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Good 4Q but headwinds ahead
Bajaj’s 4Q results were strong with EBITDA margins above 20% for the 7th
quarter in a row. However, we see headwinds ahead in the form of slowing
2W industry growth, input cost pressures and a potential removal of export
incentives. Slipping market-share in motorcycles is another cause for concern
and we are unsure of the prospects of the ‘Boxer 150CC’ to be launched soon.
On the positive side, 3W exports remain strong. More medium term, we worry
about the impact on Bajaj from a more aggressive HMSI in the domestic
market and from Hero Honda in export markets. Stock has come off but we
see Bajaj in fair valuation territory at best. Maintain U-PF.
Strong 4Q results; commendable margins
Excl one-time items, Bajaj’s 4Q net profit at Rs6.8bn grew 27% YoY and was 3%
above estimates. EBITDA margins expanded 20 bps QoQ to 20.5% (7th quarter of
~20% margins) boosted by a 50 bps QoQ fall in RM/Sales. Reported net profit
was much higher at Rs14.0bn due to a one-time gain - early payment of sales tax
deferral loan to the government. Bajaj also took a one-time impairment charge of
Rs1bn for its Indonesian subsidiary, which is still loss-making.
Volume growth and margins to moderate in FY12
With car and CV growth having already slipped sharply, we believe that 2Ws will
be the next to fall, though expect a smaller moderation here due to the lower
sensitivity of 2Ws to interest rates (just a third of 2W sales are financed).
Management said that 1QFY12 growth has been boosted by a bunched-up
marriage season and that there could be some moderation 2Q onwards. Bajaj is
still targeting an aggressive total sales of 4.55m units in FY12 (19% growth); we
estimate a lower 11% growth to 4.23mn. In addition, the full impact of higher
steel and base metal prices will be felt in 1QFY12 and the price hikes taken over
Apr-May are not sufficient to offset the same. Bajaj also said that they will have to
choose between export volumes and margins if the DEPB benefits are removed
but indicated a preference for defending the latter.
Our bigger concern is rising competition FY13 onwards; maintain U-PF
By FY13, HMSI will have more capacity, and in all likelihood, will launch several
new bikes, some of which will compete with Bajaj. Hero Honda (HH) could also
turn more aggressive as it would not want to be seen as losing market share post
the split with Honda to maintain dealer/vendor morale. Over FY13-14, HH will also
target the same export markets that Bajaj currently rules. All this adds up to a
more challenging competitive environment for Bajaj post FY12, which we believe
will and is having an impact on multiples. We fine-tune our FY12-13 EPS upwards
by 1-3% factoring in higher 3W volumes but maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Good 4Q but headwinds ahead
Bajaj’s 4Q results were strong with EBITDA margins above 20% for the 7th
quarter in a row. However, we see headwinds ahead in the form of slowing
2W industry growth, input cost pressures and a potential removal of export
incentives. Slipping market-share in motorcycles is another cause for concern
and we are unsure of the prospects of the ‘Boxer 150CC’ to be launched soon.
On the positive side, 3W exports remain strong. More medium term, we worry
about the impact on Bajaj from a more aggressive HMSI in the domestic
market and from Hero Honda in export markets. Stock has come off but we
see Bajaj in fair valuation territory at best. Maintain U-PF.
Strong 4Q results; commendable margins
Excl one-time items, Bajaj’s 4Q net profit at Rs6.8bn grew 27% YoY and was 3%
above estimates. EBITDA margins expanded 20 bps QoQ to 20.5% (7th quarter of
~20% margins) boosted by a 50 bps QoQ fall in RM/Sales. Reported net profit
was much higher at Rs14.0bn due to a one-time gain - early payment of sales tax
deferral loan to the government. Bajaj also took a one-time impairment charge of
Rs1bn for its Indonesian subsidiary, which is still loss-making.
Volume growth and margins to moderate in FY12
With car and CV growth having already slipped sharply, we believe that 2Ws will
be the next to fall, though expect a smaller moderation here due to the lower
sensitivity of 2Ws to interest rates (just a third of 2W sales are financed).
Management said that 1QFY12 growth has been boosted by a bunched-up
marriage season and that there could be some moderation 2Q onwards. Bajaj is
still targeting an aggressive total sales of 4.55m units in FY12 (19% growth); we
estimate a lower 11% growth to 4.23mn. In addition, the full impact of higher
steel and base metal prices will be felt in 1QFY12 and the price hikes taken over
Apr-May are not sufficient to offset the same. Bajaj also said that they will have to
choose between export volumes and margins if the DEPB benefits are removed
but indicated a preference for defending the latter.
Our bigger concern is rising competition FY13 onwards; maintain U-PF
By FY13, HMSI will have more capacity, and in all likelihood, will launch several
new bikes, some of which will compete with Bajaj. Hero Honda (HH) could also
turn more aggressive as it would not want to be seen as losing market share post
the split with Honda to maintain dealer/vendor morale. Over FY13-14, HH will also
target the same export markets that Bajaj currently rules. All this adds up to a
more challenging competitive environment for Bajaj post FY12, which we believe
will and is having an impact on multiples. We fine-tune our FY12-13 EPS upwards
by 1-3% factoring in higher 3W volumes but maintain U-PF.
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