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Bajaj Auto (BJAUT)
Automobiles
Adverse swing in product mix impacted EBITDA margins. Bajaj Auto 1QFY12
profits of Rs7.11 bn (+21% yoy, +5% qoq) were 7% below our estimates and 4%
below consensus estimates due to lower-than-estimated average selling price, higher
raw material costs and lower other income. EBITDA margins came in at 19.1% (110 bps
below our estimates) driven by adverse swing in product mix. We maintain our ADD
rating on the stock due to strong volume growth outlook
Decline in premium segment motorcycle volumes impacted EBITDA margins
�� Bajaj Auto 1QFY12 profits of Rs7.11 bn (+21% yoy; +5% qoq) were 7% below our estimates
and 4% below consensus estimates. Revenues grew by 23% yoy but were 2% below our
estimates due to adverse swing in product mix. Raw material costs as a percentage of net sales
increased to 72.6% in 1QFY12 (170 bps increase qoq) driven by inferior product mix and
increase in raw material costs during the quarter. Other income was also lower by Rs319 mn
than our estimate.
�� Domestic premium motorcycle segment declined by 18% qoq as the company lost 3.6%
market share qoq primarily to Yamaha Motors. Yamaha Motors has gained 7.2% market share
in the premium segment over the last 12 months from Bajaj Auto. Bajaj plans to launch Boxer
150cc in 2QFY12E and new Pulsar variants in 3QFY12E which should help the company in
increasing its market share in 2HFY12E, in our view.
�� Domestic motorcycle volumes were up 10% yoy driven by 36% yoy increase in the Discover
volumes (100, 125 and 150cc). Economy segment bikes declined by 5% yoy in 1QFY12 as
customers shifted to executive segment bikes.
�� Export volumes were robust (+32% yoy) while export revenues increased by 40% yoy indicating
that the pricing/mix improved by 8% yoy in 1QFY12. Export average selling price increased by
3% qoq indicating strong demand/pricing environment in the export markets.
�� We believe 1HFY12E EBITDA margins will remain under pressure and expect improvement in
EBITDA margins in 2HFY12E driven by increase in market share in the premium motorcycle
segment and moderation in raw material costs. We retain our EBITDA margin assumptions of
19.2% for FY2012E. We maintain our ADD rating on the stock with a target price of Rs1,550
(based on 14X FY2013E EPS).
Adverse swing in product mix and higher raw material cost impacted profits
�� Bajaj Auto 1QFY12 profits of Rs7.11 bn (+21% yoy; +5% qoq) were 7% below our
estimates and 4% below consensus estimates. Revenues grew by 23% yoy but were 2%
below our estimates due to adverse swing in product mix. Raw material costs as a
percentage of net sales increased to 72.6% in 1QFY12 (170 bps increase qoq) driven by
inferior product mix and increase in raw material costs during the quarter. Staff costs
increased by 10% yoy and were slightly below our estimates. Tax rate came in at 25.4%
below our estimate of 28%.
�� EBITDA margins came in at 19.1% (-140 bps qoq; -90 bps yoy) which was impacted by
higher share of economy and executive bikes in the product mix.
�� Domestic premium motorcycle segment declined by 18% qoq as the company lost 3.6%
market share qoq primarily to Yamaha Motors in the premium segment. Yamaha Motors
has gained 7.2% market share in the premium segment over the last 12 months from
Bajaj Auto.
�� Domestic motorcycle volumes were up 10% yoy driven by 36% yoy increase in the
Discover volumes (100, 125 and 150cc). Economy segment motorcycles declined by 5%
yoy in 1QFY12 as customers shifted to executive segment motorcycles.
�� Export volumes were robust (+32% yoy) while export revenues increased by 40% yoy
indicating that the pricing/mix improved by 8% yoy in the quarter. Export average selling
price increased by 3% qoq indicating strong demand/pricing environment in the export
markets.
�� 3-wheeler volumes also increased at a robust pace of 30% yoy driven by 42% yoy
increase in export volumes while domestic 3-wheeler volumes were up 10.4% yoy.
�� The company had increased prices by 1.5% in the domestic market in April 2011 and by
3% in the export markets in May 2011. Domestic average selling prices declined by 0.7%
qoq despite the price increase taken in April 2011 due to inferior product mix.
�� The company plans to launch Boxer 150cc in 2QFY12E and new Pulsar variants in
3QFY12E which should help in improving company’s market share in 2HFY12E, in our
view. However, we expect export volume growth to slow down in 2HFY12E after clarity
on DEPB emerges in September 2011.
�� We believe 1HFY12E EBITDA margins will remain under pressure and expect an
improvement in EBITDA margins in 2HFY12E driven by increase in market share in the
premium motorcycle segment and moderation in raw material costs. We retain our
EBITDA margin assumptions of 19.2% for FY2012E. We maintain our ADD rating on the
stock with a target price of Rs1,550 (based on 14X FY2013E EPS).
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