Bajaj Auto - Export revenues to shore up margins; Upgrade to Accumulate - Prabhudas Lilladher

Export revenues to grow by 18.5% CAGR over FY13-FY15E period: Led by 10.5% CAGR in average realisation/unit on account of rupee depreciation, export revenues are likely to increase from Rs67bn in FY13 to Rs94bn in FY15E. As against flattish two-wheeler volumes in FY14E, we anticipate a strong recovery of 13-14% in volumes in FY15E led by growth in African market and market share gain in Latin American market. Sri Lanka seems to have bottomed out; however, environment in Egypt has not improved. We expect the ASPs/vehicle to increase by 14% YoY in FY14E mainly on account of rupee depreciation. (We have assumed 60% benefit being retained). The management highlighted that the export realisation in the Q1FY14 stood at Rs55.6/$ which would inch upwards to Rs58-59/$ in the coming quarters.

? Three-wheeler volumes to grow at 11.8% CAGR during FY13-FY15E period: With the opening of new permits and launch of diesel passenger threewheelers, volumes are likely to grow at a CAGR of 10% during FY13-FY15E period. Permits for 20,000 three-wheelers have opened in Hyderabad and 35,000 permits are likely to open in Maharashtra soon. The company is confident of maintaining a monthly run-rate of 40,000 driven by new permits and strong exports. Bajaj Auto would tend to benefit the most from new permits being issued as it holds a dominant market share in this segment. We expect the domestic segment to grow at ~10.0% CAGR and exports to grow at ~13.5% CAGR for FY13-FY15E period.

Two-wheeler volumes to recover post CY13: As the slowdown in the domestic market continues and the competitive intensity increases, we don't see a meaningful growth in the domestic market in FY14E for Bajaj Auto. However, given the six new variants of Discover to be launched over the next six months, there is likely to be recovery in volumes in H2FY14. We expect a 9.5% decline in domestic two-wheeler volumes in FY14E (YTD -14.0% decline) and build in 8.5% volume growth in FY15E (anticipating recovery in the two-wheeler sector).

Valuations attractive, given 17.5% earnings CAGR; Upgrade to 'Accumulate': We expect earnings to grow at a 17.5% CAGR over the next two years led by higher realisation in exports in FY14E and volume recovery in both export and domestic market in FY15E. We had a 'Reduce' rating on the stock in our post result note ((Stock Price: 1,985). However, with a positive outlook on the twowheeler sector, the valuation at 15.9x FY12E EPS and 13.6x FY15E EPS seems attractive. Hence, we upgrade the stock to 'Accumulate' from 'Reduce' with a target price of Rs2,083 based on 15x FY15E EPS, a 10% premium to its average P/E of 13.5x 1 year fwd. (Earlier TP - Rs1,904 @14x FY15E EPS).

Source : Equity Bulls

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