Bajaj Auto -3Q in line with estimates; maintain Buy:; Anand Rathi

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Bajaj Auto
3Q in line with estimates; maintain Buy
Bajaj Auto’s 3QFY11 performance was in line with our expectations,
with revenue growth of 26.7% yoy and EBITDA growth of 17.4% yoy.
We expect healthy volume growth to sustain going forward and
maintain our Buy recommendation.

 In line with estimates. Bajaj reported good 3QFY11 results, in
line with expectations. Revenue grew 26.7% yoy (although down
3.8% qoq); EBITDA growth stood at 17.4% yoy (-5.3% qoq) and
profit growth at 31.5% yoy (-2.2% qoq). Sales were driven by
volume growth of 17% yoy and realization growth of 8.3% yoy.
EBITDA margin was 20.3% (-170bps yoy; -40bps qoq) mainly
due to higher raw material-to-sales (+70bps qoq; +290bps yoy).
 Guidance on volume lowered, but margin maintained. Bajaj
lowered its FY11 volume guidance to 3.9m units (in line with our
expectations) from 4m. However, it maintained FY11 EBITDA
margin guidance of 20% and said that the outlook on 3-wheelers
both in domestic and export markets would be robust.
 Fall in market share. Bajaj’s motorcycle market share reduced to
31% (-221bps yoy; -309bps qoq) in 3Q, while its 2-wheeler share
fell to 24.4% (-260bps yoy; -250bps qoq). Post inventory
correction in 3Q, market share is likely to recover ahead.
 Valuation and risks. We reiterate Buy on Bajaj Auto. The stock
currently trades at 14.7x FY11e PE. Risks: intense competition,
cut-throat pricing leading to weak margins, export strategy not
shaping up as expected, and a sharp increase in commodity prices.