UBS :: Bajaj Auto Q 1FY12: Delivering inline

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UBS Investment Research
Bajaj Auto
Q 1FY12: Delivering inline
􀂄 Event: Sales, EBITDA, PAT inline with UBS-e
Net sales increased by 13%qoq to Rs 45.9bn (+23%YoY) vs UBS-e of Rs 46.3bn,
helped by 15%qoq growth in volumes. Domestic ASP declined 2%qoq on lower
3W mix while exports ASP was up 3%qoq. EBITDA margin declined 140bps qoq
due to sharp increase raw material cost inline with UBS-e of 19.8%. PAT was up
20%YoY to Rs 7.1bn inline with UBS-e of Rs 7.04bn.
􀂄 Impact: Margins likely to hold up despite rise in RM cost
Mgmt. expects the raw material cost per unit to remain in similar vicinity in
Q2FY12. The co. believes the domestic 2W demand environment remains stable.
Mgmt. expects domestic 3W shipments to increase in Q2 and the co. to continue to
outperform the industry growth. Mgmt. continues to maintain its guidance of 20%
overall growth for FY12.
􀂄 Action: Maintain Buy, Await more details on the Conf. call on 18 Jul
Q1 FY12 conf. call at 10:00 A.M. IST on 18th Jul (Mon); primary dial in: (+91 22)
6629 0048/ 3065 0020. We will look to revisit our nos. post the conference call.
We look for further clarity on the post DEPB scenario and export growth outlook.
􀂄 Valuation: Maintain Buy and PT of Rs.1,600
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.5%.


􀁑 Bajaj Auto
Bajaj Auto was India's largest two-wheeler manufacturer until 2000. It is present
in all product segments, including three-wheelers. Bajaj has a technical tie-up
with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
􀁑 Statement of Risk
We think key risks for Bajaj remain rising commodity prices, a potential price
war with Hero Honda in the domestic market, a sharp decline in 3W volumes,
and a drop in export sales