Bajaj Auto (Q2 FY13)

India Infoline News Service | Mumbai |

Total units sold during the quarter contracted by 9.9% yoy and 2.8% qoq mainly led by a sharp 12.1% yoy decline in domestic motorcycle volumes.

CMP Rs1,793, Target Rs1,807, Upside 0.7%

  • Revenues at Rs49.7bn lower by 4.1% yoy; in line with our estimates.
  • Blended realizations improved sequentially by 5.1% qoq on back of a favorable product mix and price hikes taken during the quarter.
  • Total volumes were down by 9.9% yoy and 2.8% qoq. A healthy sequential recovery in 3Ws volumes (+25.3 qoq) was the only highlight in an otherwise slow quarter in terms of volumes.
  • OPM at 18.4% (20 bps higher than estimates), was 41 bps down on yoy basis, but improved by 49 bps over Q1 FY13.
  • PAT at Rs7.4bn was slightly ahead of our estimates (+1.3%) on back of better than expected operating performance.
  • We downgrade our rating to Market Performer with a revised 9-month price target of Rs1,807 
Result table
(Rs m) Q2 FY13 Q2 FY12 % yoy Q1 FY13 % qoq
Total volumes 1,049,208 1,164,137 (9.9) 1,078,971 (2.8)
Export volumes 390,285 424,124 (8.0) 415,645 (6.1)
Total realizations (Rs) 47,392 44,543 6.4 45,095 5.1
Net sales 49,724 51,854 (4.1) 48,657 2.2
Material costs (33,560) (35,630) (5.8) (33,163) 1.2
Purchases (2,126) (1,994) 6.6 (1,917) 10.9
Personnel costs (1,532) (1,392) 10.0 (1,604) (4.5)
Other overheads (3,353) (3,083) 8.8 (3,255) 3.0
Operating profit 9,152 9,755 (6.2) 8,717 5.0
OPM (%) 18.4 18.8 (41) bps 17.9 49 bps
Depreciation (410) (394) 4.1 (352) 16.5
Interest (2) (202)   (0)  
Other income 1,667 1,564 6.6 1,820 (8.4)
Extra ordinary items - (954) (100.0) -  
PBT 10,407 9,768 6.5 10,184 2.2
Tax (3,000) (2,510) 19.5 (3,000) -
Effective tax rate (%) 28.8 25.7 313 bps 29.5 (63) bps
PAT 7,407 7,258 2.0 7,184 3.1
PAT margin (%) 14.9 14.0 90 bps 14.8 13 bps
Reported PAT 7,407 7,258 2.0 7,184 3.1
Ann. EPS (Rs) 102.4 100.3 2.0 99.3 3.1
Source: Company, India Infoline Research

Volumes sluggish… Motorcycles skid

Total units sold during the quarter contracted by 9.9% yoy and 2.8% qoq mainly led by a sharp 12.1% yoy decline in domestic motorcycle volumes. Total domestic volumes declined by 11% yoy while the exports de-grew by 8% yoy. While in the 2Ws segment the de-growth was pronounced in domestic markets (12.1% yoy decline), in 3Ws the major decline was observed in export markets (21.9% yoy decline). However, while total volumes de-grew, BAL was able to improve the average realizations (+6.4 yoy) to restrict the fall in revenue to 4.1% yoy.  

Product mix improves... 3Ws contribution picks up sequentially

The blended realizations improved 5.1% on a sequential basis on back of an improved product mix both in domestic and export markets. Moreover the price hikes taken during the quarter (July 14: Rs500 in 2W; Rs500-1500 in 3W) further helped in improvement in the average realizations.  Analyzing the product mix, the contribution of 3Ws volumes improved significantly owing to a sequential pick up of 27.2% qoq in the domestic 3Ws volumes and 23.5% growth in export markets. The quarter saw BAL growing its diesel segment 3Ws by ~30% amidst a ~7% growth in industry. The management also informed about the positive development of new permits for 3W being under process in Hyderabad (20,000 permits proposed) and Delhi (10,000 permits).  However owing to uncertainties around the clearance of the permits, the management expects a monthly run rate of ~17,000-18,000 3Ws without any fresh permits (including permits it can be ~20,000-22,000 units).

 

Cost analysis
As a % of net sales Q2 FY13 Q2 FY12 bps yoy Q1 FY13 bps qoq
Raw material 67.5 68.7 -122 68.2 -67
Purchases 4.3 3.8 43 3.9 34
Personnel Costs 3.1 2.7 40 3.3 -22
Other overheads 6.7 5.9 80 6.7 5
Total costs 81.6 81.2 41 82.1 -49
Source: Company, India Infoline Research

Operating margins marginally better than our expectations

OPM for the quarter was reported at 18.4% (+20bps ahead of estimates) which meant a healthy 49bps sequential improvement over the previous quarter. While including the hedging gains/losses, OPM was reported at 19.7% vis-à-vis 19.4% in Q1 FY13. On a yoy comparison while the raw material costs were lower by 122bps, a rise in share of other expense (overheads, purchases and employee costs) reflected operating de leverage (~10% yoy decline in volumes) thereby pulling down OPM by 41bps yoy.


BAL had hedged ~80% of the expected export revenues for FY13, but owing to weaker than expected run rate, the company is in an over hedged position leading to hedging losses. While the losses on this account were ~120mn in the quarter (vis-à-vis Rs360mn in Q1 FY13), the management informed the actual cash outlay was limited to Rs18mn. Effectively the rate realized on exports during the quarter was Rs48.81/US$ (as against the average rate Rs55.7/US$ for the quarter). 


PAT slightly ahead of our estimates

BAL reported a PAT of Rs7.4bn, slightly ahead our estimates (+1.3%). On a yoy comparison the PBT was up by 6.5% yoy, but the PAT growth was restricted to 2% yoy by the higher tax rate observed during FY13 owing to the reduction in tax benefit at Pantnagar from 100% to 30% (effective FY13). The tax rate for the quarter was recorded at 28.8%, which was a sharp 313bps higher than the tax rate in Q2 FY12.  


African markets expected to drive export growth…

Post the price cuts taken in Sri Lanka, the volumes have recovered significantly but have stabilized to ~30-50% lower levels (than pre-duty hike), mainly reflecting a weakened economy of Sri Lanka. With other export markets also languid, going ahead the growth in exports is expecte

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