income saw Bajaj Auto's net profits dip to Rs 281.10 million from Rs 1.28 billion during the same period last year. The company reported total sales of Rs 7.52 billion, down 11 per cent from Rs 8.41 billion a year back.

Analysts had earlier estimated net profit of Rs 420-430 million and net sales of Rs 8.85 billion for the quarter.

"Of course, these numbers are well below our expectations. Most of the erosion has been on account of reduced other income," said Avinash Gorakshakar of Emkay Shares and Securities in Bombay. Other income fell 37 per cent to Rs 468.20 million in Q3 2001 from Rs 745.10 million in Q3 2000.

"We were expecting a little more growth in bottomline, but it took a beating on lower scooter volumes," said an auto analyst at a leading Dutch brokerage. The analyst was talking about the upswing in motorbikes at the expense of the scooter market.

A large part of the impact on the bottomline was on account of VRS payments the company has been making over the last two quarters. With 2000 employees taking up the VRS offer, the total bill worked out to Rs 800 million to be charged over three quarters starting Q2 this year. Of that, Rs 265 million has been apportioned this quarter.

"Besides a drop in other income, the VRS and the share buyback completed in October 2000 also took a toll on the company's profits," Gorakshakar said.

Bajaj Auto has seen its market share steadily depleting in recent years. Together with its subsidiary Maharashtra Scooters, Bajaj Auto's market share fell to 50 per cent during the first eight months of this fiscal year, against a more than 55 per cent share in the same period last year.

The fourth-quarter business outlook does not seem too bright either. Scooter sales, where Bajaj finds most of its margins, have been under pressure for most of this year. The company is also expected to face stiff competition in the two-wheeler segment, where LML, Kinetic and Escorts Yamaha are planning to unleash new products in the next financial year.

Opening from its previous close of Rs 274.95, the Bajaj Auto scrip closed Tuesday at Rs 250.60 on the Bombay Stock Exchange.

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