Bajaj Auto - Good set of numbers driven by depreciated rupee - LKP Research

Bajaj Auto's Q2 FY14 numbers came in-line with our expectations due to exports outperformance led by weakened rupee. At the topline, numbers grew by 5% both yoy as well as qoq, despite volumes declining 8.4% yoy and 1.8% qoq at 961,330 units. This was due to export realizations growth coming due to favorable movement in rupee from the company's point of view. Net realizations jumped up by 15% yoy and 7.2% qoq on this benefit. The rupee depreciation benefit led to benefit trickling down at RM cost levels also (68.5% v/s 70.8% qoq and 74.1% yoy). Staff costs as a % of sales remained stable, but other expenses (8% of sales v/s 9% qoq and 7.2% yoy) included a one-time MTM derivative loss of Rs390 mn. EBITDA margins came in at 21.9%, which excluding the MTM losses would have come at 22.6%. Depreciation expenses remained stable at Rs443 mn, while tax rate moved up to 30.9%. PAT increased by 13% both qoq and yoy to Rs 8.37bn, while excluding the impact of the one off derivative loss, would have come at Rs8.76 bn.

Outlook and valuation

Bajaj's domestic sales may improve with the new launches, but may not help it significantly to gain market share as the executive segment is too crowded and this may lead to a price war, thus leading to cannibalization within Bajaj's products itself. With continuation of a weak operational domestic environment, we expect a subdued performance from motorcycles going forward. A good monsoon and good festive season in second half of the year may bring some relief though. With upgrading of 3W models in Q2 FY14 and opening up of permits in some states, 3W business is expected to perform strongly. Exports markets other than Nigeria and Sri Lanka will remain soft. Egypt is currently posing problems due to banks getting risk averse, however we are hopeful of it getting back on track soon. Weak rupee is expected to push the margins upwards, but marketing spending for the 6 new Discover launches may lead to some arrest of margin escalation. With no major changes in our volume expectations, we are maintaining our overall FY14/15E volume growth expectations at -1%/7% in FY14/15E respectively. However, due to weak rupee, higher sales of high margin 3W business and price hike taken, we have slightly raised our margin estimates from 19%/20% to 21.4%/22.2% for FY 14/15E respectively. Hence, our current target price of Rs 1,932 stands revised upwards to Rs 2,050.

Source : Equity Bulls

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