Visit http://indiaer.blogspot.com/ for complete details Richer product mix improves profitability…
Bajaj Auto (BAL) reported another set of record breaking quarterly
numbers, which were above our estimates. The topline stood at Rs
4180.9 crore (I-direct estimate of Rs 4028 crore), a 49.7% YoY and 11.9%
QoQ jump. This was driven by volume growth of 45.7% YoY and 7.8%
QoQ surpassing the 1 million plus unit target. BAL was able to improve
margins by 70 bps sequentially to 20.7%. This was in the wake of a
better product mix leading to realisation improvement of 3.8% QoQ
along with personnel costs management leading to a 60 bps QoQ
decline. BAL has reported a record bottomline at Rs 682.1 crore, a jump
of 15.6% QoQ and 57.7% YoY. This was on the back of higher other
income of Rs 83.7 crore from the investment book.
Product mix continues to improve
BAL’s sales have seen a gradual improvement in the product mix with
increased sales of the Pulsar family (2,46,000 units, a 7.8% jump QoQ).
Thus, it provided a cushion to margins with realisation improvements.
Also, there has been a migration of customers from Discover 100 cc
towards the 150 cc variant leading to an improvement in market share of
~200 bps in the 125 cc and above segment. The company expects to see
further traction in Pulsar volumes as newer capacity comes on stream.
Export demand poses welcome challenge
The exports segment has continued to perform impressively with 37.0%
YoY growth. However, on a sequential basis, there has been a decline of
5.4% mainly due to three-wheeler exports falling 9% QoQ. The slowdown
in exports sequentially has been due to higher domestic demand owing
to new licenses issued in Tamil Nadu. The company expects to gain on
exports in H2FY11 with the easing of domestic demand.
Valuation
The improvement in product mix and volume expansion is expected to
drive financials in the stronger half of the fiscal. At the CMP of Rs 1,485,
the stock is trading at 17.4x FY11E EPS of Rs 85.4 and 14.5x FY12E EPS of
Rs 102.4. We are valuing the company giving higher P/E of 15x FY12E
EPS to arrive at Rs 1,537 per share, implying a 3% upside from its present
levels. We rate the stock as ADD.
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