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Bajaj's 2Q PBT result was 5% higher than our forecast as its EBITDA margin recovered to 20%
on strong product mix. Building in recent vehicle price hikes and easing commodity costs, we
marginally raise our EPS forecast. Given rich valuations and increasing competition, we remain
cautious and maintain a Sell.
Marginal surprise in 2QFY12 results
For 2QFY12, Bajaj recorded 18.4% yoy and 16.1% qoq increases in normalised EPS to Rs28.5
on the back of a 6.5% qoq increase in sales volume and a 100bp EBITDA margin increase to
20.1%. Adjusting for a one-time depreciation and interest expenses impact of Rs290m, PBT was
5% higher than our forecast. However, due to Rs954m mark-to-market losses of its large export
hedges, reported PAT was Rs7.26bn, for growth of 6.4% yoy and 2.1% qoq.
We marginally revise our EPS forecasts to reflect recent price hikes
We maintain our FY12 sales volume forecast at 16.2% yoy growth. Except for export sales
volume, the rest of the both segments’ performance was in line with our expectations. We expect
domestic sales growth to ease after the festival season, from 2Q growth of just 8.8% yoy. A
reduction in export incentives prompting Bajaj’s 3.5% price hike from 1 October may limit export
volume growth short term, as it was already flat qoq in the 2Q. However, building in the benefit of
the recent price hike in domestic and export markets, easing commodity prices and a 100bp hike
in focus market incentive, we raise our EPS forecasts 4% for FY12 and 2% for FY13.
Limited positive surprises in offering; we recommend Sell
After disappointing 1Q results, Bajaj impressively bounced back in the 2Q to its peak
performance margin of 20%. We believe this is already well captured in a sharp 25%
outperformance in the past three months. At CMP and based on our forecasts, the stock trades at
14.7x FY13F, relatively rich vs industry leader Hero Motocorp (13.2x), but we think earnings
surprises and upgrades are tilted towards Hero. Hence, we prefer Hero Motocorp in the twowheeler
space and maintain a Sell on Bajaj. We raise our TP as we shift our PE-based valuation
to FY13F, keeping our target FY12 PE intact at 11x to reflect an EPS CAGR of 10.7% for FY11-
13F. This reflects potential downside of 24% from the CMP. The rich P/BV valuation vs the mean
valuation is also a concern to us.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj's 2Q PBT result was 5% higher than our forecast as its EBITDA margin recovered to 20%
on strong product mix. Building in recent vehicle price hikes and easing commodity costs, we
marginally raise our EPS forecast. Given rich valuations and increasing competition, we remain
cautious and maintain a Sell.
Marginal surprise in 2QFY12 results
For 2QFY12, Bajaj recorded 18.4% yoy and 16.1% qoq increases in normalised EPS to Rs28.5
on the back of a 6.5% qoq increase in sales volume and a 100bp EBITDA margin increase to
20.1%. Adjusting for a one-time depreciation and interest expenses impact of Rs290m, PBT was
5% higher than our forecast. However, due to Rs954m mark-to-market losses of its large export
hedges, reported PAT was Rs7.26bn, for growth of 6.4% yoy and 2.1% qoq.
We marginally revise our EPS forecasts to reflect recent price hikes
We maintain our FY12 sales volume forecast at 16.2% yoy growth. Except for export sales
volume, the rest of the both segments’ performance was in line with our expectations. We expect
domestic sales growth to ease after the festival season, from 2Q growth of just 8.8% yoy. A
reduction in export incentives prompting Bajaj’s 3.5% price hike from 1 October may limit export
volume growth short term, as it was already flat qoq in the 2Q. However, building in the benefit of
the recent price hike in domestic and export markets, easing commodity prices and a 100bp hike
in focus market incentive, we raise our EPS forecasts 4% for FY12 and 2% for FY13.
Limited positive surprises in offering; we recommend Sell
After disappointing 1Q results, Bajaj impressively bounced back in the 2Q to its peak
performance margin of 20%. We believe this is already well captured in a sharp 25%
outperformance in the past three months. At CMP and based on our forecasts, the stock trades at
14.7x FY13F, relatively rich vs industry leader Hero Motocorp (13.2x), but we think earnings
surprises and upgrades are tilted towards Hero. Hence, we prefer Hero Motocorp in the twowheeler
space and maintain a Sell on Bajaj. We raise our TP as we shift our PE-based valuation
to FY13F, keeping our target FY12 PE intact at 11x to reflect an EPS CAGR of 10.7% for FY11-
13F. This reflects potential downside of 24% from the CMP. The rich P/BV valuation vs the mean
valuation is also a concern to us.
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