The prevailing economic crisis in Nigeria has taken a toll on India’s motorcycle export business as statistics made available by Bajaj Auto revealed that export volumes were lower at 370,600 units, compared with 476,000 units in the last one year.
According to the report sourced from The Hindu, Bajaj Auto’s standalone net profit rose two per cent for the three months ended June compared with the same period last year, as the company witnessed headwinds in some of the export markets, including Nigeria and Egypt. The company reported higher turnover when compared to the same period last year.
“Domestic motorcycle sales grew by 13 per cent as against industry growth of nine per cent. Overall market share in domestic motorcycles improved to 19 per cent.
The growth has been fuelled by success of new products namely V15 and Avenger,” Kevin D’Sa, President, Finance, Bajaj Auto, said. However, exports were hit badly as consumers in oil economies faced a liquidity problem. Apart from the currency crisis hitting the country, the sweeping ban on the use of motorcycle as a means of trans-portation in some states across the country has also affected the volume of sale.
Those affected have either relocated to other routes, dropped the business entirely, or gone into the use of more acceptable threewheeler. The ban, which began in Abuja, has spread to Enugu, Rivers, Cross River, Imo, Uyo and Lagos.
While the ban is total in some states, the riders are, in some cases, restricted to rural communities where they are not expected to disrupt traffic flow in the city centre. Earlier in the year, The Economic Times quoted the ET Intelligence Group as saying that investors were reassessing the projected export growth and margins of Bajaj Auto due to sharp volatility in the currency of Nigeria, the largest export market.
It noted that what turned investors more cautious was the yawning difference between the prevailing rate of the naira and its six-month forward rate, which suggests the possibility of another 25 per cent devaluation.
Giving reasons the investors are keenly looking at Nigeria’s currency, the report noted that Bajaj Autos billed its dealers in Nigeria in dollar terms and that if Nigeria is facing lack of forex availability, it affects the incremental volumes of the company.
It added that vehicles sold in Nigeria were not on credit, which provided some comforting factor. “Devaluation affects the pricing power of the local currency, thus in order to sustain volumes, the company has to cut prices.
Last month, it reduced process by $10-$20 per bike. It impacts average realisation for the firm, as Nigeria accounts for nearly 30 per cent of its two-wheeler export.
“If the company continues to bite the bullet, it will be margin dilutive. Exports accounts for nearly 46 per cent of total volumes and, according to analyst estimate, 55 per cent of operating profit. The market is pricing in an operating profit margin of 21 per cent in FY16 and FY17, compared with 19 per cent F15,” the report noted.