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�� PAT marginally ahead of estimate
Bajaj Auto’s (BAL) Q3FY11 PAT, at INR 6.7 bn, was 6% ahead of our estimate of
INR 6.3 bn. The variance was largely due to better–than-expected other income.
�� Net revenue up 27% Y-o-Y; EBITDA margin maintained
The company’s net revenue, at INR 41.8 bn (up 27% Y-o-Y), was driven by
volume growth (motorcycle sales rose 18% Y-o-Y; three wheeler sales
registering 12% Y-o-Y growth). Revenue growth was aided by improvement in
average realisation per vehicle (up ~1.8% Q-o-Q) on account of better product
mix (higher proportion of Pulsar and Discover) along with a price hike.
BAL’s EBITDA margin, at 20.3%, dipped 33bps sequentially. An increase in raw
material cost (up 70bps Q-o-Q) was offset by lower–than-expected other
expenses. Other non-operating income rose 19% Q-o-Q with increasing liquid
investments (up INR 5.7 bn over FY10). Overall, net profit at INR 6.7 bn
(Edelweiss estimate INR 6.3 bn) increased 40% Y-o-Y.
�� Launching new products, expanding distribution
Management expects total volume of 3.9 mn units in FY11 (a shade below its
previous estimate of 4 mn units). It did not provide guidance for FY12; however,
it did indicate that the outlook seemed positive. To drive growth, the company
will be: (a) launching new variants of the Discover (in April) and the Pulsar (in
November) and (b) expanding its distribution reach by appointing new dealers.
�� Outlook and valuations: Limited room for surprises; maintain ‘HOLD’
Going into FY12, we expect volume growth to significantly decelerate to 13%
(versus 38% in FY11E). Further, with increased competition, particularly in the
high-end segment, and a strong commodity cycle potential for earning
upgrades/surprises is limited. We maintain our ‘HOLD’ recommendation on the
stock with a target price of INR 1,450 implying 15x FY12E EPS. Within
automobile space, we would prefer M&M and Tata Motors. On a relative return
basis we rate the stock `Sector Performer’.
Key takeaways from conference call
• BAL has taken two price hikes with in a span of three months, aggregating to INR
1,000–2,000 across all models.
• The company has hedged 95% of its exports (factoring ~15-20% growth) at INR
46.7 INR/USD.
• To increase the regional penetration, BAL is in the process of appointing 130 new
dealers (to be fully operational by March 2011), of which ~40% will be in existing
areas and balance in new regions, further driving growth of Discover and Pulsar.
• Management expects no change in existing excise duty rate in the coming Union
Budget.
Company Description
BAL is the second largest two-wheeler manufacturer in India with a domestic market
share of 28%. It offers products in all motorcycle segments—Platina (entry), Discover
(executive) and Pulsar (premium). It is also the largest three-wheeler manufacturer in
India. Post the demerger in May 2008, BAL has been solely focused on the automobile
business. In the past few years, the company has shown strong growth in exports that
now forms nearly 35% of its total volumes.
Investment Theme
BAL has substantially improved its market share and profitability in the past few
quarters. The company’s new models—notably the executive level motorcycle,
Discover—have been extremely well received. Exports have been robust. With a
reasonably strong product portfolio we expect the company’s volumes to be on a growth
trajectory. We believe the positives have been adequately priced in.
Key Risks
Stronger-than-expected volume growth both on the domestic and exports territories with
incremental market share gains would lead to an upside to our EPS estimates and target
price.
The company might also be a beneficiary of a split between the joint venture partners in
Hero Honda.
On the negative side, an appreciation in the INR vis-à-vis the USD and an increase in
competitive intensity from new players (such as M&M) pose a downside risk to our
estimates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
�� PAT marginally ahead of estimate
Bajaj Auto’s (BAL) Q3FY11 PAT, at INR 6.7 bn, was 6% ahead of our estimate of
INR 6.3 bn. The variance was largely due to better–than-expected other income.
�� Net revenue up 27% Y-o-Y; EBITDA margin maintained
The company’s net revenue, at INR 41.8 bn (up 27% Y-o-Y), was driven by
volume growth (motorcycle sales rose 18% Y-o-Y; three wheeler sales
registering 12% Y-o-Y growth). Revenue growth was aided by improvement in
average realisation per vehicle (up ~1.8% Q-o-Q) on account of better product
mix (higher proportion of Pulsar and Discover) along with a price hike.
BAL’s EBITDA margin, at 20.3%, dipped 33bps sequentially. An increase in raw
material cost (up 70bps Q-o-Q) was offset by lower–than-expected other
expenses. Other non-operating income rose 19% Q-o-Q with increasing liquid
investments (up INR 5.7 bn over FY10). Overall, net profit at INR 6.7 bn
(Edelweiss estimate INR 6.3 bn) increased 40% Y-o-Y.
�� Launching new products, expanding distribution
Management expects total volume of 3.9 mn units in FY11 (a shade below its
previous estimate of 4 mn units). It did not provide guidance for FY12; however,
it did indicate that the outlook seemed positive. To drive growth, the company
will be: (a) launching new variants of the Discover (in April) and the Pulsar (in
November) and (b) expanding its distribution reach by appointing new dealers.
�� Outlook and valuations: Limited room for surprises; maintain ‘HOLD’
Going into FY12, we expect volume growth to significantly decelerate to 13%
(versus 38% in FY11E). Further, with increased competition, particularly in the
high-end segment, and a strong commodity cycle potential for earning
upgrades/surprises is limited. We maintain our ‘HOLD’ recommendation on the
stock with a target price of INR 1,450 implying 15x FY12E EPS. Within
automobile space, we would prefer M&M and Tata Motors. On a relative return
basis we rate the stock `Sector Performer’.
Key takeaways from conference call
• BAL has taken two price hikes with in a span of three months, aggregating to INR
1,000–2,000 across all models.
• The company has hedged 95% of its exports (factoring ~15-20% growth) at INR
46.7 INR/USD.
• To increase the regional penetration, BAL is in the process of appointing 130 new
dealers (to be fully operational by March 2011), of which ~40% will be in existing
areas and balance in new regions, further driving growth of Discover and Pulsar.
• Management expects no change in existing excise duty rate in the coming Union
Budget.
Company Description
BAL is the second largest two-wheeler manufacturer in India with a domestic market
share of 28%. It offers products in all motorcycle segments—Platina (entry), Discover
(executive) and Pulsar (premium). It is also the largest three-wheeler manufacturer in
India. Post the demerger in May 2008, BAL has been solely focused on the automobile
business. In the past few years, the company has shown strong growth in exports that
now forms nearly 35% of its total volumes.
Investment Theme
BAL has substantially improved its market share and profitability in the past few
quarters. The company’s new models—notably the executive level motorcycle,
Discover—have been extremely well received. Exports have been robust. With a
reasonably strong product portfolio we expect the company’s volumes to be on a growth
trajectory. We believe the positives have been adequately priced in.
Key Risks
Stronger-than-expected volume growth both on the domestic and exports territories with
incremental market share gains would lead to an upside to our EPS estimates and target
price.
The company might also be a beneficiary of a split between the joint venture partners in
Hero Honda.
On the negative side, an appreciation in the INR vis-à-vis the USD and an increase in
competitive intensity from new players (such as M&M) pose a downside risk to our
estimates.
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