Bajaj Auto (BAL) reported Q1FY13 adjusted PAT of INR718mn (up 1% YoY, down 4.4% QoQ), largely in line with our expectation. As expected, EBITDA margin was lower at 17.9% (19.8% in Q4FY12) due to lower sales in export markets and poor product mix in the domestic market. We expect H2FY13 to be better than H1FY13 as: (i) new two wheeler launches gather momentum; (ii) export demand improves, and (ii) launch of RE60. INR depreciation has improved prospects of FY14 exports. Earnings conference call is scheduled on 19th July at 10:30 IST. Maintain ‘BUY’ with target price of INR1,830.
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Q1FY13 numbers: Largely in line
Weak product mix in terms of lower exports and lower three wheelers’ contribution affected margin adversely. BAL also gave an annual raise to employees, which increased staff cost 34% QoQ. As a result, EBITDA margin dipped 190bps QoQ to 17.9%. The company has taken a price hike of ~2% in the domestic market in July to mitigate input cost pressure. Total adjusted PAT at INR718mn (up 1% YoY and 4.4% QoQ) was largely in line with our expectation.
New launches, export revival, RE60 launch improve H2FY13 outlook
New launches in the domestic market, export revival and launch of RE60 improve H2FY13 sales outlook. Management expects export sales returning to normalcy from August 2012 on back of recent initiatives (price cut in Sri Lanka, demand revival in Egypt market etc). Sharp depreciation of INR improves outlook for exports and profitability for FY14, where the currency exposure is not hedged.
Outlook and valuations: Favourable; maintain ‘BUY’
BAL is one of India’s best export stories. INR depreciation and new launches have improved outlook for the company. We maintain’BUY/Sector Outperformer’ recommendation/rating on the stock with target price of INR1,830. We will revisit our earnings estimates post earnings conference call.
Regards,
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