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With limited scope of appreciation from current levels, we downgrade our rating to REDUCE (from Accumulate) but raise our PT to Rs1,659 (from Rs1,528).
We model in a revenue CAGR of 18% over FY11-13E, led by volume CAGR of 16% for motorcycles (MC) and 18% for three-wheelers (3-W). We estimate an EBITDA margin of 19.3% in FY13E, leading to a 14% earnings CAGR during FY11-13E.
We expect cash on books to inflate to ~Rs65 bn by FY13E, reducing ROCE to ~62% vs ~80% for Hero Motocorp (HMCL IN), thereby reducing the possibility of a re-rating from current levels led by the shrinking of valuation gap with HMCL.
Exports drive 17% YTD volume growth; domestic MC market share drops by ~170bp to ~26% y-y: Domestic MC volume of BJAUT is up ~9% YTD vs industry growth of ~16%, losing share by ~170bp to 26% y-y. Export MC volume is up 32% YTD, which we believe is not sustainable in the longer run. We model in volume CAGR of 9.5% and 31.0% for MC in the domestic and export markets, respectively in FY11-13E. 3-W volume is up 23% YTD, led by exports volume growth of 43% and domestic volume contraction of 3%. We model in an overall 3-W volume CAGR of 18% over FY11-13E, led by a volume CAGR of 5% and 28% in the domestic and export markets, respectively. We estimate volume at 4.6 mn and 5.1 mn in FY12 and FY13 (against 4.4 mn and 4.9 mn earlier), respectively, leading to a revenue CAGR of 18% over FY11-13E to Rs230 bn in FY13E.
Negative drivers of margin outweigh positive drivers; model in a 19% EBITDA margin in FY13E: We expect negative margin drivers such as weaker product mix, the reduction in export benefits and the need for higher sales expenditure led by rising competition to outweigh positive margin drivers like a potential fall in raw material costs, a depreciating rupee and better operating leverage. We believe revenue contribution of the Pulsar brand is gradually dropping, being substituted by new lower margin models/variants like Discover and Boxer. Additionally, we expect 3-W volume growth to peak in FY12, thereby worsening product mix. We have factored in benefits of 6% of export value against existing ~10%. We are increasing our EBITDA margin estimates for FY12/13E by 10/50bp respectively led by swift weakening in INR thus increasing our earning estimates by 7.6%/8.2% for FY12/13E respectively.
Lower capex need & ~40-50% dividend payout to lead to rising cash on hand, reducing scope of re-rating: We expect cash on books to reach Rs65 bn by FY13E after factoring in capex of Rs7.5 bn and a dividend payout of ~60% over FY12-13E, leading to ROCE dropping to ~62% in FY13E from ~68% in FY11. We believe BJAUT can deliver a ~80% ROCE comparable with industry leader HMCL, by increasing dividend payout to ~80%-plus levels. We think this can a possible trigger for incremental re-rating of BJAUT, shrinking the EV/EBITDA gap with HMCL further from the mean levels of 25%.
Valuation: We downgrade BJAUT to REDUCE from Accumulate with a revised 12-month PT of Rs1,659 (from Rs1,528) based on 13.5x FY13E core earnings (from 9x FY13E EV/EBITDA) and a Rs36/share value of its stake in KTM AV. We have chosen core earnings multiple to calculate our PT to keep parity with HMCL. At our revised price target, BJAUT would be trading at ~9.5x FY13E EV/EVITDA.
Risks: No reduction in export benefits, the continuation of 30%-plus in export volume, recovery in domestic three-wheelers sales growth to 10-12% levels, a sharp fall in input commodity costs and a depreciating rupee are key risks to our call.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
With limited scope of appreciation from current levels, we downgrade our rating to REDUCE (from Accumulate) but raise our PT to Rs1,659 (from Rs1,528).
We model in a revenue CAGR of 18% over FY11-13E, led by volume CAGR of 16% for motorcycles (MC) and 18% for three-wheelers (3-W). We estimate an EBITDA margin of 19.3% in FY13E, leading to a 14% earnings CAGR during FY11-13E.
We expect cash on books to inflate to ~Rs65 bn by FY13E, reducing ROCE to ~62% vs ~80% for Hero Motocorp (HMCL IN), thereby reducing the possibility of a re-rating from current levels led by the shrinking of valuation gap with HMCL.
Exports drive 17% YTD volume growth; domestic MC market share drops by ~170bp to ~26% y-y: Domestic MC volume of BJAUT is up ~9% YTD vs industry growth of ~16%, losing share by ~170bp to 26% y-y. Export MC volume is up 32% YTD, which we believe is not sustainable in the longer run. We model in volume CAGR of 9.5% and 31.0% for MC in the domestic and export markets, respectively in FY11-13E. 3-W volume is up 23% YTD, led by exports volume growth of 43% and domestic volume contraction of 3%. We model in an overall 3-W volume CAGR of 18% over FY11-13E, led by a volume CAGR of 5% and 28% in the domestic and export markets, respectively. We estimate volume at 4.6 mn and 5.1 mn in FY12 and FY13 (against 4.4 mn and 4.9 mn earlier), respectively, leading to a revenue CAGR of 18% over FY11-13E to Rs230 bn in FY13E.
Negative drivers of margin outweigh positive drivers; model in a 19% EBITDA margin in FY13E: We expect negative margin drivers such as weaker product mix, the reduction in export benefits and the need for higher sales expenditure led by rising competition to outweigh positive margin drivers like a potential fall in raw material costs, a depreciating rupee and better operating leverage. We believe revenue contribution of the Pulsar brand is gradually dropping, being substituted by new lower margin models/variants like Discover and Boxer. Additionally, we expect 3-W volume growth to peak in FY12, thereby worsening product mix. We have factored in benefits of 6% of export value against existing ~10%. We are increasing our EBITDA margin estimates for FY12/13E by 10/50bp respectively led by swift weakening in INR thus increasing our earning estimates by 7.6%/8.2% for FY12/13E respectively.
Lower capex need & ~40-50% dividend payout to lead to rising cash on hand, reducing scope of re-rating: We expect cash on books to reach Rs65 bn by FY13E after factoring in capex of Rs7.5 bn and a dividend payout of ~60% over FY12-13E, leading to ROCE dropping to ~62% in FY13E from ~68% in FY11. We believe BJAUT can deliver a ~80% ROCE comparable with industry leader HMCL, by increasing dividend payout to ~80%-plus levels. We think this can a possible trigger for incremental re-rating of BJAUT, shrinking the EV/EBITDA gap with HMCL further from the mean levels of 25%.
Valuation: We downgrade BJAUT to REDUCE from Accumulate with a revised 12-month PT of Rs1,659 (from Rs1,528) based on 13.5x FY13E core earnings (from 9x FY13E EV/EBITDA) and a Rs36/share value of its stake in KTM AV. We have chosen core earnings multiple to calculate our PT to keep parity with HMCL. At our revised price target, BJAUT would be trading at ~9.5x FY13E EV/EVITDA.
Risks: No reduction in export benefits, the continuation of 30%-plus in export volume, recovery in domestic three-wheelers sales growth to 10-12% levels, a sharp fall in input commodity costs and a depreciating rupee are key risks to our call.
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