Bajaj Auto - 1QFY2013 Result Update - Angel Broking

Bajaj Auto's (BJAUT) 1QFY2013 operating performance was marginally lower-than-expected on account of adverse product-mix led by decline in three-wheeler exports and lower share of premium motorcycles. Looking ahead, the company expects the export volumes to recover; also it expects domestic volumes to improve led by new launches (Pulsar 200NS and Discover 125 ST).

While the management has guided for ~15% volume growth in FY2013E, we believe that it would be challenging for the company to meet its guidance. Thus, we have built in a volume growth of ~8% for FY2013E and have marginally lowered our earnings estimates for FY2013 and FY2014. Nonetheless, due to attractive valuations we maintain our Accumulate rating on the stock.

Higher other income offsets weak operating performance: BJAUT's top-line grew by 3.4% yoy (4.6% qoq) to Rs.4,866cr driven by 5.3% yoy growth in net average realization. However, on a sequential basis, net average realization declined 1.6% as the company witnessed adverse product-mix leading to 1.2% and 1.5% decline in domestic and exports realization, respectively. Volume performance was sluggish and declined 1.3% yoy (although up 6.1% qoq) as export volumes declined 2.7% yoy led by political unrest in Egypt and import duty hike in Sri Lanka. EBITDA margin contracted 188bp sequentially to 17.9% led by 90bp increase in raw-material expenses (mainly related to aluminum) and 70bp increase in employee costs (12% wage hike for employees). Other expenditure increased as the company took a hit of Rs.36cr on unrealized forex hedges. Net profit was up 1.0% yoy (although down 6.9% qoq) to Rs.718cr benefiting from 26.5% yoy (30.5% qoq) jump in other income led by Rs.33cr gains related to reversal of time value of forex hedges. Tax rate came in at 29.5% due to reduction in income tax benefits from the Pantnagar plant.

Outlook and valuation: At Rs.1,549, BJAUT is trading at 12.8x FY2014E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.1,698.

Source : Equity Bulls

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