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Bajaj Auto 3QFY2014 performance highlights and results update

January 20, 2014, Monday, 06:31 GMT | 01:31 EST | 11:01 IST | 13:31 SGT
Contributed by Angel Broking

Bajaj Auto’s (BJAUT) adjusted results for 3QFY2014 were slightly lower than our expectations on account of adverse product-mix and price cuts undertaken in the export market. The reported net profit at Rs.905cr was ahead of our estimates, driven by notional forex gains of Rs.96cr (against a loss of Rs.39cr in 2QFY2014). Adjusted for these gains, the net profit declined 3% qoq to Rs.839cr. The adjusted EBITDA margin too declined 237bp sequentially to 20.3%, led by cost pressures, adverse product-mix and lower utilization levels. Going ahead, we expect the domestic performance of the company to remain under pressure in the near term due to sluggish demand environment; nevertheless, on the exports front, we expect the company to continue registering strong growth led by market share gains in Africa and Latin America. We revise our earnings estimates downwards by 3.5%/4.4% for FY2014E/15E, largely to factor in the weakness in the domestic volumes. We however maintain our EBITDA margin estimates as we expect them to hold up in excess of 20% due to favorable rates on the export hedges. We retain our Buy rating on the stock.
Strong exports growth slightly mitigates weakness in domestic market: BJAUT’s top-line declined 5.2% yoy (0.8% qoq) to Rs.5,131cr, slightly below our expectations of Rs.5,321cr. This is primarily due to the sharp decline in net average realization (down 5.2% qoq in INR terms) on the exports front led by price cuts in the Nigeria market and also on account of an adverse product-mix. The overall top-line performance was impacted due to a volume decline of 11.9%, led by sluggish demand in the domestic markets, which resulted in domestic volumes declining significantly by 24% yoy. Consequently, domestic revenues declined sharply by 19.1% yoy, broadly in-line with our expectations. Export volumes however, posted a strong growth of 12.3%, which, coupled with a favorable currency movement, led to a 23.5% yoy growth in export revenues in INR terms.
Outlook and valuation: We maintain our positive stance on the company, given its diversified business model, strong focus on profitable growth, widening reach in export markets and strategic alliances with global majors. At the CMP, the stock is trading at 14.1x FY2015E earnings. We retain our Buy rating on the stock with a SOTP target price of Rs.2,250 (revised lower from Rs.2,272). We value BJAUT at 16x FY2015E earnings and assign a value of Rs.78/ share for its stake in KTM.