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Bajaj Auto Ltd. | Q1FY15 First Cut Analysis | Slightly lower than our estimates




IndiaNivesh Securities Pvt Ltd


18 Jul 2014





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Bajaj Auto Ltd. | Q1FY15 First Cut Analysis Slightly lower than our estimates Bajaj auto reported Q1FY15 number below our expectation. Despite higher other income, reported PAT came at Rs 7.4 bn vs our expectation of Rs. 7.8 bn due to lower operating margin. Revenue increased by 6.8% YoY and 6.4 % Q-o-Q to Rs. 51.33 bn (slightly above our expectation of Rs. 50.7 bn) due to higher than expected average realization led by higher exports sales. Exports continue to do well with 22% YoY volume growth to 0.44 mn units as compared to 11% de-growth in Domestic volumes. Average net realization went up by 6% YoY and 1% QoQ to Rs 51,935 due to higher export sales. However, EBITDA margin contracted by 83 bps YoY and 129 bps QoQ to 17.8 %( vs. our expectation of 19.1%) to Rs. 9.25 bn dragged by higher raw material, employee cost and advertisement cost. Raw material cost increased to 71.7% (as a percentage of sales) from 70.8% in Q1FY14 while employee cost increased to 4.2% (as a percentage of sales) from 3.8% in Q1FY14. Reported PAT remains flat Y-o-Y (down 3% Q-o-Q) to Rs 7.4 bn. However Adjusted PAT (excluding depreciation adjustment, Rs. 160 mn arisen due to change in accounting policy) stood at Rs 7.56 bn still marginally lower than our expectation of Rs 7.80bn. Two wheeler volumes increased by 2% however three wheeler sales decreased by 5% YoY. We will come with the detailed analysis after the Con-call scheduled dated 18 July 2014. Valuation: With its specialization strategy and focused approach, Bajaj auto aims to garner a higher share of the global motorcycle market together with industry leading profitability. Bajaj Auto would benefit on (a) upgrading in the domestic motorcycle market, driven by economic recovery, and (b) revival in exports along with Rupee depreciation, which could offset the negative of absence in scooters. At CMP of Rs 2,092 the stock is trading at PE multiple of 14.7x FY16E EPS which is lower than its mean of 17x. As stock has given recent correction in past few days and trading at an attractive valuation. We change our stance from HOLD to BUY with target price of Rs. 2,414 (17x FY16E EPS).

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