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Bajaj Auto (BAL) reported marginally lower-than-expected results as the
company’s performance during 1QFY2012 was negatively impacted by a 1.8%
qoq drop in average net realisation despite price hikes and margin contraction of
145bp due to raw-material cost pressures. We revise our FY2012 and FY2013
earnings estimates downward by 4% and 8%, respectively, to factor in the
replacement of DEPB scheme by a duty drawback scheme post September 2011.
We maintain our Accumulate recommendation on the stock.
Net sales driven by volume growth; profitability impacted by cost pressures: BAL
reported slightly lower-than-expected top-line growth of 22.8% yoy (13.7%
qoq) to `4,777cr, driven by a 17.7% yoy (15.3% qoq) jump in volumes.
The variance was due to lower average net realisation, which declined by
1.8% qoq despite average price hikes of ~2% during the quarter. Two-wheeler
sales grew by 16.3% yoy, with Pulsar and Discover contributing ~65% of sales.
EBITDA margin came in 71bp below our estimate at 19.1%, registering a fall
of 91bp yoy (145bp qoq). This was a result of higher raw-material costs,
which increased by 150bp yoy (210bp qoq). This was the first time in the last
eight quarters when the company’s margin came in below the 20% mark. As a
result, net profit came in lower than expected at `711cr, registering growth of
20.5% yoy (5.2% qoq).
Outlook and valuation: We factor in the replacement of DEPB scheme by a duty
drawback scheme post September 2011, which will result in export incentives of
1% as compared to 9% under the DEPB scheme. Hence, we expect a ~175bp
contraction in operating margins and a ~8% decline in earnings. At `1,431, the
stock is trading at 14.2x FY2013E earnings. We maintain our Accumulate view on
the stock with a target price of `1,512, valuing it at 15x FY2013E earnings.
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