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The market's concerns relate probably to the poor traction in the company's revenues and unit sales. In the quarter, the company's units sales were up by just 7.3 percent year-on-year (Y-o-Y), while net sales grew by a little over 15 percent, aided by a 7.6 percent improvement in blended sales realisation to Rs 40,674.4 per unit, including three wheelers. While the company claimed that better realisations were on account of better product mix in its two-wheeler business, the fact is that its three-wheeler division reported a higher sales growth. As the sticker price for the latter is higher, this may have helped realisations, which is hardly a healthy sign.
The other worry is a sequential decline in sales realisation despite the company's efforts to increase the share of pricier and bigger motorcycles in its portfolio. The trend points towards a tough operating environment for the company, given the recent rise in commodity price, including metals.
During the September 2009 quarter, the company's operating margin (excluding other income) nearly doubled to 19.4 percent of net sales, of the best-ever. The company made an operating profits of nearly Rs 7,900 per unit against Rs 3,800 per unit during the corresponding period last year and Rs 6,028 in the June 2009 quarter.
Going forward, we expect the company to report high growth in units sales due to positive response to its new product launches. However, it would be tough for it to maintain the operating margin at its current level. At its current price, the stock is trading at nearly 25 times its trailing 12 months earnings and looks pricey by historical standards.
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