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Nikkei Markets

Bajaj Auto posts better-than-expected profit on tax cuts, lower costs

Benign raw material costs, improving demand to help profit margins

MUMBAI (NewsRise) -- Bajaj Auto reported a better-than-expected 22% jump in second-quarter net profit as a tax cut and lower costs helped the two-wheeler maker buck a slowdown gripping India's automobile market.

Automotive demand in India has been shrinking for more than a year as a credit crunch marred consumer sentiment in Asia's third-largest economy. Bajaj's larger rivals such as Hero MotoCorp and Honda Motorcycle India have been slashing production amid the weak demand.

A slew of measures including a reduction in corporate taxes announced by Prime Minister Narendra Modi's government earlier this year is set to help auto companies boost demand. Further, the Pune, western India-based Bajaj has also been able to tide over the slowdown on the back of a strong portfolio, as well as the growing demand for three-wheelers and rising exports.

Net income in the three months ended in September stood at 14.02 billion rupees ($198 million), the company said in a statement on Wednesday. Analysts were expecting a profit of 11.70 billion rupees, according to Refinitiv data.

Total tax expenses slumped 59% to 2.06 billion rupees, aided by the government's move in September, to cut corporate taxes by eight percentage points to 22%. This also led to a reversal of 1.82 billion rupees in taxes during the quarter, Bajaj Auto said.

Total revenue fell 4.1% on-year to 77.07 billion rupees, while the operating margins expanded 80 basis points sequentially due to a change in product mix and price hikes. Domestic sales of Bajaj Auto's commercial vehicles declined 4%, while motorcycle dispatches slumped 25%. Overall sales volumes fell 12% to 1.17 million units.

"The second quarter was a very difficult period to navigate," Rakesh Sharma, the chief commercial officer of Bajaj Auto, told CNBC TV18 television network.

However, business has improved with the onset of the festive season, Sharma said. He expects the industry's festival sales volume to be at the same level as last year.

Benign raw material costs and improving demand outlook have raised hopes of the company expanding its operating margins further. Sharma said. "Still, the situation is very volatile."

Bajaj has been focusing on regaining market share amid stiff competition from Hero MotoCorp and Honda. In the last quarter, Bajaj's domestic motorcycle market share increased to 20% from 16% a year earlier, though it continues to pale against the 30% levels the company once enjoyed.

Earlier this month, Bajaj forayed into electric vehicles segment with the re-launch of its iconic brand Chetak. The launch also marked the company's re-entry into the scooters segment, almost a decade after it phased out the product from its portfolio.

Demand for two-wheelers had taken a beating in India last year amid rising vehicle and fuel prices. The industry's growth prospects have also been marred by increasing the cost of ownership and changing safety regulations.

Bajaj's exports grew 2% in the quarter. The company, which partners with Japan's Kawasaki, has been stepping up exports to reduce its reliance on the domestic market.

Shares of Bajaj Auto gained 2.1% in Mumbai trading on Wednesday, while the benchmark S&P BSE Sensex ended 0.2% higher.

--Dhanya Ann Thoppil

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