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EARNINGS REVIEW
Bajaj Auto (BAJA.BO)
Buy Equity Research
Above expectations: strong pricing and lower costs drive margins
What surprised us
Bajaj Auto reported 2QFY12 net income (pre exceptional) of Rs8.2 bn, up
20% yoy, 15% qoq and higher than our and Bloomberg consensus
estimates by 7%. We believe the surprise was mainly driven by: a) higher
ASP (up 3% qoq), and b) lower raw material costs (down 3.5% qoq on per
unit basis, or 110bps improvement as percentage of revenue), driving
109bps qoq improvement in EBITDA margin. As per company, higher
realization from exports, operating leverage and lower promotional costs
benefited margins during the quarter. We revise our FY12E-14E EPS by
1%-4% mainly on higher volume, pricing and lower cost assumptions.
What to do with the stock
We maintain Buy rating with a revised 12-m FY13E P/E-based TP of
Rs1,886 (from Rs1,781, revision driven by similar change in FY13E EPS).
We believe Bajaj Auto screens as the most attractive Indian auto company
relative to our GS India coverage on Director’s Cut (“Two-wheelers:
Business model drives returns on capital; Buy Bajaj”, Oct 5 2011). We
believe Bajaj Auto is in a unique position to address the transportation
needs of consumers at the bottom of the global economic pyramid, in
lower income markets like South Asia, Africa and Latin America. Key risks:
a) Worse than expected inflation-rate cycle affecting demand, b) higher
than expected competition, particularly from Honda.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Bajaj Auto (BAJA.BO)
Buy Equity Research
Above expectations: strong pricing and lower costs drive margins
What surprised us
Bajaj Auto reported 2QFY12 net income (pre exceptional) of Rs8.2 bn, up
20% yoy, 15% qoq and higher than our and Bloomberg consensus
estimates by 7%. We believe the surprise was mainly driven by: a) higher
ASP (up 3% qoq), and b) lower raw material costs (down 3.5% qoq on per
unit basis, or 110bps improvement as percentage of revenue), driving
109bps qoq improvement in EBITDA margin. As per company, higher
realization from exports, operating leverage and lower promotional costs
benefited margins during the quarter. We revise our FY12E-14E EPS by
1%-4% mainly on higher volume, pricing and lower cost assumptions.
What to do with the stock
We maintain Buy rating with a revised 12-m FY13E P/E-based TP of
Rs1,886 (from Rs1,781, revision driven by similar change in FY13E EPS).
We believe Bajaj Auto screens as the most attractive Indian auto company
relative to our GS India coverage on Director’s Cut (“Two-wheelers:
Business model drives returns on capital; Buy Bajaj”, Oct 5 2011). We
believe Bajaj Auto is in a unique position to address the transportation
needs of consumers at the bottom of the global economic pyramid, in
lower income markets like South Asia, Africa and Latin America. Key risks:
a) Worse than expected inflation-rate cycle affecting demand, b) higher
than expected competition, particularly from Honda.
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