Bajaj Auto -Lower Pulsar sales drive margin down -- Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Bajaj Auto
Lower Pulsar sales drive margin down
Event
 Bajaj Auto reported 1QFY12 results with revenue growth of 23% and net profit
growth of 20%. Reported PAT of Rs7.1bn was in line with our estimates, but
3% below consensus expectations. Bajaj’s realisations declined 3% QoQ
(despite price hikes in April and May) due to a 3% decline in the domestic
realisation because of lower share of Pulsar, Bajaj’s premium segment bike.
 We downgrade Bajaj Auto to Neutral from Outperform. Our revised target
price of Rs1,560 (previously Rs1,650) provides 9% potential upside.
Impact
 Strong volumes, but realisations marginally lower. Revenue growth of
23% YoY was led by 18% growth in volumes and 3.3% growth in realisations.
Realisation of Rs43,863/vehicle was 3.3% lower QoQ, due to a decline of
3.2% in the domestic realisations. Additionally, the share of exports, which
has lower average realisation, has increased to 39% from 29% in 4QFY11.
 Decline in Pulsar volumes led to lower domestic realisations. Bajaj’s
domestic 2-wheeler sales growth was driven by the executive segment bike
Discover (+35% YoY and +8% QoQ). However, the premium segment bike
Pulsar declined 17% YoY and 18% QoQ. The economy segment (Platina)
was flat YoY and up 8% QoQ.
 Operating margins marginally lower than expectations. Bajaj reported
EBITDA margin of 19.1%, which was 90bp lower YoY and 140bp QoQ.
Margins were impacted by increase in raw material costs, due to rise in
commodity costs and unfavourable product mix (lower Pulsar sales).
 Key monitorables: New product launches and clarity on DEPB. Bajaj has
plans to launch Boxer 150 and a new Pulsar over the next 3–4 months. We
believe the success of new Pulsar will be important to rejuvenate the brand
and thus improve the margins. Boxer 150 is likely to be targeted at the volume
segment and will have lower margins. We expect the Duty Entitlement Pass
book scheme (DEPB) to be discontinued from October and replaced by an
alternative scheme whereby the benefit available to Bajaj will reduce by 50%.
Earnings and target price revision
 We have cut our earnings estimate for FY12E by ~5% as we factor in lower
margins due to shift in product mix and discontinuation of DEPB scheme.
Price catalyst
 12-month price target: Rs1,560.00 based on a DCF methodology.
 Catalyst: Announcement on DEPB scheme and success of new products.
Action and recommendation
 Bajaj is our preferred pick in the two-wheeler space over Hero Honda (HH IN,
Rs1,852, Underperform, TP: Rs1,550). Bajaj is trading at 13.6x FY12E PER
that is 20% discount to Hero Honda. However, we see limited upside in the
stock until clarity on DEPB emerges.