Stays on course, Maintain Buy Bajaj Auto :: Centrum

Stays on course, Maintain Buy
Bajaj Auto (BAL) for 4QFY13 reported total operating income of Rs.48.4bn
(up 3% YoY but lower 12% QoQ) largely in line with our estimate of
Rs.48.6bn. EBITDA margin ( adjusted for gain of Rs.690mn of pre-payment of
sales tax deferral incentive) stood at 19.2% ( down 145bps YoY and 84bps
QoQ) lower compared to our estimate of 19.9% . Reported PAT stood at
Rs.7.7bn, higher by 4.3% vs. our est. on account of higher other income and
lower tax rate despite weaker operating performance. While the domestic
motorcycle growth is likely to remain moderate for FY14E, the company is
betting on Discover launches (6 new Discovers expected to be launched
starting in July) and aims at reviving its market share in the Executive
segment. However, it remains confident of achieving 10-12% volume growth
in domestic 3W segment for FY14E driven by its success in diesel 3W
segment, new upgrades by 2QFY14E and possible opening up of permits.
For exports, it has guided overall volume growth of 10-12% for FY14E. We
continue to remain positive on the stock and maintain our Buy rating with
revised target of Rs.2,132 driven by upward revision in earnings and roll
forward of valuations to FY15E from earlier Sept 2014.

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 Operational highlights: Revenues stood at Rs.48.4bn in line with our estimate.
Net realizations stood at Rs.47,400, up 6.8% YoY and up 0.7% QoQ, largely in line
with our expectations. While domestic realization stood at Rs.50,128 (up 10.5%
YoY and 5.8% QoQ), export realizations stood at Rs.42,794 (flat YoY but down 8%
QoQ). EBITDA margin ( adjusted for gain of Rs.690mn of pre-payment of sales tax
deferral incentive) stood at 19.2% ( down 145bps YoY and 84bps QoQ) lower
compared to our estimate of 19.9% .Reported PAT stood at Rs.7.7bn, higher 4.3%
vs. our est. on account of higher other income and lower tax rate despite weak
operating performance.
 Conference call highlights: 1.) Re/$ realization stood at 49.5 during 4QFY13
similar to 3QFY13, for FY13 Re/$ realization stood at 49.5 compared to 48.2 for
FY12. 2.) The company expects Re/$ realization at 54 for FY14E and Re/$ 55 for
FY15E. 3.) Pricing scenario continues to remain stable in the domestic motorcycle
segment. BAL has taken price hike in the range of Rs.500-Rs.1,000 across
motorcycle models effective from mid-April’13 5.) Overall KTM sales for FY13
stood at 25k (18k exports and 7k domestic) and targets to do 35k in FY14E (25k
exports and 10k domestic) 6. ) For FY13, it has incurred overall capex of Rs.7.4bn
(largely towards expansion at Waluj plant and towards R&D) and has guided for
capex of Rs.5-6bn over FY14E-FY15E.

 Valuations and Recommendations: At the CMP of Rs.1,833, the stock is
currently trading at 15.4x FY14E EPS of Rs.118.7 and 13x FY15E EPS of Rs.141.1.
We continue to maintain our Buy rating on the stock with a target price of
Rs.2,132 (based on 15x FY15E Core EPS + Rs.275 of Cash + Rs.66 of investments in
KTM).