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Bajaj Auto quarterly profit misses estimates as costs surges

Increased discounts on motorcycles also damped earnings

Tax expenses jumped 37%, while raw material costs surged 41%   © Reuters

MUMBAI (NewsRise) -- Bajaj Auto reported a weaker-than-expected first-quarter net profit after expenses increased and the two-wheeler maker doled out more discounts to spur demand. Profit in the three months ended in June rose 21% on-year to 11.15 billion rupees ($162 million), Bajaj Auto said in a statement on Friday. Analysts were expecting a net income of 12.47 billion rupees, according to a Reuters poll.

Tax expenses jumped 37%, while raw material costs surged 41%, according to the statement. Total revenue grew 27% to 74.19 billion rupees.

The weak performance comes even as domestic sales of Bajaj Auto's commercial vehicles jumped more than 80%, while motorcycles grew 39%. Overall sales volumes increased 38% to 1.23 million units.

The company's revenue lagged behind estimates due to lower-than-expected realisations in both domestic as well as overseas markets, brokerage ICICI Direct said. The total price realisation declined 6.9% while ICICI had expected little change.

Exports grew 31% as Bajaj Auto saw a consistent pace of recovery in demand in key markets such as Nigeria. The company, which partners with Japan's Kawasaki, has been stepping up exports to reduce its reliance on the domestic market. Last year, it announced a tie-up with British motorcycle maker Triumph.

Bajaj Auto's domestic sales of motorcycles have been sagging amid stiff competition from larger rival Hero MotoCorp, and Japan's Honda Motor. Bajaj's domestic market share in motorcycles stood at 16% last quarter, compared with its historic 30% levels.

The increased focus on reviving the motorcycles business this year is likely to pull down the overall operating margins from the traditional 20% level, Kevin D'sa, president for finance at Bajaj Auto, told local television channel CNBC TV18. "We will be more aggressive in the motorcycles segment in terms of pricing and gaining market share."

Indian two-wheeler market is witnessing a healthy growth thanks to a pick-up in rural demand. According to brokerage Motilal Oswal, the domestic two-wheeler industry is expected to grow at an average rate of 10% until fiscal year 2022.

Shares of Bajaj Auto lost as much as 9.4%, its biggest intraday fall since August 2015, in Mumbai trading on Friday. The shares later pared the losses to close down 8.7%, while the benchmark S&P BSE Sensex rose 0.4%.

--Dhanya Ann Thoppil

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