Bajaj Auto - Results in line; Export volumes hold the key - Prabhudas Lilladher

Higher export realisations cushion EBITDA margins: BJA reported 2.9% YoY improvement in its top-line at Rs49.6bn, mainly on account of 4.2% YoY realization growth. On a sequential basis, the top-line grew by 5.4%, mainly on account of 6.0% QoQ growth in volumes. Realisations in domestic market declined by 4.0% QoQ, whereas, on the exports front, realisations improved by 4.6%. Despite the slowdown, BJA was able to maintain its margins at 19.4% (only 30bps decline YoY), mainly on account of 5.9% YoY growth in export realisations (Rs49.8/$ vs Rs46.7/$). However, on account of lower 3-wheeler volumes (lower by 350bps QoQ to 8.9% of overall volumes), EBITDA margins declined by 130bps QoQ to 19.4%, with EBITDA being flat at Rs9.6bn. PAT for the quarter grew by 1.0% at Rs7.2bn in line with the EBITDA growth.

- Exports likely to recover fully by end of Q2FY13: BJA lost sales of 25,000 units in this quarter on account of higher import duty in Sri Lanka and political unrest in Egypt. The company, along with its distributors, has undertaken proactive measures like rationalising the end user cost of vehicles in Sri Lanka (price cut of 10-15% to be borne by company and the distributor) and expects normalised volumes of ~20K to Sri Lanka, starting Q3FY13.

- Conference call highlights: For FY14E, the company is finalising its cover with a base rate of Rs54-55/$, thereby, benefiting ~7-8% in terms of realisation in FY14E. The management expects EBITDA margins to improve in the current quarter on account of recent price hikes in the domestic motorcycle market, improved three-wheeler volumes and the launch of new products in the high margin segment. (125cc Discover and Pulsar 200 NS).

- Our volume estimates: With the slowdown evident in the two-wheeler segment, we are cautious on the domestic two-wheeler growth. We expect the two-wheeler domestic volumes to grow by 5.0% YoY and export volumes to grow at 12.0%, thereby, translating into 7.5% YoY growth at 4.1m in FY13E. We expect the three-wheeler volumes to be flat in FY13E at 0.51m.

- Outlook & Valuation: With ~45% of the revenues for BJA coming from relatively stable export and three-wheeler business, we believe 19%+ EBITDA level margins are sustainable. In our view, margins are likely to improve from here on (mainly H2FY13), led by better product mix in favour of three-wheelers and exports. At the CMP, the stock is trading at 14.2x FY13E EPS and 12.1x FY14E EPS, which in our view, is attractive. Maintain 'Accumulate' with a TP of Rs1,631 based on 13x FY14E EPS in line with its average historical multiple.

Source : Equity Bulls

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