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Bajaj Auto -Good 3Q results
Bajaj Auto beat our net profit estimates for 3Q by 7% and defended
margins above 20% for the sixth quarter in a row. We believe that
margins can sustain at or above 20% in the near-term but are not hopeful
of the same on a 1-2 year view. Slowing industry volume growth in both
2Ws and 3Ws combined with rising competition will put Bajaj’s premium
margins at risk over FY12-13. This, we believe, is causing the current derating
in Bajaj’s stock. Maintain U-PF.
Strong 3Q results
Bajaj’s 3Q EBITDA grew 17% YoY and came in 3% above estimates. EBITDA
margins at 20.3% dipped 30 bps QoQ but came in 40 bps ahead of estimates.
RM/Sales ratio rose 70 bps QoQ but was more than compensated by lowerthan-
expected staff costs and other expenditure. Higher other income and
lower depreciation and tax rate resulted in net profit at Rs6.7bn rising 40%
YoY and coming in 7% ahead of our estimates.
Some weakness in operating metrics
In 3Q, Bajaj saw volume growth moderating meaningfully in 2Ws and 3Ws –
both in domestic and exports markets. Market share dipped QoQ in both sub-
125CC bikes as well as 125CC+ bikes. In 3Q, Bajaj saw a QoQ drop in
passenger 3W share as well.
Slower growth and higher competition ahead
In FY12, we expect 2W industry growth to slow to 12% while we expect 3W
industry sales to de-grow 5% as the ‘new permit’ effect fades. Exports growth
will be higher but even here we expect moderation. Competition is rising from
Yamaha in the premium bike segment and HMSI is set to become more
aggressive in terms of new launches by FY13. Hero Honda, too, could eat into
Bajaj’s exports pie with a lag in FY13 and beyond.
Bajaj’s stock is seeing a de-rating
While most of the competition pressures from HMSI and Hero Honda will
manifest only FY13 onwards, we believe that Bajaj’s multiples have started
reflecting these risks already. Our estimates still give Bajaj the benefit of
doubt on 2W market share over FY12-13 and we see some risk here. Media
reports indicate that Bajaj plans to re-launch the entry bike ‘Boxer’ to
compete with Hero Honda’s ‘CD Dawn’. If true, this will be a departure from
Bajaj’s strategy to de-focus from the entry-100CC segment and will
incrementally weaken product-mix. We fine-tune our FY11 EPS up by 2.8%
but maintain FY12 and FY13 estimates. Maintain U-PF.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Auto -Good 3Q results
Bajaj Auto beat our net profit estimates for 3Q by 7% and defended
margins above 20% for the sixth quarter in a row. We believe that
margins can sustain at or above 20% in the near-term but are not hopeful
of the same on a 1-2 year view. Slowing industry volume growth in both
2Ws and 3Ws combined with rising competition will put Bajaj’s premium
margins at risk over FY12-13. This, we believe, is causing the current derating
in Bajaj’s stock. Maintain U-PF.
Strong 3Q results
Bajaj’s 3Q EBITDA grew 17% YoY and came in 3% above estimates. EBITDA
margins at 20.3% dipped 30 bps QoQ but came in 40 bps ahead of estimates.
RM/Sales ratio rose 70 bps QoQ but was more than compensated by lowerthan-
expected staff costs and other expenditure. Higher other income and
lower depreciation and tax rate resulted in net profit at Rs6.7bn rising 40%
YoY and coming in 7% ahead of our estimates.
Some weakness in operating metrics
In 3Q, Bajaj saw volume growth moderating meaningfully in 2Ws and 3Ws –
both in domestic and exports markets. Market share dipped QoQ in both sub-
125CC bikes as well as 125CC+ bikes. In 3Q, Bajaj saw a QoQ drop in
passenger 3W share as well.
Slower growth and higher competition ahead
In FY12, we expect 2W industry growth to slow to 12% while we expect 3W
industry sales to de-grow 5% as the ‘new permit’ effect fades. Exports growth
will be higher but even here we expect moderation. Competition is rising from
Yamaha in the premium bike segment and HMSI is set to become more
aggressive in terms of new launches by FY13. Hero Honda, too, could eat into
Bajaj’s exports pie with a lag in FY13 and beyond.
Bajaj’s stock is seeing a de-rating
While most of the competition pressures from HMSI and Hero Honda will
manifest only FY13 onwards, we believe that Bajaj’s multiples have started
reflecting these risks already. Our estimates still give Bajaj the benefit of
doubt on 2W market share over FY12-13 and we see some risk here. Media
reports indicate that Bajaj plans to re-launch the entry bike ‘Boxer’ to
compete with Hero Honda’s ‘CD Dawn’. If true, this will be a departure from
Bajaj’s strategy to de-focus from the entry-100CC segment and will
incrementally weaken product-mix. We fine-tune our FY11 EPS up by 2.8%
but maintain FY12 and FY13 estimates. Maintain U-PF.
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