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Bajaj Auto quarterly profit beats estimates as price cuts boost motorcycle sales

Reversal of a previous tax charge also helps shore up earnings

Bajaj has bucked an overall industry downturn with stronger than expected results.   © Reuters

MUMBAI (NewsRise) -- Bajaj Auto's fourth-quarter net income rose a better-than-expected 21%, helped by a tax reversal and increased sales of motorcycles that bucked an industrywide slowdown in India.

Automotive demand in Asia's third-largest economy has been cooling since July amid a credit crunch and weakness in rural markets. Credit has tightened partly because of the curbs imposed on lenders by the nation's central bank in a bid to reduce bad loans. Top two-wheeler makers such as Hero MotoCorp and Honda Motorcycle and Scooter India have been slashing production amid the slowing demand. However, Bajaj has been aggressively pricing its motorcycles that helped it stem the sales decline and even win some market share, though most of the gains have been on low-margin entry-level models.

The company's net income in the three months ended in March rose to 13.06 billion rupees ($186 million), Bajaj said in a statement. Analysts were expecting a profit of 10.52 billion rupees, according to Refinitiv data. Revenue rose 8.9% to 73.95 billion rupees.

However, Bajaj's operating margin declined 390 basis points to 17%, hurt by the price cuts. The company recorded a 3.42 billion-rupees exceptional gain as it reversed a government tax charge related to previous years.

"Our strategy is to continue the push to gain market share," Rakesh Sharma, chief commercial officer of Bajaj Auto, told CNBC TV18 television network. "We will now slowly become present across the broad spectrum of motorcycle models."

Domestic sales of Bajaj Auto's motorcycles grew 23%, while commercial vehicles for the quarter declined 16%. Overall sales volumes increased 14% to 1.19 million units.

The Pune, western India-based company is focusing on regaining market share amid stiff competition from larger rival Hero MotoCorp and Japan's Honda Motor. Demand for two wheelers has taken a beating in India amid rising vehicle and fuel prices. A meltdown at a major non-banking financial company last year also cast a pall over the two-wheeler industry as it stirred fears of more regulatory curbs on small financiers who typically lend to motorcycle buyers.

Last month, Hero MotoCorp, India's largest two-wheeler maker, reported a 25% slump in fourth-quarter profit and warned that the current fiscal year may be challenging as new fuel standards set in 2020.

Shares of Bajaj Auto closed 3.3%% higher in Mumbai trading, while the benchmark S&P BSE Sensex ended up 1.4%.

--Dhanya Thoppil

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