CMP Rs1,953, Target Rs2,002, Upside 2.5%

• Revenues at Rs49.3bn higher by 3.9% yoy; in line with our estimates
• Blended realizations improved 9% yoy driven by 26% higher export realizations while domestic realizations remained flat
• Total volumes were down by 4.6% yoy. While domestic volumes were lower by 12.7% yoy export volumes rose 9% yoy. In terms of products, motorcycle volumes fell 4% yoy while 3-W volumes fell 9.1% yoy
• OPM at 18.9% was higher by 126bps yoy but declined 324 bps qoq  on back of improved gross margins
• PAT at Rs7.6bn was flat yoy and was lower than our estimates
• Maintain our rating of Market Performer with a revised 9-month price target of Rs2,002 

Result table

(Rs m)	Q4 FY14	Q4 FY13	% yoy	Q3 FY14	% qoq
Total volumes	935,795	981,242	(4.6)	993,690	(5.8)
Export volumes	397,836	365,005	9.0	422,506	(5.8)
Total realizations	52,708	48,372	9.0	51,638	2.1
Net sales	49,323	47,465	3.9	51,312	(3.9)
Material costs	(31,460)	(31,597)	(0.4)	(33,317)	(5.6)
Purchases	(2,892)	(2,491)	16.1	(2,345)	23.3
Personnel costs	(1,748)	(1,666)	4.9	(1,848)	(5.4)
Other overheads	(3,910)	(3,344)	16.9	(2,450)	59.6
Operating profit	9,314	8,366	11.3	11,352	(18.0)
OPM (%)	18.9	17.6	126 bps	22.1	(324) bps
Depreciation	(445)	(466)	(4.6)	(460)	(3.2)
Interest	(2)	(2)		(2)
Other income	1,848	2,436	(24.1)	2,218	(16.7)
PBT	10,716	10,334	3.7	13,109	(18.3)
Tax	(3,076)	(2,676)	14.9	(4,063)	(24.3)
Effective tax rate (%)	28.7	25.9		31.0
Adjusted PAT	7,639	7,658	(0.2)	9,046	(15.5)
Adj. PAT margin (%)	15.5	16.1	(65) bps	17.6	(214) bps
Ann. EPS (Rs)	105.6	105.9	(0.2)	125.0	(15.5)

Source: Company, India Infoline Research

Revenues in line with expectations
Bajaj Auto Q4 FY14 revenues were at Rs49.3bn a growth of 3.9% yoy but a fall of 3.9% qoq. This was in line with our expectations. Total volumes were lower by 4.6% yoy as domestic volumes plummeted 12.7% yoy. Export volume growth of 9% yoy helped arrest the decline in total volumes. In the domestic market, while motorcycle volumes declined 11.2% yoy, 3W volumes fell 27% yoy. In the export market, motorcycle volumes increased 9.2% yoy while 3-W volumes were higher by 8.1% yoy. Export contribution to total volumes was highest ever at 42.5%. Blended realizations were higher by 9% yoy led by 26% yoy jump in export realizations led by 1) steep rupee depreciation and 2) rising contribution of three wheelers in export volumes. However, export realizations were lower than expected as the company rationalized prices in Nigeria. Also the contribution of three-wheelers has reduced considerably to total exports.
Cost analysis

As a % of net sales	Q4 FY14	Q4 FY13	bps yoy	Q3 FY14	bps qoq
Raw material	63.8	66.6	(279)	64.9	(115)
Purchases	5.9	5.2	61	4.6	129
Personnel Costs	3.5	3.5	3	3.6	(6)
Other overheads	7.9	7.0	88	4.8	315
Total costs	81.1	82.4	(126)	77.9	324

Source: Company, India Infoline Research

OPM declines on higher overheads
BAL reported an OPM of 18.9% an expansion of 126bps yoy but a fall of 324bps qoq. During Q3 FY14, the company reported MTM gains of Rs950mn pertaining to reversal of earlier losses which was one of the key reasons for sequential fall. Gross margins expanded by 279bps yoy but contracted 115bps qoq. Yoy increase was on the back of rupee depreciation and price hikes implemented over the past one year, while sequential decline was on account of adverse product mix and lower export motorcycle realizations. Similarly, operating profit/vehicle rose 16.7% yoy but slipped 12.9% qoq.  


Maintain Market Performer rating on back of volume risks
Bajaj Auto has been losing market share in the domestic two wheeler market as rising competition has hit the motorcycle segment while its absence in the scooters segment has been felt. We expect Bajaj Auto to report lower than industry volumes in the next couple of years. Furthermore, its key export markets are also expected to see rising competitive intensity from Indian players such as Hero Motocorp and TVS Motors. We maintain our Market Performer rating with a revised price target of Rs2,002.

Financial Summary

Y/e 31 Mar (Rs m)	FY13	FY14	FY15E	FY16E
Revenues	199,973	201,495	227,250	254,652
yoy growth (%)	2.4	0.8	12.8	12.1
Operating profit	36,353	41,057	47,186	52,847
OPM (%)	18.2	20.4	20.8	20.8
Pre-exceptional PAT	30,436	32,433	36,980	41,388
Reported PAT	30,436	32,433	36,980	41,388
yoy growth (%)	1.3	6.6	14.0	11.9
EPS (Rs)	105.2	112.1	127.8	143.0
P/E (x)	18.6	17.4	15.3	13.7
Price/Book (x)	7.2	5.9	4.9	4.2
EV/EBITDA (x)	15.4	13.7	11.7	10.3
RoE (%)	43.7	37.0	35.1	33.1
RoCE (%)	58.6	51.2	49.2	46.7

Source: Company, India Infoline Research