Bajaj Auto
Valuations attractive; Buy
Key takeaways
Weak demand. In 3QFY14, demand for Bajaj Auto’s motorcycles remained
weak owing to intense competition. During the quarter, its total sales were
down 11.9% yoy; motorcycles declined 10% and three wheelers 25.1%, yoy.
We expect stability in volumes hereon, with the worst part of volume decline
likely to be over. We expect better exports in CY14, along with arresting of
the slide in market share.
Stable EBITDA margin. We expect a 2.1% dip in income, to `53bn, but a
17.7% yoy improvement in EBITDA to `11.9bn. Our EBITDA margin
expectation is 22.5% (380bps higher yoy, stable qoq). We expect the
EBITDA per vehicle to grow 33.6% yoy, but decline 1.6% qoq. The
contribution per vehicle is expected to be higher 32.1% yoy. Our tax-rate
expectation is 31%, which would be 80bps higher yoy. We also expect nonoperating income to be lower 10% yoy. This would lead to a relatively lower
11.8% yoy growth in the adjusted profit, to `9.2bn, with a 17.3% net profit
margin (up 220bps yoy). The adjusted profit per vehicle is expected to be
26.8% higher yoy.
Our take. For 4QFY14, the demand outlook remains unexciting (residual
growth estimate 3.5%). Dec ‘13 performance indicates that motorcycle market
share loss persisted (423bps lower in Apr-Nov ’13). However, we believe that
the worse performance is now factored in the estimates and stock price. The
key positives are sustained better export realisations yoy and a higher share of
exports in the product mix. Recovery in three-wheeler sales ahead would be
an added positive. We have a Buy recommendation on the stock. At our price
target, the stock would trade at PE of 15.8x FY15e. The stock is also trading
lower to its past three-year average EV/EBITDA multiple. Risks. Later-than
expected demand recovery, problems in export destinations, unfavourable
forex movements, and higher commodity prices.
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Valuations attractive; Buy
Key takeaways
Weak demand. In 3QFY14, demand for Bajaj Auto’s motorcycles remained
weak owing to intense competition. During the quarter, its total sales were
down 11.9% yoy; motorcycles declined 10% and three wheelers 25.1%, yoy.
We expect stability in volumes hereon, with the worst part of volume decline
likely to be over. We expect better exports in CY14, along with arresting of
the slide in market share.
Stable EBITDA margin. We expect a 2.1% dip in income, to `53bn, but a
17.7% yoy improvement in EBITDA to `11.9bn. Our EBITDA margin
expectation is 22.5% (380bps higher yoy, stable qoq). We expect the
EBITDA per vehicle to grow 33.6% yoy, but decline 1.6% qoq. The
contribution per vehicle is expected to be higher 32.1% yoy. Our tax-rate
expectation is 31%, which would be 80bps higher yoy. We also expect nonoperating income to be lower 10% yoy. This would lead to a relatively lower
11.8% yoy growth in the adjusted profit, to `9.2bn, with a 17.3% net profit
margin (up 220bps yoy). The adjusted profit per vehicle is expected to be
26.8% higher yoy.
Our take. For 4QFY14, the demand outlook remains unexciting (residual
growth estimate 3.5%). Dec ‘13 performance indicates that motorcycle market
share loss persisted (423bps lower in Apr-Nov ’13). However, we believe that
the worse performance is now factored in the estimates and stock price. The
key positives are sustained better export realisations yoy and a higher share of
exports in the product mix. Recovery in three-wheeler sales ahead would be
an added positive. We have a Buy recommendation on the stock. At our price
target, the stock would trade at PE of 15.8x FY15e. The stock is also trading
lower to its past three-year average EV/EBITDA multiple. Risks. Later-than
expected demand recovery, problems in export destinations, unfavourable
forex movements, and higher commodity prices.
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