Bajaj Auto - Stays on course despite challenging quarter - Centrum

Bajaj Auto (BAL's) 1QFY13 operating performance was largely in line with our expectations with EBITDA margins at 19.4% compared to our estimate of 19.1%. Despite lower revenue growth, savings in RMC cost helped the company register better than expected performance. Pan India launch of Pulsar NS and Discover 125 ST coupled with new motorcycles in the Executive segment during the festive season is likely to help the company gain incremental volumes. We continue to remain positive on the stock and maintain Buy rating with a target price of Rs.1,778.

- Operating performance better than estimates: BAL registered 3.7%/5.3% YoY/QoQ revenue growth in 1QFY13 to Rs49.6bn. While domestic realization declined by 1.1% (our est. drop of 0.4%), export realization declined by 1.6%. Despite lower revenues, the company managed to report EBITDA margin of 19.4% (Excluding operating other income of Rs.893mn being included in other income, margins stand at 17.9%). Adjusted PAT for the quarter stood at Rs.7.18bn compared to our estimate of Rs.7.12bn

- Conference call highlights: 1) Against management commentary from Hero MotoCorp (expecting 9-10% YoY growth for the industry in FY13E), BAL remains conservative expecting the growth to moderate to 7-8% in the period. 2) Capex plan for FY13E is estimated at Rs.3.5bn 3.) Export realization for the quarter was at INR/USD 49.8 and 90-95% of the remaining exports in FY13 are covered at 50. 4.) As indicated earlier based on dealer interaction that BAL was likely to increase prices, the management confirmed raising prices in the range of Rs.500-Rs.1000 effective 14 July 2012.

- Valuations and Recommendations: At the CMP of Rs.1,549, the stock is currently trading at 13.5x FY12 EPS of Rs.115 and 11.7x FY13E EPS of Rs.132. We continue to remain positive on the stock and maintain BUY rating on the stock with a revised target price of Rs.1,778.

Source : Equity Bulls

Keywords