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Research
Bajaj Auto - Great going - Target price changed to Rs 2320 - Elara Capital
Posted On : 2010-05-26 11:41:34( TIMEZONE : IST )
- Rating : Accumulate
- Target Price : INR2,320
- Upside : 7%
- CMP : INR2,171 (as on 14 April 2010)
EBITDA margins shoot through the roof
Bajaj Auto's (BAL) Q4FY10 EBITDA margins at 22.9% were better than our expectations, thanks to better exports realisations (product-mix shifted in favour of three wheelers), and lower staff (due to year-end gratuity adjustments) and operating expenses (zero subvention costs for the quarter). Though some of these margin boosting factors were quarter specific, broadly we believe margins are set to be in and around a healthy 20% level (21.7% for FY10) for at least next few quarters as the impact of commodity prices (save steel prices) has largely been factored in. We revised EBITDA margins upwards by 70 bps and 50 bps to 20.6% and 19.4% for FY11E and FY12E, respectively.
Volume outlook appears increasingly better
With the prolonged success of Discover 100cc (consistent monthly sales run-rate of 80'000 plus units) and incremental volumes from newly launched Pulsar 135cc and Discover 150cc, the domestic motorcycle volumes growth outlook is looking increasingly better for the company. We revise our total two wheeler volumes assumption upward, closer to 3.1mn units for FY11E. Three-wheeler volumes, especially exports (a run-rate of 19'000 plus units for first four months of CY10) have seen a good growth momentum and we expect total three-wheelers to be close to the company's guidance of 400 thousand units for FY11E.
Outlook and valuation; strong earnings momentum to sustain
After a stupendous earnings growth in FY10 (adjusted profits more than doubled), we expect the company to sustain the growth momentum right through FY11-12 with the help of strong brands Pulsar, Discover and healthy EBITDA margins (around 20%), supported by the revival in high-margin three wheeler segment. Our revised EPS estimates stand at INR 155 and INR 168 for FY11E and FY12, respectively. We maintain our 'Accumulate' recommendation on the stock with upward revision in target price to INR 2,320 (15x FY11E).
