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Bajaj Auto: Riding high on new launches - Views on News from Equitymaster
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Bajaj Auto: Riding high on new launches
Jan 12, 2010

Performance summary
  • Topline grows by a decent 57% YoY during the quarter. Volume growth comes in at a very strong 64% YoY.
  • Operating profits jump a strong 137% YoY as the company achieves record operating margins of 22%, a more than 7% expansion as compared to the previous quarter.
  • Further aided by benign depreciation charges and lower extraordinary expenses, net profits during the quarter witness a spectacular growth of 189% YoY, enabling the company to post its highest ever quarterly profits.
  • Half yearly bottomline grows by 123% YoY on the back of a 23% growth in topline.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Units sold 493,750 809,218 63.9% 1,753,885 2,043,703 16.5%
Net sales 21,031 32,956 56.7% 69,270 85,215 23.0%
Expenditure 17,973 25,720 43.1% 60,105 67,061 11.6%
Operating profit (EBDITA) 3,058 7,235 136.6% 9,165 18,155 98.1%
EBDITA margin (%) 14.5% 22.0%   13.2% 21.3%  
Other income 379 351 -7.3% 888 800 -9.9%
Interest (net) 90 0 -99.8% 158 60 -62.1%
Depreciation 319 357 11.9% 985 1,023 3.9%
Profit before tax 3,028 7,230 138.8% 8,909 17,871 100.6%
Extraordinary income/(expense) (630) (458) -27.3% (1,241) (1,157) -6.8%
Tax 755 2,020 167.5% 2,425 5,000 106.2%
Profit after tax/(loss) 1,643 4,751 189.2% 5,243 11,715 123.4%
Net profit margin (%) 7.8% 14.4%   7.6% 13.7%  
No. of shares (m) 144.7 144.7   144.7 144.7  
Diluted earnings per share (Rs)*         90.0  
Price to earnings ratio (x)*         18.9  
(* annualised)

What has driven performance in 3QFY10?
  • The strong 57% growth in topline during the quarter was driven by an overall volume growth of 64% over the corresponding previous quarter. Motorcycles, which account for nearly 90% of all the vehicles sold by the company, grew by a stupendous 98% in the domestic markets, whereas exports of the same improved 33%. Overall, the company was able to sell 72% more motorcycles than it managed to sell during the same period last year. This was significantly higher than the industry growth rate of 32%, thus enabling the company to increase its market share to 27% from 22% in 3QFY09.

  • The growth in the domestic markets was driven by new launches like the upgraded version of the Pulsar as well as the Discover DTS-Si. The company also managed to grow the domestic sales of its three wheelers by an impressive 56% during the quarter, a feat that could be attributed to its marketing initiatives geared towards the in-city and semi urban markets.

  • The quarter also witnessed highest ever exports by the company.

    Sales break-upů
    Domestic 3QFY09 3QFY10 % change 9mFY09 9mFY10 % change
    Motorcycles 246,071 488,146 98.4% 1,026,800 1,232,047 20.0%
    Scooter/scooterette 2,552 592 -76.8% 8,373 3,501 -58.2%
    3 Wheelers 29,894 46,578 55.8% 97,832 131,528 34.4%
    Total 278,517 535,316 92.2% 1,133,005 1,367,076 20.7%
    Exports            
    Motorcycles 167,970 223,845 33.3% 507,349 562,408 10.9%
    Scooter/scooterette 520 468 -10.0% 1,664 1,092 -34.4%
    3 Wheelers 46,743 49,589 6.1% 111,867 113,127 1.1%
    Total 215,233 273,902 27.3% 620,880 676,627 9.0%
    Grand total 493,750 809,218 63.9% 1,753,885 2,043,703 16.5%
    Source: SIAM

  • As far as margins are concerned, the company has managed to achieve record operating margins to the tune of 22% during the quarter during 3QFY10 as well. This was higher by more than 700 basis points as compared to the same quarter last year and enabled the company to grow its operating profits by 137% on a YoY basis. While the quarter witnessed an increase in cost of raw materials and components on a sequential basis, greater economies of scale and effective cost management enabled the company to maintain margins. Going forward, while the same level of margins may not continue, it could indeed come higher than historical levels as the company focuses more on high value products.

    Cost break-upů
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 15,214 22,567 48.3% 51,682 57,161 10.6%
    % sales 72.3% 68.5%   74.6% 67.1%  
    Staff cost 762 930 22.1% 2,597 3,133 20.6%
    % sales 3.6% 2.8%   3.7% 3.7%  
    Other expenditure 1,997 2,224 11.4% 5,824 6,767 16.2%
    % sales 9.5% 6.7%   8.4% 7.9%  

  • With depreciation charges remaining benign and extraordinary losses coming in lower as compared to same quarter last year, the company has managed to nearly triple its net profits during the quarter, growing it by 189% YoY.

What to expect?
At the current price of Rs 1,704, the stock trades at price to cash flow multiple of 14x its expected FY12 cash flow per share. With its superlative performance in the first nine months, full year earnings are likely to come in slightly higher than our earnings estimates for Bajaj Auto. However, with the stock trading at 19x its trailing twelve month earnings, we believe that most of the upside seems to have been already factored into the price.

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