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Records are made to be broken!
Results highlights
Revenues driven by price hikes/record-high dispatches
For 2QFY11, sales grew by 50% YoY (12% QoQ) driven by 46% YoY (8%
QoQ) and 3% YoY (4% QoQ) growth in volumes and net realisations,
respectively.
Realisations were higher on account of price hikes in domestic market on June
8, 2010 (to the tune of INR500-2,000 per vehicle) and in the export markets
on July 1, 2010 (to the tune of 2%).
Sequential margin expansion led by minimal ad spend/input cost benefit
EBIDTA margins were in line with estimates at 20.7% (up 69bps QoQ; down
138bps YoY). Sequentially, margins were boosted by the price hikes coupled
with renewed raw material contracts for 2QFY11, wherein the revised prices
were lower QoQ. Furthermore, staff costs were 10% lower QoQ, as normally,
the first quarter includes a one-time performance incentive paid to staff, which
had impacted 1QFY11 margins by 60bps.
Huge cash hoard aids other income
Other income grew by 285% YoY (2% QoQ) at INR837m as the company
continues to capitalize on its huge cash hoard (at approximately INR40bn).
This led to a PAT growth of 69% YoY (16% QoQ) at INR6.8bn – the highest in
the history of the company.
Valuation
At the CMP of INR1,500, the stock is trading at a P/E of 16.4x and 13.7x our
FY11e and FY12e EPS. While the valuations are on the richer side, we believe
that the premium valuations are justified given the market share gains coupled
with the extremely profitable operations (a rare combination).
We reiterate our BUY recommendation with a target price of INR1,646, which
provides a 10% upside from the current levels.
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