Visit http://indiaer.blogspot.com/ for complete details BAJAJ AUTO 2QFY11: In-line; EBITDA margins below estimate; Maintain Neutral
Bajaj Auto (BJAUT IN, Mkt Cap US$9.9b, CMP Rs,1,522, Buy) 2QFY11 results are in line with our estimates. EBITDA margins at 20.7% (v/s est 21.2%) were impacted by RM cost push. However, higher other income boosted recurring PAT to Rs6.82b (v/s est Rs6.84b). Key highlights:
§ Volumes grew by 45.7% YoY (~7.8% QoQ) to 1000,570 units. Realizations up 3.2% YoY (~3.6% QoQ) to Rs43,393/unit (v/s est Rs42,612/unit) due to improved product mix and price hike taken in 1HFY11. Net revenues grew by 50.4% to Rs43.4b (v/s Rs42.6b)
§ EBITDA margin were higher by 70bp QoQ (~130bp YoY decline) to 20.7% (v/s est 21.2%), impacted by higher than estimated RM cost and higher other expenditure.
§ Maintains guidance of volumes at 4m units in FY11 and EBITDA margins of 20%.
§ Bajaj Auto improved its market share from 30% in FY10 to 34% of motorcycle (incl exports) in 1QFY11, which is near to its peak market share of 35% enjoyed by it in 2Q-3QFY08.
§ Pantnagar expansion of 0.3m units commenced operations from Oct-10, thereby easing capacity constraints.
Strong volume growth continues in 2QFY11; market share nearing peak market share of 35%
- Volumes grew by 45.7% YoY and 7.8% QoQ to 1m units, driven by 47% YoY growth in motorcycles and 37% YoY growth in 3-Wheelers,despite supply side constraints.
- Domestic volumes grew by 50%, driven by 53% YoY growth in domestic motorcycle volumes benefiting from robust sales of Discover and Pulsar family. The 3W volumes in domestic markets grew by 37.3% YoY growth (~17.2% QoQ) driven by fresh demand of ~35,000 vehicles led by de-regulation of permits in Tamil Nadu.
- Exports recorded volumes of 307,332 units, a growth of 37% YoY growth (~5.1% QoQ decline) on the back of strong recovery in its key markets.
- This led to increase in market share by 550bp YoY (~70bp QoQ) to 34.1% in 2QFY11, which is near to its peak market share of 35% enjoyed by it in 2Q-3QFY08.
Other Highlights
- The new Discover 150 has received favorable response with 110,000 plus units sold in 2QFY11. Discover brand sold ~392,000 units in 2QFY11, thereby becoming the second largest selling motorcycle brand. Pulsar recorded its highest sales in 2QFY11 to 246,000 units. These two brands contributed ~86% of total domestic motorcycle volumes (~70% incl exports) in 2QFY11.
- Pantnagar expansion commenced operations from Oct-10, increasing the monthly capacity to 125,000 units (from 100,000 units). It expects to produce 0.9m units (v/s est of 1m) from Pantnagar in FY11.
- Debtors have increased by Rs2.6b since Mar-10 (~Rs1.5b YoY). The cash & investments stood at Rs47.84b in Sep-10 v/s Rs41.2b in Mar-10.
Maintains guidance for 40% volume growth, EBITDA margins of ~20%
- The management continues to maintain its guidance of 4m units volumes in FY11 (v/s our est of 3.94m units). Volume growth would be driven by Discover 100, Pulsar 135, Discover 150 and exports, along with normal growth in existing Pulsar and 3W portfolio. Exports will be closer to 1.2m sales in FY11.
- It is confident of maintaining EBITDA margins of 20% (v/s est 20.5%) in FY11 driven by improving product mix, increasing contribution from Pantnagar plant and higher operating leverage.
- It is fully hedged for its FY11 export revenues at ~Rs46.5-47.
- The management did not give guidance for FY12. We model volume growth of 12.5% to 4.43m units, EBITDA margins of 19.8% (~70bp decline) and PAT growth of ~10% to Rs98.6.
Valuation & view
- There has been significant re-rating of Bajaj Auto driven by strong momentum in both volumes and margins. As base-effect wears off in 2HFY12, YoY volume growth rates are expected to slow-down.
- With limited levers to improve margins, we believe peak margins are behind-us. As a result, we believe that there is limited scope for further re-rating of the stock and it should perform in-line with markets.
- The stock trades at 16.9x FY11E EPS and 15.4x FY12E EPS. Maintain Neutral with target price of Rs1,480 (~15x FY12 EPS).
- We will be reviewing our estimates post Concall on October 20 at 0930hrs IST.
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