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Volume upgrade continues, raise TP to Rs 1,710 |
ACCUMULATE
CMP: Rs1,486 Target Price: Rs1,710
n EBIDTA at Rs 9.1bn (5% above est.) due to higher than expected topline (Rs 43.4bn vs est. Rs 41.3bn). APAT at Rs 6.9bn (6.5% above est.)
n FY11 export target raised to 1.15mn units (our est. 1.2mn units). 70% of FY12 current exports est. are hedged. Price hike in Oct’10 only for dom. market
n Upgrade FY11E/FY12E vol. by 2.1% /3.2% to 3.9mn/ 4.7mn units. Upgrade FY11E/FY12E EPS by 4.0%/5.1% to Rs 87.1/Rs 110.3 . 20%+ margins are sustainable subject to product mix
n Upgrade TP by 4.9% to Rs 1,710 (15.5x FY12 EPS). Maintain ACCUMULATE rating.
Net Sales – Above expectation
Net sales at Rs 43.4bn was above expectation of Rs 41.3bn due to higher avg.
realization per vehicle and other operating income. Volume grew by 45.7% YoY and
7.8% QoQ. Avg. realization per vehicle stood at Rs 41,786 (up 2.7% YoY and 3.8%
QoQ) against expectation of Rs 40.262 due to improving product mix. Other operating
income was higher at Rs 1.6 bn (est.1.0bn)
EBIDTA above expectation, but margins marginally below expectation
Higher than expected topline resulted in EBITDA of Rs 9.1bn, ahead of estimates of Rs
8.7bn. Margins at 21.0% were slightly below expectation of 21.2% due to higher other
expenses (5.7% of sales against expectation of 5.3%).Other expenses were higher due
to Rs 80 mn cost on a interest subvention scheme for 24 days during the quarter by BFL
and higher transport incentive due to shortages of trucks. RM to sales ratio was in line
with estimates at 70.7%.
APAT – driven by operating performance and higher other income
Net profits at Rs 6.9bn was above our expectation of Rs 6.5bn, due to strong operating
performance and higher other income. Other income stood at Rs 837 mn against
expectation of Rs 700mn.
Valuations and View
At Rs 1,486, the stock trades at PER of 17.1x and 13.5x and EV/EBIDTA of 11.5x and 9.0x
our FY11 and FY12 estimates respectively. We have revised our EPS estimate by 4.0% and
5.1 % to Rs 87.1 and Rs 110.3 for FY11 and FY12 respectively due to higher volume
assumption. We have upgraded our TP by 4.9 % to Rs 1,710 valuing the stock at PER of
15.5x of FY12 estimates. We maintain our ACCUMULATE rating on the stock.
Key Con Call Extracts
¾ Capacity constraints would be there during the festive season till Diwali due to robust
demand. Expect, capacity situation to ease out post November.
¾ To meet demand in festive season, company has stacked up its supply chain. Dealer
have been given extended credit days, however company is charging an interest to tune
of 15% for it.
¾ Motorcycle capacity
¾ Chakan - to remain at current level of 1.2mn units
¾ Pantnagar – to increase from current level of 1.2mn to 1.8mn by FY11 end.
Commenced production from second plant, taking the production to 1.5mn units.
¾ Waluj – to remain at current level of 1.5mn units
¾ Total motorcycle capacity to increase from 3.9mn units to 4.5 mn units by FY11
end
¾ Three wheeler capacity to increase from .42mn units to .48 units by FY11 end
¾ Total capacity at beginning of FY12 would be around 5mn units
¾ At Pantnagar facility, company did a run rate of around 82k per month during the quarter.
This could go upto around 100k in Q3, with year end target of 125k per month.
¾ Expects industry to grow by 13-14% in FY12 with an upward bias.
¾ Expect to end FY11 with 1.15mn units for exports. Expects a growth of 15% + for FY12.
¾ For FY11 company had hedged 90-95% of exports at Rs 47/ $. For FY12, company has
hedged around 70% of exports
¾ Africa continues to contribute 51% of export, growing at 35% over (Apr’10-Sep’10). Latin
America grew at 35%, Sri Lanka & Bangladesh by 90% over the same period.
