Bajaj Auto Ltd. | Q2FY15 Concall Update | EBITDA margin and adjusted PAT above expectation | Maintain BUY rating on the stock with target price of Rs. 2,556:: IndiaNivesh

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Bajaj auto Adjusted Q2FY15 PAT number was above our expectation. Reported PAT
decreased by 29% YoY and 20% QoQ to Rs. 5.9 bn, dragged by one time penalty
imposed by the Uttarakhand High Court over non-payment of duties. According to
the order the levy of National Calamity Contingent Duty (NCCD) is out of the purview
of the exemptions granted to the company under the scheme of incentives provided
to industries in the state of Uttarakhand. The penalty is calculated for the last seven
and half years starting April 1, 2007. Further, during the quarter the company
incurred Rs. 674 mn as forex loss and contributed Rs. 216.8 mn in CSR activities.
However, Adjusted PAT (excluding exceptional item and forex loss) stood at Rs 10.2
bn, higher than our expectation of Rs 8.2bn. Revenue increased by 15.1% YoY and
14% Q-o-Q to Rs. 58.26 bn (above our expectation of Rs. 55.52 bn) due to higher
than expected average realization led by higher exports and 3W sales. Exports
continue to do well with 29% YoY volume growth to 0.536 mn units as compared to
4% de-growth in Domestic volumes. Average net realization went up by 5% YoY and
6% QoQ to Rs 55,200 due to favorable currency better product and geographical
mix. EBITDA margin expanded by 132 bps QoQ to 19.3 %( vs. our expectation of
19.1%) driven by higher net realization and favorable currency movement
Key take-ways from con-call
 Rising exports, higher 3W and better realization helped Bajaj Auto to report a
strong quarter performance despite de-growth in the domestic market.
 Management highlighted that demand and margin outlook for 3W business
appears healthy. 3W volume grew 40% in Q2FY15 on the back of permits by
Maharashtra Government and strong sales in diesel segment. Diesel segment’s
3W market share of Bajaj Auto increased to 32% in Q2FY15 (from 25% in
Q2FY14). In addition, volume growth would continue to be robust on the
back of opening of new permits of Delhi and Hyderabad
 Export growth remained healthy 29% YoY in Q2FY15 and management believes
export growth would be continuing on the back of strong growth in Iran and
African market, expect 18-20% volume growth for FY15. The company has
entered Ghana and Argentina in recent months.
 Management has guided 15% and 25-30% volume growth for Pulsar and KTM
brand respectively for FY15. New Pulsars are doing very well, Pulsar market
share is back to about 45-46 percent in September which is pretty close to a
two-year high. Bajaj Auto has planned two new launches over the next four
months. The company expects its Pulsar to clock 60,000-65,000 units per
month going ahead.
 Management expects Discover volumes to improve on the back of impressive
growth of new discover 150CC. Expect H2FY15 volumes would pick-up
significantly.
 During the festive season Bajaj Auto’s average inventory days has been in the
range of 21 to 30 days.
 The company’s export realization was Rs. 61.5/USD in Q2FY15 vs 59.9/USD in
Q1FY15 and expects realization of 62/USD in H2FY14. The company has hedged
65% of FY15 exports at lower end of Rs60/USD. For FY16 hedged close to 60
percent of its requirement at over 63/USD.
Valuation: With its specialization strategy and focused approach, Bajaj auto aims
to garner a higher share of the global motorcycle market together with industry
leading profitability. Bajaj Auto would benefit on (a) upgrading in the domestic
motorcycle market, driven by economic recovery, and (b) revival in exports which
could offset the negative of absence in scooters. Further Bajaj Auto will have the
first mover advantage in launch of quadricycle (expected in October 2014) in India.
At CMP of Rs 2,363 the stock is trading at PE multiple of 16.7x FY16E EPS. We maintain
BUY rating on the stock with target price of Rs. 2556 (18x FY16E EPS).

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