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EARNINGS REVIEW
Bajaj Auto (BAJA.BO)
Buy Equity Research
In line with expectations: Stable margins, seasonally weak quarter
What surprised us
Bajaj Auto reported 1QFY12 net income of Rs7.1 bn, up 21%yoy, 5%qoq and
in line with our and Bloomberg consensus estimates. EBITDA margin at
19.1% was about 38 bp below our estimate; as 1Q is seasonally weak from a
demand perspective and given the significant margin differential this
company enjoys relative to the industry, we do not view this miss as
significant. Bajaj Auto clocked quarterly sales volume of 1.1 mn units (up 18%
yoy) vs our annual FY12E estimate of 4.3 mn units. Raw material costs as
percentage of revenue stood at 75.6%, up 1.5 pp yoy and 2.6 pp qoq. This
was offset by higher volume growth particularly on the export side, with an
improvement in realization and product mix. We revise our FY12E/FY13E/
FY14E EPS by 1.9%/0.2%/3.6% mainly on incorporating the company’s FY11
annual report into our model and higher margin assumptions. 1Q reported
net income is about 23% of our full year FY12E estimates.
What to do with the stock
We maintain Buy with a revised 12-m FY12E P/E-based TP of Rs1,480 (from
Rs1,451, revision driven by similar change in earnings). We believe Bajaj
Auto’s margin leadership implies higher earnings resilience in the face of
slowing demand growth and increasing competition. We believe that
launch of Boxer 150 and a refreshed Pulsar range by September will drive
market share and act as catalysts for the stock. Key risks: Higher
competition and lower consumer confidence, any reduction in export
incentives which cannot be passed on.
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