Bajaj Auto (Q1 FY14)

India Infoline News Service | Mumbai |

Maintain our rating of Market Performer with a revised 9-month price target of Rs2,006

CMP Rs1,985, Target Rs2,006, Upside 1%
  • Revenues at Rs49.1bn higher by 1% yoy; exactly in line with our estimates
  • Blended realizations improved 12.5% yoy driven by 26% surge in export realizations. Better product mix (higher share of 3W’s) and currency benefits enabled this surge
  • Total volumes were down by 9.2% yoy. Domestic and export volumes de-grew by 7% yoy and 13% yoy respectively on back of poor motorcycle volumes
  • OPM at 18.5% was higher by 84bps qoq helped by the sharp gross margin expansion. Other expenses were higher on account of notional forex loss of Rs960mn
  • PAT at Rs7.4bn was up a moderate 2.7% yoy
  • Maintain our rating of Market Performer with a revised 9-month price target of Rs2,006 
Result table
(Rs m) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Total volumes 979,275 1,078,971 (9.2) 981,242 (0.2)
Export volumes 362,563 415,645 (12.8) 365,005 (0.7)
Total realizations (Rs) 50,150 45,095 11.2 48,372 3.7
Net sales 49,111 48,657 0.9 47,465 3.5
Material costs (32,036) (33,163) (3.4) (31,597) 1.4
Purchases (2,031) (1,917) 5.9 (2,491) (18.5)
Personnel costs (1,837) (1,604) 14.5 (1,666) 10.2
Other overheads (4,141) (3,255) 27.2 (3,344) 23.8
Operating profit 9,067 8,717 4.0 8,366 8.4
OPM (%) 18.5 17.9 55 bps 17.6 84 bps
Depreciation (444) (352) 26.0 (466) (4.8)
Interest (1) (0)
(2)
Other income 1,756 1,820 (3.5) 2,436 (27.9)
PBT 10,378 10,184 1.9 10,334 0.4
Tax (3,002) (3,000) 0.0 (2,676) 12.1
Effective tax rate (%) 28.9 29.5 (54) bps 25.9 302 bps
PAT 7,377 7,184 2.7 7,658 (3.7)
PAT margin (%) 15.0 14.8 26 bps 16.1 (111) bps
Ann. EPS (Rs) 102.0 99.3 2.7 105.9 (3.7)
Source: Company, India Infoline Research


Weak volumes offset by sharp jump in export realizations
Largely in-line with the expectations, it was a weak quarter in terms of top-line growth, which was muted at 1% yoy. While motorcycle volumes contracted sharply in the quarter (12.5% yoy decline), robust growth in 3W volumes restricted the total volume decline for BAL to 9% yoy. 3W volumes grew by 24% yoy as export markets picked upon a low base in corresponding quarter previous year. Blended realizations improved 12% yoy driven by steep jump in export realizations. Export realizations improved 26% yoy owing to 1) Higher rupee rate realized on exports (+13% yoy depreciation in Rs/US$) and 2) Improved product mix in exports as share of 3Ws was higher at 20% vis-à-vis 12% in Q1 FY13.  

Operational Performance
Particulars Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Motorcycles




Domestic 571,655 618,489 (7.6) 556,158 2.8
Export 288,496 364,134 (20.8) 303,537 (5.0)
Three-wheelers




Domestic 45,057 44,837 0.5 60,079 (25.0)
Export 74,067 51,511 43.8 61,468 20.5
Source: Company, India Infoline Research

Cost analysis
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Raw material 65.2 68.2 (293) 66.6 (134)
Purchases 4.1 3.9 19 5.2 (111)
Personnel Costs 3.7 3.3 44 3.5 23
Other overheads 8.4 6.7 174 7.0 139
Total costs 81.5 82.1 (55) 82.4 (84)
Source: Company, India Infoline Research

Gross margins expand 250 qoq as currency benefits flow down
Despite experiencing operating de-leverage as volumes shrunk, the currency benefits helped BAL expand its OPM by 55bps yoy. In FY13, BAL had hedged Rs/US$ at lower rates in (Rs47-50/US$ band) which capped the benefits of rupee depreciation. However, with FY14 hedges kicking in at higher rates (realized rate of Rs55.3/US$ in Q1 FY14), the benefits clearly flowed through and helped BAL improve its gross margins a sharp 250bps qoq. We expect these benefits to continue in FY14, as it has hedged its majority of FY14 exposure in a similar band.  It guided for realization of Rs58.5/US$ in Q2 FY14 and Rs59/US$ in Q3 FY14 based on its current hedges. Other expenses were higher in the quarter on account of forex losses of Rs960mn. With operating profit growing by 4% yoy, lower other income (-3.5% yoy) restricted the PBT growth to 2.7% yoy.

We note that BAL has hedged ~49% of its remaining 9-month FY14E forex exposure at an upper band of Rs67-68/US$, which will enable it to cash in on higher prevalent spot rates.

Will pass on some currency benefits to expand specific markets
Management apprised that it has plans to pass on some currency benefits to weak export markets like Nigeria which have been affected recently by the ban of commercial motorbikes. In domestic motorcycle segment, its focus remains to grow the discover platform sales in FY14 with six new launches lined up around the festive season. In 3Ws the scenario is far healthier with a lot of new permits opening up in domestic market (20K permits in Hyderabad; 35K expected in Maharashtra) and export markets like Sri-Lanka normalizing.


Maintain Market Performer rating on back of volume risks
We expect the currency benefits to bring in expansion at the OPM level. However, we foresee a decline in total motorcycle volumes in FY14 as the premium segment is experiencing increased sluggishness. Fiercer competition by the day makes us cautious in our volume assumptions and we build in 5% de-growth in BAL’s domestic motorcycle volumes in FY14. We maintain Market Performer rating with a revised price target of Rs2,006.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E
BSE 3,140.00 [28.65] ([0.90]%)
NSE 3,151.30 [14.40] ([0.45]%)

***Note: This is a NSE Chart

 

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