Bajaj Auto - Operating results in-line; maintain Neutral - Centrum

Bajaj Auto's (BAL) 3QFY13 operating performance was largely in line with our expectations with EBITDA margins at 20.1% compared to our estimate of 19.9% and adjusted PAT at Rs8.19bn compared to our est. of Rs8.18bn. The recent success of Discover ST and Pulsar NS200 reflects improved market share in both segments. Overall market share of BAL in the domestic motorcycle segment stood at 25.9% vs. 25.7% in 2QFY13. The new Discover 100cc is likely to be launched pan India by the end of Feb'12. While, we continue to prefer BAL in the two-wheeler space and understand that the company has largely been able to maintain its market share in the domestic motorcycle segment, we believe that at the current valuations, the stock is pricing in most of the positives. We continue to maintain our Neutral rating on the stock with a target price of Rs.2,213.

- Operating performance in line: Net sales during the quarter stood at Rs.55.1bn (a growth of 9% both on YoY and QoQ basis). Net realization stood at Rs.47,060/unit largely driven by better export realizations (up 5% YoY and 2.5% QoQ). While domestic realization stood at Rs.47,360/unit (up 7% YoY but lower by 1% QoQ), export realization stood at Rs.46,462/unit (up 3.5% YoY and 8.9% QoQ). EBITDA margin was largely in line with our expectations at 20.1%. Adjusted PAT for the quarter stood at Rs8.19bn compared to our estimate of Rs8.18bn.

- Conference call highlights: 1.) Re/$ realization stood at 49.9 during 3QFY13 compared to 48.8 in 2QFY13. The company expects Re/$ at 54 for FY14E. 2.) It expects stable pricing for the domestic motorcycle industry (the likely entry of Honda in 100cc segment, could lead to some pricing pressure in the segment) 3.) Expects a CAGR of 15-18% in exports over the next 5 years 4.) While DEPB has been cut from 5.5% to 2% effective 10 Oct'12, the company could pass on~ 75-80% of the impact effective from Nov' 1, 12. 5.) It plans to launch upgrades in the three-wheeler segment in FY14E 6.) Focus will remain on brand specific margin 7.) To launch new Discover 100cc Pan India by the end Feb'12 8.) Bajaj now accounts for 20-25% of KTM's overall export volumes; the company has seen a significant turnaround in the financials over the last 2 quarters.

- Valuations and Recommendations: At the CMP of Rs.2077, the stock is currently trading at 15.5x FY14 EPS of Rs.134 and 14.2x FY15E EPS of Rs.146. We continue to maintain Neutral view on the stock with a target price of Rs.2,213.

Source : Equity Bulls

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