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UBS Investment Research
Bajaj Auto
Q3FY11 results – strong numbers
„ Q3FY11 – Sales: Rs40.2bn (+27% YoY, -4% QoQ)
Net sales decreased 4% qoq due to 5% qoq volume decline partially offset by
improvement in ASP (+2% qoq). Overall ASP improved due to better mix helped
by higher sales of Pulsar (+7% qoq) and price increases of ~2% taken in the
domestic market in Oct’10. Export ASP also increased ~2% qoq, we believe,
helped by higher 3W sales.
„ Q3 EBITDA: Rs8.5bn (+17%YoY); EBITDA margin ahead of expectation
EBITDA margin declined 40bps qoq to 21.1% due to 50bps qoq increase in raw
material expense (74% of sales). However, margins were ahead of our expectation
of 20.2% due to higher other operating income and lower staff and other expenses
(declined 7%/7% qoq resp.). PAT of Rs6.7bn (+40%YoY) was ahead of our
estimate due to higher EBITDA and higher other income and lower tax rate.
„
Management is confident of achieving 20% EBITDA margin for FY12 on back of
strong sales outlook with volumes between 4.7mn – 5mn units for FY12 vs 3.9mn
for FY11. Co. expects strong 3W sales to continue in FY12 (20% YoY growth in
3W volumes to c.0.5m units). The co. plans to launch a new Discover model
(above 100cc) as well as add 130 new dealers in the domestic market from Apr’11.
„ Valuation: Maintain Buy and PT of Rs1,550
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.3%.
Q Bajaj Auto
Bajaj Auto was India’s largest two-wheeler manufacturer until 2000. It is
present in all product segments, including three-wheelers. Bajaj has a technical
tie-up with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
Q Statement of Risk
We think key risks for Bajaj remain rising commodity prices, a potential price
war with Hero Honda in the domestic market, a sharp decline in 3W volumes,
and a drop in export sales
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