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Research
Bajaj Auto - In line; product mix supports margin in weak market - BRICS
Posted On : 2013-01-18 10:14:51( TIMEZONE : IST )
Bajaj Auto's (BAL) Q3FY13 results came in line with our estimates. Revenue at Rs54bn was up9% yoy and qoq, while PAT grew 3% yoy to Rs8.2bn. We expect the overall two wheeler (2W) market to improve in FY14 and the demand for premium motorcycles to witness a higher growth than entry level motorcycles, which will benefit BAL. We expect the company to maintain a high growth in export revenue (CAGR of18%). We upgrade the stock to Buy from Add and also raise target price to Rs2,381 (earlier Rs1,945), as we increase target multiple to 16x from 14x earlier.
Revenue up 9% yoy: Revenue at Rs54bn was up9% yoy and qoq (in line with estimate), driven by a volume growth of 5% yoy and change in product mix. 2W sales grew 4% yoy vs. industry sales growth of 3% yoy - with the lower realisation sub-125cc category contributing 73% of volume (up from 42% in Q3FY12). The impact of the shift in 2W sales was partly mitigated by strong 3W sales in the quarter - blended realisation was up 3.5% yoy to Rs47,996. Export revenue at Rs17bn contributed 32% to total revenue.
Margin down 90bps yoy to 20.1%: With a weak economy and dented consumer sentiments, buyers are increasing leaning towards lower power bikes. BAL has increased its sales of <125cc motorcycles and grown its share to nearly 22% in this segment (vs. 15% in Q3FY12) in the domestic market. This shift in BAL's product mix (from premium to entry) resulted in lower margins in Q3FY13 - down 90bps yoy to 20.1% (56bps higher than estimate), as reported by the company, or an EBITDA of Rs10.1bn, up 3% yoy and 10.5% qoq.
Tax rate up 650bps yoy, PAT rises 3% yoy: Other income at Rs2bn was up21% yoy and mom (63% above estimate) - including Rs1.09bn in income from investments. Tax rate increased649bps yoy to 30.25%, resulting in provision of Rs3.5bn, as tax exemption for the Pantnagar plant expired. Reported PAT at Rs8.19bn (4% below estimate) was up 3% yoy and 11% qoq.
We like BAL's strong positioning in premium motorcycles, high margins (around 20% and highest in the industry), rising exports (37% of total sales), and high return ratios (we see RoCE at 38.6% in FY13). We expect the two wheeler market to improve in FY14 and an increase in the demand for the company's premium motorcycles. During the last 3-4 years (except FY13), premium motorcycles have reported higher growth rates than entry level motorcycles. We expect BAL to be the biggest beneficiary of the high growth in the demand for premium motorcycles.
We lower our FY13E earnings estimates (due to slowdown in domestic market), maintain our FY14E earnings estimates and introduce our FY15E volume and earnings estimates. We remain confident regarding BAL's FY14E sales and expect the company to record growth in both the domestic as well as export markets. The stock trades at a P/E of 18.8x FY13 and 14.9x FY14 our estimates. We raise our target multiple assigned to BAL to 16x from the earlier 14x, as we expect the company's higher revenue growth and margins to help attract higher multiples for the stock in the near future.
At 16x our FY14 earnings (Rs1,947 per share) and valuing its investments and cash at Rs434 per share, gives us a target price of Rs2,381 (earlier Rs1,945). We upgrade the stock to Buy (earlier Add).