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Bajaj Auto 4QFY2014 performance highlights and results update

May 23, 2014, Friday, 13:03 GMT | 08:03 EST | 16:33 IST | 19:03 SGT
Contributed by Angel Broking

Bajaj Auto (BJAUT)’s adjusted results for 4QFY2014 were slightly lower than our expectations due to increase in advertisement expenses and an adverse product-mix. The reported net profit at Rs.763cr was impacted by a steep decline in EBITDA margin (down 324bp qoq to 18.9%) and lower-than-expected other income. The other income was affected on account of foreign exchange loss of Rs.37cr (~75bp impact on margins) and also due to impairment loss of Rs.15cr (~30bp impact on margins) related to Indonesia operations. Going ahead, the Management expects domestic motorcycle industry volumes to revive in FY2015 (expects growth of 7-8% yoy). The company also expects market share gains on the back of recent launches in the Discover series and new launches planned ahead. Additionally, continued strong growth in Africa, lifting of import ban in Egypt and increased sales to Indonesia are likely to boost export sales (double digit growth expected in FY2015. We marginally lower our EBITDA margin and earnings expectations for FY2015/16 due to lower export realization and increasing competitive intensity. Nevertheless, we retain our Buy rating on the stock.

Adjusted performance slightly misses estimates: BJAUT’s top-line for the quarter rose marginally by 3.9% yoy to Rs.4,932cr, slightly above our expectation of Rs.4,836cr. The performance was impacted due to volume decline of 4.6% yoy, led by sluggish performance in the domestic markets, which witnessed volume decline of 12.7% yoy. Consequently, domestic revenues declined sharply by 10.1% yoy. Export volumes posted a strong growth of 9% yoy driven by strong growth in the motorcycle segment; which coupled with a favorable currency movement, led to a 30% yoy growth in export revenues.

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 14x FY2016E earnings. We retain our Buy rating on the stock with a SOTP target price of Rs.2,323. We value BJAUT at 16x FY2016E earnings and assign a value of Rs.76/ share for its stake in KTM.