Bajaj Auto (BUY): Favourable currency movement drives margin outperformance - AMBIT

Bajaj Auto's revenues were ahead of our expectations in 1QFY14. Bajaj's revenues and margin were clearly helped by the depreciation of the INR vs the USD. Though export revenues were flat at US$327mn, in INR terms, they increased 10% to Rs18,760mn during the quarter. Further, raw material costs were benign and the average raw material cost per vehicle remained flat QoQ. Thus, the company achieved an EBITDA margin of 21.3% during the quarter. Whilst domestic motorcycle volumes continued to be subdued, we expect the industry to recover in 2HFY14 and deliver a volume growth of 6% in FY14 (vs flat YoY growth in FY13). Furthermore, amidst increasing competition in the domestic motorcycle industry, we expect Bajaj Auto to maintain its market share over FY15 (and we expect a loss of only 40bps over FY13-15) owing to: (i) continued new launches, (ii) it being a distant #2 player with 25% market share, and (iii) its focus on premium bikes.

We retain our BUY stance.

Source : Equity Bulls

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