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EBITDA in line, other income surprises
September results surprised us with higher other income, even though EBITDA
was in line. We upgrade FY11-12F EPS by 5% on favourable festival demand and
product mix, but rupee appreciation could impact FY12 exports. Maintain Hold
with upgraded TP as valuations look rich.
September quarter EBITDA in line, other income surprises
Ashok reported September-quarter EBITDA of Rs9.12bn, in line with our Rs8.85bn estimate.
Strong product mix in favour of three wheelers and premium bikes helped drive EBITDA
margin expansion of 100bp qoq to 21%. Lower-than-expected depreciation and higher-thanexpected
other income led to a +7% PAT surprise at Rs6.97bn. EPS for the quarter was
Rs24.1, bringing 1HFY11 EPS to Rs44.5. We consider the Rs150m loss on an aeroplane
sale an extraordinary item.
Export markets and currency movement are key items to watch
New capacity additions helped Bajaj benefit from tight demand/supply conditions in the
domestic two-wheeler market. Meanwhile, the domestic three-wheeler market enjoyed a
demand explosion in Tamil Nadu State, which scrapped regional transport office (RTO)
permits for this vehicle class. However, management says this may not continue beyond the
December quarter. Key things to watch include: 1) export market growth outlook; and 2)
potential rupee appreciation (70% hedged) which could impact FY12 exports. We raise our
F11-FY12 EPS forecasts by about 5% on strong other income and three-wheeler sales.
Maintain Hold and raise target price To Rs1,387.10
Bajaj Auto trades at what we see as rich valuation of 15.3x FY12F EPS. The stock has been
a strong performer, as the company’s likelihood of meeting aggressive FY11F sales volume
and profit guidance has risen. Vehicle shortages in India have helped profitability. Going
forward, we believe Bajaj’s strength in the premium bike category will allow it to benefit from
strong demand expected on anticipated improving IT sector employment. However, profits
will also be impacted by the unpredictable three-wheeler and export markets. We expect
export market growth will be subject to exploration of new markets in Africa and political
stability in key markets. We raise our PE-based TP to Rs1,387.10 as we increase our FY12F
PE target to 14x to reflect the EPS and ROE growth. Hold.
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