Bajaj Auto: Better export realization boosts profitability:: Kotak Securities

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Better export realization boosts profitability. Bajaj Auto reported a net profit of
`8.6 bn (-5% yoy), which was 22% above expectations. The positive surprise was led by
– (1) 4% higher-than-expected revenues driven by improvement in export average
selling prices due to improvement in product mix and (2) lower-than-expected other
expenses. We expect exports to report a double-digit growth in FY2016, despite the
slowdown in the Nigerian economy, led by entry into new markets. Bajaj Auto still
needs to arrest the decline in the domestic market share in the two-wheeler segment.
We maintain our ADD rating with an unchanged target price of `2,650.

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Sequential increase in export realization leads to a positive surprise
Export revenues increased by 26% yoy in 3QFY15 led by strong demand from Sri Lanka and
Africa. Export average selling prices improved by 9% yoy and 4% qoq despite Nigerian and
Colombian currencies depreciating versus the INR. The company expects softness in demand
from Nigeria in 4QFY15 but this will be offset by 125,000 new motorcycle orders from the Sri
Lankan government, of which only 25,000 units have been executed so far.
Domestic business remains under pressure
Domestic volumes declined by 17% yoy in 3QFY15 led by 46% yoy decline in Discover volumes.
The company hopes to improve its market share in the domestic market by launching new
models of Platina, Pulsar and Avenger over the next 6-9 months. The company expects twowheeler
industry volume growth to remain sluggish in 4QFY15. The company expects domestic
three-wheeler volume growth to remain robust over the next 12 months led by issue of new
permits in Delhi and Hyderabad of the order of ~200,000 units. The company also indicated
that it is gaining market share in diesel three-wheelers.
Sequential improvement in EBITDA margin driven by lower other expenses
Bajaj Auto reported improvement in EBITDA margin by 280 bps qoq mainly driven by 240 bps
qoq decline in other expenses to sales. The key reason for sequential swing in other expenses
was forex gain of `790 mn in 3QFY15 versus a loss of `674.1 mn in 2QFY15 on forex hedges.
Gross margin improved by 60 bps qoq due to 4% qoq improvement in export realization.
Marginal changes to earnings estimates; maintain ADD rating
We have marginally increased our earnings estimates due to increase in EBITDA margin
assumptions while we cut our domestic volume estimates. We have retained our target price at
`2,650, which is based on 17X Sep 2016E EPS + `190/share value of Bajaj Auto’s stake in KTM.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily19012015tn.pdf