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Bajaj Auto 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Bajaj Auto (BJAUT) posted an in-line operating and bottom-line performance for 3QFY2013; nevertheless, the bottom-line was aided by higher other income. Going ahead, we expect export volumes to recover gradually and also expect domestic volumes to benefit from the new launches (Pulsar 200NS, Discover 125 ST and Discover 100T). We lower our earnings estimate for FY2013 marginally as we lower our volume estimates. We now expect FY2013 volumes to grow by 0.9% as against 2.1% estimated earlier. We believe that the current valuation of 16.2x FY2014E earnings factors in the recovery in earnings growth in FY2014 led by growth in export volumes and benefits of favorable currency. Due to limited upside from the current levels, we maintain our Neutral rating on the stock.

In-line operating performance: For 3QFY2013, BJAUT reported an 8.6% yoy (8.9% qoq) growth in its top-line to Rs.5,413cr driven by 4.9% (7.5% qoq) and 4.6% yoy (2.5% qoq) growth in volumes and net average realization respectively. While volume growth was led by festival demand, new launches (Pulsar 200NS and Discover 125ST) and opening up of permits in Delhi and Karnataka; the net average realization benefitted due to the better product-mix (three-wheelers accounted for 12.5% of sales as against 11.5% in 2QFY2013), price hikes of 2% in export markets (export realization up 8.9% qoq) and favorable exchange rate. The EBITDA margin remained stable on a sequential basis (up 30bp) and stood at 18.7% which was in-line with our estimates. However on a yoy basis, it declined 105bp mainly on account of raw-material cost pressures. A higher share of <125cc motorcycles in the total volumes (~63% vs ~58% in 3QFY2012) also impacted the operating performance during the quarter. The adjusted net profit posted a decline of 4.1% yoy (up 10.5% qoq) owing to lower income tax benefits at the Pantnagar plant (tax rate of 30.2% vs 25.1% in 3QFY2012). Nonetheless, it benefitted from higher other income which grew by 20.9% yoy (21.9% qoq).

Outlook and valuation: At Rs.2,052, BJAUT is trading at 16.2x FY2014E earnings. We maintain our Neutral rating on the stock.