Bajaj Auto - 2QFY2013 Result Update - Angel Broking

Bajaj Auto (BJAUT) registered an in-line operating performance for 2QFY2013; however, its net profit was sharply ahead of our estimates driven by higher-than-expected other income and a slightly lower tax rate. We expect the volume growth of the company to revive in 2HFY2013E driven by recovery in export volumes (post price rationalization in Sri Lanka) and also due to the success of new launches (Pulsar 200NS and Discover 125ST). We broadly retain our earnings estimates for the company. Due to limited upside from the current levels, we maintain our Neutral rating on the stock.

In-line operating performance: BJAUT's top-line for 2QFY2013 recorded a decline of 4.1% yoy (up 2.2% qoq) which was on the expected lines and was on account of a 9.9% yoy (2.8% qoq) decline in total volumes. The net average realization however, registered an increase of 7.1% yoy (5.1% qoq) driven by an 8.7% (6.6% qoq) and 4.4% yoy (2% qoq) increase in domestic and export realization, respectively. The EBITDA margin contracted by 41bp yoy to 18.4% (in-line with our estimates) mainly due to increase in other expenditure and employee expense as a percentage of sales by 80bp and 40bp, respectively. Other expenditure was higher as the company took a hit of Rs.12cr on unrealized forex hedges. Further, a higher share of less-than-125cc motorcycles (~72% vs 66% in 2QFY2012) also impacted margins adversely. The adjusted net profit, recorded a decline of 9.8% yoy primarily due to a reduction in income tax benefits at the Pantnagar plant (tax rate of 28.8% vs 25.7% in 2QFY2012). Nonetheless, it was ahead of our estimates by 10.3% driven by higher-than-expected other income and a slightly lower tax rate.

Outlook and valuation: At Rs.1,770, BJAUT is trading at 14.4x FY2014E earnings. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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