Bajaj Auto, India’s third largest two-wheeler manufacturer, is expecting raw material cost pressure to continue in the coming months, fuelling the possibility of another round of price hikes even as it seems to be on the path to recovery.
The Pune-based company increased prices in Q4-FY22 and followed it with another hike in April, which led to an average hike of 2 percent. However, such an increase translated into a recovery of only one-third of the raw material cost by Bajaj Auto, as per a senior executive of the company. The Bajaj management is expecting a 3-4 per cent rise in cost of raw material in Q1-FY23.
In a post earning conference call, Rakesh Sharma, Executive Director, Bajaj Auto ,said, “In the next few months we definitely see costs increasing. We have recovered one-third of it. It will certainly be an issue to watch out for.”
Sharma, however, indicated that all actions in price of products in the immediate future will be defined by retail demand. Auto makers tend to hold down cost pressures instead of passing them onto customers for fear of hurting demand. In the last two years, two-wheeler prices have seen substantial hikes.
“I cannot tell you what our play is going to be. If indeed this sparkle (in sales) that happened in April continues and demand is seen to be recovering well in June and July, it will embolden the industry to pass on the cost hikes to customers. If not, then one will be more circumspect about price hikes,” Sharma added.
Bajaj Auto saw a 26 percent decline in domestic volumes during April to 93,233 units, as compared with 126,570 units sold April last year.
The ongoing wedding season and the Navratri festival led to an overall improvement in retail two-wheeler demand during April. Hero MotoCorp and TVS Motor Company recorded an increase in sales during the month.
The fall in Bajaj Auto wholesales volumes in April can be attributed to shortage in availability of semiconductors. The company is predicting a shortfall of 15-20 percent in production in Q1-FY23 on account of chip shortage.
“This will impact mostly the domestic business unit and to a smaller extent the sports brand in the international market. The channel stocks are dwindling. I see an issue in retail motorcycles in May and Jun, but towards the end of June and July we should be able to resume supplies,” Sharma added.
The company predicts a temporary loss in market share in the current quarter which they expect to regain in the subsequent quarter.
“Bajaj Auto’s business outlook remains positive with recovery expected in FY23, as and when economic activities normalise in the domestic market. We expect the company to continue to increase its market share in domestic and export markets, given its strong portfolio of premium brands and cost-effective entry-level electronic injection systems,” said a note by research firm Sharekhan.