Bajaj Auto Ltd.|Q2FY15 First Cut Analysis | 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. We will come with the detailed analysis after the Con-call scheduled dated
16th October 2014.

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 2410 the stock is trading at PE multiple of 17x FY16E EPS. We maintain BUY
rating on the stock with target price of Rs. 2556 (18x FY16E EPS).

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