Bajaj Auto - Q1FY18 Result Update Rating - NEUTRAL - Arihant Capital Markets Limited

- Q1 Net Revenues stood at Rs 5,328 cr, decreased by 6% on YoY basis. Volume was down by 11% yoy and realizations were up by 6% YoY to Rs 59,976 per unit. Total Export volume was up by 10% on Y-o-Y basis.

- Q1 Operating EBITDA: The Company has delivered lowest operating margin in many years. EBITDA Margin was lower mainly due to Increase in raw material costs. EBITDA margins were at 17.2% in Q1FY18 as compared to 20.5% in Q1FY17.

- Q1 PAT: Bajaj Auto reported profit of Rs 924 cr lower by 6% on YoY basis and increase of 15% on q-o-q basis.

Conference call Highlights:

- Expecting significant pickup in sales from festive season ahead.
- Rs 32cr expense occurred due to compensation paid to dealers for impact of BSIII to BSIV, price drop and acquisition cost.
- Margins were mainly affected due to the above reasons.
- Margins to be in the range of 19-20% for the year.
- Factors such as 1) Removal of Maharashtra Permit,2) Conversation of 2 Stroke to 4 Stroke engines and 3) Karnataka Diesel Ban, expect to increase demand.
- Electric vehicles are expected to launch even before 2020.
- Due to coverage in larger geography Bajaj auto is no longer dependent on exports to Sri Lanka. Thus they have diversified their risk.
- Commercial Vehicles Profits are intact.
- KTM profits are in Intact.
- Spare parts business is expected to boost due to GST.
- Management is expecting a 10% Growth from July onwards.
- Inventory Levels at the dealer end is below the required below.

VALUATION: With Good monsoon, low Inflation and lower interest rates management is expecting a good growth and improvement in margin as well as revenue levels. We forecast Bajaj's domestic and export volumes to recover from Q2 FY18. We have valued the stock at PE of 20(X) to its FY19E EPS of Rs 141 and arrived at fair value of Rs 2820. We have "NEUTRAL" Rating on the stock.

Shares of BAJAJ AUTO LTD. was last trading in BSE at Rs.2815 as compared to the previous close of Rs. 2818.65. The total number of shares traded during the day was 25394 in over 2214 trades.

The stock hit an intraday high of Rs. 2838 and intraday low of 2806.8. The net turnover during the day was Rs. 71599390.

Source : Equity Bulls

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