Bajaj Auto - Q2FY14 Result Review - Angel Broking

Bajaj Auto (BJAUT) recorded a strong 2QFY2014 performance which was ahead of our expectations driven by a robust performance on the exports front aided by favorable currency movement. EBITDA margins at 21.9% (up 341bp qoq and 347bp yoy) were significantly ahead of our estimates led by favorable exports realization (Rs. 60.9/USD as against Rs. 55.6/USD in 1QFY2014 and Rs. 50/USD in 2QFY2013) and superior product-mix. During the quarter, the company recorded a notional loss of Rs. 39cr (Rs. 96cr in 1QFY2014) related to forward exchange rate contracts. Adjusting for the same, EBITDA margins surged 222bp qoq and 423bp yoy to 22.6%.

For 2QFY2014, top-line registered a better-than-expected growth of 4.1% yoy (5.4% qoq) to Rs. 5,175cr led by an impressive growth of 14.7% yoy (7.2% qoq) in net average realization. The net average realization grew robustly in the domestic as well as the export markets recording gains of 10.3% (10.2% qoq) and 22.7% yoy (2.4% qoq) respectively. While growth in the domestic markets was fuelled by superior product-mix (higher share of premium bikes), exports growth was mainly driven by favorable exchange rate. Total volumes though, declined 8.4% yoy (1.8 qoq) as domestic volumes registered a steep drop of 15% yoy (9.1% qoq) following weakness in the motorcycle and three-wheeler segments. Export volumes however grew by 2.8% yoy (10.6% qoq) led by growth in the motorcycle segment. While exports revenue in USD terms increased by 3.5% yoy (6.7% qoq); INR depreciation versus the USD led to a strong growth of 26% yoy (13.3% qoq) in INR terms. Domestic revenues on the other hand declined 6.2% yoy (flat qoq) during the quarter. On the operating front, EBITDA margins improved 347bp yoy (341bp qoq) to 21.9% as against our expectations of 19.9% driven by better realization on the exports front and also on account of the superior product-mix. Led by a strong operating performance, bottom-line recorded gains of 13% yoy (13.5% qoq) to Rs. 837cr. Noticeably other income declined by 25.5% yoy (29.3% qoq) due to fall in investment income which restricted further growth in the bottom-line. Adjusted for the notional forex loss of Rs. 39cr, net profit surged 18.3% yoy to Rs. 877cr during the quarter.

We revise our volume estimates downwards for FY2014 to factor in the near term headwinds in the domestic and export markets. However, our EBITDA margin estimates are revised upwards reflecting favorable forex hedges for FY2014. At the CMP of Rs. 2,124, the stock is trading at 14.5x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs. 2,351.

Source : Equity Bulls

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