¾ There is a huge pent up demand for 3-wheelers in export market. Expects a run rate of
20k-21k going forward.
¾ Overall 3-wheelers run rate could be in range of 38k-40k
¾ BAL took a price hike of 2-3% in June in export market. Have no intention of taking any
price hike in near future.
¾ Company enters into quarterly contracts for Steel and for aluminum on quantity basis
(which is generally for a quarter).
Net Sales – Above expectation
Net sales at Rs 43.4bn was above expectation of Rs 41.3bn due to higher avg.
realization per vehicle and other operating income. Volume grew by 45.7% YoY and
7.8% QoQ. Avg. realization per vehicle stood at Rs 41,786 (up 2.7% YoY and 3.8%
QoQ) against expectation of Rs 40.262 due to improving product mix. Other operating
income was higher at Rs 1.6 bn (est.1.0bn)
EBIDTA above expectation, but margins marginally below expectation
Higher than expected topline resulted in EBITDA of Rs 9.1bn, ahead of estimates of Rs
8.7bn. Margins at 21.0% were slightly below expectation of 21.2% due to higher other
expenses (5.7% of sales against expectation of 5.3%).Other expenses were higher due
to Rs 80 mn cost on a interest subvention scheme for 24 days during the quarter by BFL
and higher transport incentive due to shortages of trucks. RM to sales ratio was in line
with estimates at 70.7%.
APAT – driven by operating performance and higher other income
Net profits at Rs 6.9bn was above our expectation of Rs 6.5bn, due to strong operating
performance and higher other income. Other income stood at Rs 837 mn against
expectation of Rs 700mn.
Valuations and View
At Rs 1,486, the stock trades at PER of 17.1x and 13.5x and EV/EBIDTA of 11.5x and 9.0x
our FY11 and FY12 estimates respectively. We have revised our EPS estimate by 4.0% and
5.1 % to Rs 87.1 and Rs 110.3 for FY11 and FY12 respectively due to higher volume
assumption. We have upgraded our TP by 4.9 % to Rs 1,710 valuing the stock at PER of
15.5x of FY12 estimates. We maintain our ACCUMULATE rating on the stock.
Key Con Call Extracts
¾ Capacity constraints would be there during the festive season till Diwali due to robust
demand. Expect, capacity situation to ease out post November.
¾ To meet demand in festive season, company has stacked up its supply chain. Dealer
have been given extended credit days, however company is charging an interest to tune
of 15% for it.
¾ Motorcycle capacity
¾ Chakan - to remain at current level of 1.2mn units
¾ Pantnagar – to increase from current level of 1.2mn to 1.8mn by FY11 end.
Commenced production from second plant, taking the production to 1.5mn units.
¾ Waluj – to remain at current level of 1.5mn units
¾ Total motorcycle capacity to increase from 3.9mn units to 4.5 mn units by FY11
end
¾ Three wheeler capacity to increase from .42mn units to .48 units by FY11 end
¾ Total capacity at beginning of FY12 would be around 5mn units
¾ At Pantnagar facility, company did a run rate of around 82k per month during the quarter.
This could go upto around 100k in Q3, with year end target of 125k per month.
¾ Expects industry to grow by 13-14% in FY12 with an upward bias.
¾ Expect to end FY11 with 1.15mn units for exports. Expects a growth of 15% + for FY12.
¾ For FY11 company had hedged 90-95% of exports at Rs 47/ $. For FY12, company has
hedged around 70% of exports
¾ Africa continues to contribute 51% of export, growing at 35% over (Apr’10-Sep’10). Latin
America grew at 35%, Sri Lanka & Bangladesh by 90% over the same period.
¾ There is a huge pent up demand for 3-wheelers in export market. Expects a run rate of
20k-21k going forward.
¾ Overall 3-wheelers run rate could be in range of 38k-40k
¾ BAL took a price hike of 2-3% in June in export market. Have no intention of taking any
price hike in near future.
¾ Company enters into quarterly contracts for Steel and for aluminum on quantity basis
(which is generally for a quarter).
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