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Bajaj Auto
Easing momentum
Bajaj's EBITDA for 4Q was in line, but PAT surprised on lower depreciation and
higher other income. We raise our EPS slightly on better currency hedging rates.
We expect Bajaj's market share to remain under pressure given Hero Honda's
aggression since its split with Honda, leading to pressure on profitability. Sell.
4Q results – easing profitability momentum
For 4Q, Bajaj’s parent recorded 16.8% yoy growth in normalised PAT to Rs6.75bn on 23.5%
growth in net sales to Rs42bn, but the results were flat qoq. The 4% surprise in EBITDA was
boosted by lower depreciation and higher other income at the PAT level. The EBITDA margin
was maintained above 20%. Higher employee costs (22% qoq growth) were caused by the
Waluj plant wage settlement and performance bonus provision for FY12. Reported PAT was
boosted by profit from the early payment of a sales tax deferral loan. In FY11, associate
company KTM Austria turned around into profit.
Better-than-expected currency hedging rates, boosts EPS marginally
We retain our sales volume estimate, which is below management guidance for twowheelers as we believe Hero Honda aggression in the domestic market after its split from
Honda will continue to put pressure on Bajaj’s market share. The new product plan may bring
only marginal relief from this. However, building in better-than-expected currency hedging for
its exports (28% of sales) at Rs47/USD, we marginally upgrade EPS (4%). The capex for
four-wheelers and growth in regulated three-wheelers are key risks to our estimates.
Maintain Sell as market share and profit-after-tax momentum slowly decline
Hero Honda has surprised the market with its sharp market share gain in recent months as it
overcomes capacity constraints to feed the high-growth North Indian markets. This affected
Bajaj which, despite new launches, saw its market share slip to 18.8% of domestic twowheelers in April 2011 vs 21.3% in 1H11. With the relatively higher sensitivity of demand for
Bajaj vehicles to rising fuel prices and interest rates, we expect Bajaj to underperform Hero
Honda in the current scenario. With our EPS estimate 4-5% below Bloomberg consensus,
we reiterate our Sell rating, as easing PAT growth momentum to a CAGR of just 9.6% for
FY11-13F, coupled with a high risk of DEPB withdrawal (12% of PBT) will take a toll. We
have adjusted our target price to reflect the slow EPS CAGR
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Auto
Easing momentum
Bajaj's EBITDA for 4Q was in line, but PAT surprised on lower depreciation and
higher other income. We raise our EPS slightly on better currency hedging rates.
We expect Bajaj's market share to remain under pressure given Hero Honda's
aggression since its split with Honda, leading to pressure on profitability. Sell.
4Q results – easing profitability momentum
For 4Q, Bajaj’s parent recorded 16.8% yoy growth in normalised PAT to Rs6.75bn on 23.5%
growth in net sales to Rs42bn, but the results were flat qoq. The 4% surprise in EBITDA was
boosted by lower depreciation and higher other income at the PAT level. The EBITDA margin
was maintained above 20%. Higher employee costs (22% qoq growth) were caused by the
Waluj plant wage settlement and performance bonus provision for FY12. Reported PAT was
boosted by profit from the early payment of a sales tax deferral loan. In FY11, associate
company KTM Austria turned around into profit.
Better-than-expected currency hedging rates, boosts EPS marginally
We retain our sales volume estimate, which is below management guidance for twowheelers as we believe Hero Honda aggression in the domestic market after its split from
Honda will continue to put pressure on Bajaj’s market share. The new product plan may bring
only marginal relief from this. However, building in better-than-expected currency hedging for
its exports (28% of sales) at Rs47/USD, we marginally upgrade EPS (4%). The capex for
four-wheelers and growth in regulated three-wheelers are key risks to our estimates.
Maintain Sell as market share and profit-after-tax momentum slowly decline
Hero Honda has surprised the market with its sharp market share gain in recent months as it
overcomes capacity constraints to feed the high-growth North Indian markets. This affected
Bajaj which, despite new launches, saw its market share slip to 18.8% of domestic twowheelers in April 2011 vs 21.3% in 1H11. With the relatively higher sensitivity of demand for
Bajaj vehicles to rising fuel prices and interest rates, we expect Bajaj to underperform Hero
Honda in the current scenario. With our EPS estimate 4-5% below Bloomberg consensus,
we reiterate our Sell rating, as easing PAT growth momentum to a CAGR of just 9.6% for
FY11-13F, coupled with a high risk of DEPB withdrawal (12% of PBT) will take a toll. We
have adjusted our target price to reflect the slow EPS CAGR
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