Bajaj Auto 1QFY12 Results First Take: EBITDA Margin disappoints ::JPMorgan

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Bajaj Auto Neutral
BAJA.BO, BJAUT IN
1QFY12 Results First Take: EBITDA Margin
disappoints


 1QFY12 Results highlights: The company reported 1Q PAT at Rs.7.1B
(+20% yoy), which was broadly inline with our estimates (but below
consensus estimates). The EBITDA margin came in lower than our
estimates though at 19.1% (-140bp qoq). This was offset by lower tax
rates, which came in at 25.4% (-320bp yoy).
 Revenues: Bajaj Auto has reported unit sales growth of 18% yoy - led
by strong growth exports (+32% yoy), while domestic segment growth
has moderated to 10% yoy. Thus, while the blended market share in
motorcycles has held up at 32.7%, the OEM has ceded c.200bp share in
the domestic market. Product realizations have declined by -1% qoq,
given growing share of the executive segment ‘Discover’ bikes in the
product mix. The OEM reported revenues of Rs.47.7B (+23% yoy and
+14% qoq).
 EBITDA margins: 1Q margins at 19.1% (-140bp qoq) were below our
estimates. The variance was led by higher raw material cost ratio at
72.6% (+170bp qoq) given higher commodity prices. (While commodity
prices have eased off in the current quarter, the benefits will likely pass
through with a lag).
 While other income at Rs.731m declined -11% yoy, lower depreciation
charges at Rs.306m (-4% yoy) and lower tax rates at 25.4% (-320bp yoy)
offset the impact of the above.
 We await guidance from the management regarding a) outlook on
domestic segment industry growth and Bajaj’s market share targets
herein b) the DEPB scheme and the potential impact on profitability c)
outlook on margins. The company will be hosting its conference call on
July 18th at 10am. Dial in nos +91 22 3065 0020 / +91 22 6629 0048.
We are Neutral on the stock given that industry growth rates are likely to
moderate and competitive intensity is likely to increase.