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UBS Investment Research
Bajaj Auto
Q 1’12 Concall: Factoring in duty drawback
Event: Guiding for strong exports and slightly weaker margins
Mgmt. expects the new duty drawback scheme to partially offset DEPB benefits.
The export momentum remains strong and the co. is likely to exceed its guidance
of 20% growth in export volumes in FY12. Domestic 3W growth is also likely to
strengthen in Q2 and Q3. Boxer 150 launch in domestic market is expected to be
mildly EBITDA margin dilutive; however, mgmt. believes it will help significantly
drive absolute profit growth.
Impact: Raise estimates on duty drawback
We raise our EPS est. by 6%/5% for FY12/13 respectively to factor in some
support (3% of FOB) from the duty drawback scheme which will replace the
outgoing DEPB scheme (10% of FOB). Mgmt. continues to reiterate that they will
raise export prices rather than forgo margins on account of withdrawal of DEPB
benefits. We raise our PT to factor in the upgrade in earnings.
Action: Maintain Buy, DEPB impact fully factored
We believe our earnings est. continue to reflect close to the bear case for earnings
on account of DEPB withdrawal. We remain conservative assuming only 16%
volume growth for FY12 vs mgmt. guidance of 20%YoY. We believe the
valuations remain attractive with stock trading at only 14.6x FY12E EPS.
Valuation: Maintain Buy; Raise PT to Rs.1,700 (from Rs 1,600)
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.5%. Our
12-mth PT implies stock will trade at 15.8x FY13E earnings.
Q1FY12 Con-call Takeaways
Mgmt. believes the duty drawback scheme replacing the DEPB scheme
should result in incentives amounting to 3%-4% of sales. The co. also
believes the focused mkt scheme will continue.
Currently, export incentives (DEPB (9%) + focused mkt. & focused product
schemes) account for 10% of FOB value.
Mgmt. believes they will raise export prices to offset the net loss from DEPB
withdrawal and sacrifice volumes rather than take a hit on operating margins.
The co. is working with distributors to work on reducing distribution margins
to reduce impact on the end customer.
The co. took a price increase in May’11 on certain products in certain
countries for exports. Co. expects to take another price increase in Aug’11
for exports.
Domestic 2W inventory days remain at around 21days for the co. However,
mgmt. actually believes this is likely to go up as dealers build up stock
further from Aug onwards in anticipation of the festive season.
Believes Boxer will make a positive contribution to EBITDA growth. the
product will have double digit EBITDA margin. Could easily add another
10% to monthly domestic 2W volumes (~25k/month).
Boxer should cause only marginal erosion to existing EBITDA margins.
Mgmt. expects RM cost per unit to remain broadly in the current range for
Q2FY12.
Mgmt. expects significant growth in domestic 3W business over the next
couple of quarters due to opening up of permits in the state of Karnataka. Co.
est. approx. 40k permits have been opened up and could lead to additional
sale of about 25k units over the next 5 months.
Co. had taken a 1%-2% increase for domestic 3W’s in Apr’11. Has not taken
any further increase.
Mgmt. believes they will be close to the 20% volume growth guidance for
FY12.
Total Capex for FY12 and FY13 is expected at Rs 5bn while the tax rate for
FY12 is expected to be 26.5%.
Bajaj Auto
Bajaj Auto was India's largest two-wheeler manufacturer until 2000. It is present
in all product segments, including three-wheelers. Bajaj has a technical tie-up
with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
Statement of Risk
We think key risks for Bajaj remain rising commodity prices, a potential price
war with Hero Honda in the domestic market, a sharp decline in 3W volumes,
and a drop in export sales
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Auto
Q 1’12 Concall: Factoring in duty drawback
Event: Guiding for strong exports and slightly weaker margins
Mgmt. expects the new duty drawback scheme to partially offset DEPB benefits.
The export momentum remains strong and the co. is likely to exceed its guidance
of 20% growth in export volumes in FY12. Domestic 3W growth is also likely to
strengthen in Q2 and Q3. Boxer 150 launch in domestic market is expected to be
mildly EBITDA margin dilutive; however, mgmt. believes it will help significantly
drive absolute profit growth.
Impact: Raise estimates on duty drawback
We raise our EPS est. by 6%/5% for FY12/13 respectively to factor in some
support (3% of FOB) from the duty drawback scheme which will replace the
outgoing DEPB scheme (10% of FOB). Mgmt. continues to reiterate that they will
raise export prices rather than forgo margins on account of withdrawal of DEPB
benefits. We raise our PT to factor in the upgrade in earnings.
Action: Maintain Buy, DEPB impact fully factored
We believe our earnings est. continue to reflect close to the bear case for earnings
on account of DEPB withdrawal. We remain conservative assuming only 16%
volume growth for FY12 vs mgmt. guidance of 20%YoY. We believe the
valuations remain attractive with stock trading at only 14.6x FY12E EPS.
Valuation: Maintain Buy; Raise PT to Rs.1,700 (from Rs 1,600)
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.5%. Our
12-mth PT implies stock will trade at 15.8x FY13E earnings.
Q1FY12 Con-call Takeaways
Mgmt. believes the duty drawback scheme replacing the DEPB scheme
should result in incentives amounting to 3%-4% of sales. The co. also
believes the focused mkt scheme will continue.
Currently, export incentives (DEPB (9%) + focused mkt. & focused product
schemes) account for 10% of FOB value.
Mgmt. believes they will raise export prices to offset the net loss from DEPB
withdrawal and sacrifice volumes rather than take a hit on operating margins.
The co. is working with distributors to work on reducing distribution margins
to reduce impact on the end customer.
The co. took a price increase in May’11 on certain products in certain
countries for exports. Co. expects to take another price increase in Aug’11
for exports.
Domestic 2W inventory days remain at around 21days for the co. However,
mgmt. actually believes this is likely to go up as dealers build up stock
further from Aug onwards in anticipation of the festive season.
Believes Boxer will make a positive contribution to EBITDA growth. the
product will have double digit EBITDA margin. Could easily add another
10% to monthly domestic 2W volumes (~25k/month).
Boxer should cause only marginal erosion to existing EBITDA margins.
Mgmt. expects RM cost per unit to remain broadly in the current range for
Q2FY12.
Mgmt. expects significant growth in domestic 3W business over the next
couple of quarters due to opening up of permits in the state of Karnataka. Co.
est. approx. 40k permits have been opened up and could lead to additional
sale of about 25k units over the next 5 months.
Co. had taken a 1%-2% increase for domestic 3W’s in Apr’11. Has not taken
any further increase.
Mgmt. believes they will be close to the 20% volume growth guidance for
FY12.
Total Capex for FY12 and FY13 is expected at Rs 5bn while the tax rate for
FY12 is expected to be 26.5%.
Bajaj Auto
Bajaj Auto was India's largest two-wheeler manufacturer until 2000. It is present
in all product segments, including three-wheelers. Bajaj has a technical tie-up
with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
Statement of Risk
We think key risks for Bajaj remain rising commodity prices, a potential price
war with Hero Honda in the domestic market, a sharp decline in 3W volumes,
and a drop in export sales
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