Export performance aids beat! • Bajaj Auto :: ICICI Securities, report

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Export performance aids beat!
• Bajaj Auto (BAL) reported revenues of | 5657.2 crore vs. our estimate
of | 5658.6 crore (YoY increase of ~10.2%) owing to a better product
mix aiding realisation growth of ~9% YoY (| 58,237/unit)
• Reported EBITDA margins came in at 21.7% (down ~44 bps YoY)
higher than our estimate of 19.6%. Even adjusting for the forex gain
of ~| 79 crore (accounted under other expenses), margins were
ahead of estimates at 20.3%
• A lower-than-expected other income at | 95.3 crore led to reported
PAT of ~| 861 crore, lower than our estimate of | 926.4 crore
Management expects to sandwich competitors with clear positioning
The management is aiming to increase the domestic market share in the
motorcycle space to 24% cumulating ~218,000 monthly units (increase of
6% from YTD levels). This can be further segregated into market share
gains in the commuter space via Platina (expect volumes to rise 70%
from YTD levels to 70,000 units) and premium space via Pulsar (expect
volumes to rise 30% from YTD levels to ~78,000 units). BAL is aiming to
pull customers away from Hero’s bread and butter segment
(Splendor/Passion) either down to Platina or up to 150 cc Discover. The
new Platina variant aided by self start capability, new family of Pulsars
[(Adventure sport (150cc), Super Sport (200cc), Cruiser Sport (400 cc)] is
expected to increase both appeal and volumes.
Export momentum to remain strong!
On exports, the management is aiming to double exports from the
current 1.9 million units in the coming years. In the current 48 countries in
which Bajaj operates, it has ~5.7 million as the target market size in the
motorcycle space, with market share of ~23% in total. They are targeting
14 new geographies in FY15E and 14 in FY16E that cumulatively have a
market potential of ~2.8 million units. This could easily lead BAL to
maintain export growth momentum of >20% considering it manages to
gain ~ 20% market share in newer markets in the coming years.
“Cash cow” three-wheeler segment to receive RE-60 boost…
In three-wheelers, the management is trying to look at RE-60 Quadricycle
launch with much expectation and feels it could be a game changer in
terms of urban, Tier-1 transportation. They have received a favourable
response from private fleet operators like Meru, Ola, etc. in inducting the
product in their fleet. In the domestic market, BAL expects to close the
year at 250,000 units while in exports it expects it at ~294,000 units.
Indian-Global manufacturing OEM: Valuations, financials comforting!
BAL is one of the few Indian manufacturing OEMs with a global
presence/market share coupled with global R&D standards along with
quality management. On the financials front, the company has ~82% of
business operating at >20% EBITDA margin. BAL remains one of the
lowest in the industry in terms of fixed cost structure (~7%), thus leading
to negative working capital and >200% operating RoCE (current). We
believe the company’s earnings trajectory will remain strong with a CAGR
of ~15% in FY14-17E and remains a low-risk, high RoCE business. The
stock is available at 13.4x FY17E earnings, lower than historical
valuations. We value BAL on an SOTP basis, valuing the core business at
15x FY17E EPS and investment in KTM to arrive at a target price of
| 2833. We maintain BUY rating on the stock with an upside potential of
17%. We advise portfolio clients to add the stock on any major dips.

LINK
http://content.icicidirect.com/mailimages/IDirect_BajajAuto_Q3FY15.pdf