Bajaj Auto Earnings Call Nuggets: Cost Head Trends, Selective Export Markets Slowdown

On Monday, Bajaj Auto Ltd. (532977) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Cost Head Trends

Jamshed Dadabhoy – Citigroup: Just a couple of quick questions. Number one, could you give us a sense of how your margins would be on a constant currency basis YoY?

Kevin P. D’sa – President (Finance): On a constant currency basis, Y-and-Y we would be approximately, I would be at about 19.4% only. It won’t change significantly because if you see the – I’ll just tell you there are three currency movements that affect us. One is the MTM loss or gain that we have and this is a critical question therefore before anybody ask this I will address it. As you know, year we had an MTM loss of INR134 crores, that MTM loss is the time value of hedge contracts, which reverses over the period of the contract maturing. So INR134 crores loss that was there in the last year gets reversed, INR33 crores was reversed in Q1, INR60 crores gets reversed in Q2 and a balance odd about INR40 crores or so will get reversed over quarter three and quarter four. The reversal of this is shown under the column other income under serial number 4 of the results. That is one element. The second element of this is on account of revalorization of the debtors on account of the rupee that remains outstanding on the last day of the reporting month. So as of Q1, we had a gain of INR29 crores. As against Q2, there was a loss of INR18 crores. The third is what I call the derivative loss on account of shortfall over the projected exports. So in the month of quarter one, we took a charge of INR36 crores. In quarter two, I expect a shortfall in October, so that is about INR12 crores that is coming in, in quarter two, which I have accounted which pertains to the month of October. So, therefore, the net impact on EBITDA for quarter one is INR26 crores, for quarter two is INR30 crores, for the half year is INR56 crores. This translates to 0.5% impact on EBITDA in quarter one, 0.6% in quarter two, 0.6% for the whole half year.

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Jamshed Dadabhoy – Citigroup: Second question is, can you give some sense in terms of how your other cost heads are trending, power and fuel, advertisement and also general SG&A because in an absolute rupee quantum this has kind of moved up over the last four quarters, it used to trend at about INR250 crores, INR260 crores a quarter…

Kevin P. D’sa – President (Finance): Right.

Jamshed Dadabhoy – Citigroup: Now we are looking at INR320 crores, INR330 crores?

Kevin P. D’sa – President (Finance): The other expenditure, Jamshed, includes like I said the derivative losses also in quarter one it got 36, in quarter two it got 22, so it’s 48, so for the six months. So therefore, if you compare on a six month, six month basis, we do see a hike coming in account of other expenditure and that’s primarily on account of this. As far as the adjustments sales, proportion sales are concerned, by and large the spent that was there in Q1 remains constant for Q2 and going forward in Q3, I would say, plus or minus INR10 crores.

Selective Export Markets Slowdown

Ravi Baid – Union KBC: Sir, could you please elaborate more on the slowdown we’ve seen in our selective export markets?

Kevin P. D’sa – President (Finance): As far as the export market is concerned, as you know that Sri Lanka was one of the big hits that we took in the May and June last quarter. We have revised the prices downwards, but have we achieved the original number? The answer is no. As against doing approximately about 10,000 three wheelers a month, we are currently doing about 7,500 a month, as against 12,000 motorcycles a month, we are currently doing about 7,000 motorcycles a months. Now, if I look at the entire overall export story, I would say that 45% of our exports come from Africa, which is still growing by about 10% to 15%, but in the other markets, which is 55% market including Sri Lanka, it is flattish.

Ravi Baid – Union KBC: So, will this mean we will be able to meet out export targets for this year?

Kevin P. D’sa – President (Finance): I won’t give any guidance on that account, but I would say that – for me, I would say, the current pattern would marginally improve over the next six months, but not drastically.