Bajaj Corp - Strong Q3, but upsides limited - Maintain HOLD - Religare

BJCOR reported Q3FY13 net sales/EBITDA/adj. PAT growth of 31.8%/50.3%/ 46.2%, which came in ahead of our and consensus estimates. Volume growth was strong at 22.3% with margins expanding 360bps on lower LLP prices. We upgrade our FY14/FY15 earnings estimates by ~13% and roll over to March'15 earnings (from September'14) to get a revised March'14 TP of Rs 275. Maintain HOLD on likely volume growth moderation and limited upside from current levels.

- Net sales growth of 31.8%YoY: BJCOR reported net sales growth of 31.8% YoY to Rs 1.48bn led by a strong 22.3% YoY growth in volumes as the company increased distribution (17% for the year) and promotional activity during the quarter. The management indicated that it is likely to sustain the current growth rate in Q4FY13.

- EBITDA growth of 50.3% YoY: BJCOR's EBITDA grew 50.3% YoY to Rs 428mn with EBITDA margins improving 360bps YoY. Gross margins expanded 370bps YoY on account of a 5% YoY decline in LLP prices. The company has guided for a 6-7% QoQ reduction in LLP prices in Q4. Ad spends for the quarter were down 170bps; however, BJCOR more-than-doubled its promotion spends to pass on some benefit of lower input costs, which in turn pushed up other expenses by 240bps YoY. Adj. PAT grew 46.2% YoY to Rs 422mn as other income increased by 32% YoY on a higher cash balance (Rs 4.7bn vs. Rs 3.7bn in Q3FY12). The company also announced an interim dividend of Rs 6.5/share (FY12 dividend at Rs 4/share).

- Maintain HOLD with a revised March'14 TP of Rs 275: We revise our FY14/FY15 earnings by ~13% to get a revised March'14 TP of Rs 275. Maintain HOLD. Key risks to our call: (a) strong, continued growth in volumes, (b) higher-than-estimated margins due to soft RM costs and (c) value-accretive acquisitions.

Source : Equity Bulls

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