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Bajaj Auto: Exports help maintain profit growth - Views on News from Equitymaster

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Bajaj Auto: Exports help maintain profit growth
Jan 17, 2014

Bajaj Auto announced the third quarter results of financial year 2013-2014 (3QFY14). The company’s revenues declined by 5% YoY during the quarter, while profits grew by 11% YoY. Here is our analysis of the results.

Performance summary
  • Total sales volumes decline by a sharp 12% YoY during the quarter.
  • Revenues decline by 5% YoY during the quarter, largely led by a volume decline.
  • Operating margins expand by 1.6% YoY to 20.3% during 3QFY14. This leads to an operating profit growth of 2.8% YoY for the quarter.
  • Net profits rise by 11% YoY on account of extraordinary gains (largely marked to market gains) during the quarter. Profits before tax rise by 5% YoY.

Financial performance: A snapshot
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Units sold 1,127,741 993,690 -11.9% 3,255,920 2,934,295 -9.9%
Net sales 54,127 51,312 -5.2% 152,508 152,172 -0.2%
Expenditure 44,010 40,916 -7.0% 124,521 120,035 -3.6%
Operating profit (EBDITA) 10,118 10,397 2.8% 27,987 32,137 14.8%
EBDITA margin (%) 18.7% 20.3%   18.4% 21.1%  
Other income 1,829 2,218 21.3% 4,382 5,216 19.0%
Interest (net) 1 2   4 3 -11.1%
Depreciation 411 460 11.9% 1,174 1,346 14.7%
Profit before tax 11,535 12,154 5.4% 31,191 36,003 15.4%
Exceptional items 203 955 370.8% 1,137 (398)  
Tax 3,550 4,063 14.5% 9,550 10,811 13.2%
Profit after tax/(loss) 8,187 9,046 10.5% 22,778 24,794 8.9%
Net profit margin (%) 15.1% 17.6%   14.9% 16.3%  
No. of shares (m)       289.4 289.4  
Diluted earnings per share (Rs)*         113.5  
Price to earnings ratio (x)*         17.0  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY14?
  • Bajaj Auto’s (BJAT) sales volumes declined by 12% YoY during the quarter. While export volumes increased by 12% YoY, domestic volumes declined by a sharp 24% YoY. It may be noted that exports formed nearly 43% of total sales volumes as compared to 33% during the corresponding period last year. While total motorcycle volumes declined by 10%, total commercial vehicles sales (3-wheelers) declined by 25% YoY. The company sold a total of 993,690 units during 3QFY14 as compared to 1,127,741 units 3QFY13.

  • BJAT reported a revenue decline of over 5% YoY. While volumes fell on a YoY basis, average realisations increased by around 8% YoY, thereby indicating the significant change in product mix.

  • BJAT’s operating profits grew 3% YoY on the back of a 1.6% YoY margin expansion during the quarter. The key reason for the same was lower costs of raw materials and purchases (as a percentage of sales). Margin expansion was also attributed to higher realisations from export markets.

    Cost breakup
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Raw materials/ purchases 39,211 35,663 -9.0% 109,977 104,415 -5.1%
    % sales 72.4% 69.5%   72.1% 68.6%  
    Staff cost 1,592 1,848 16.1% 4,729 5,518 16.7%
    % sales 2.9% 3.6%   3.1% 3.6%  
    Other expenditure 3,207 3,405 6.2% 9,815 10,102 2.9%
    % sales 5.9% 6.6%   6.4% 6.6%  
    Total expenditure 44,010 40,916 -7.0% 124,521 120,035 -3.6%

  • At the profit before tax level, the figure was higher by 5% YoY largely attributed to higher other income. Net profits were higher by 11% YoY given the extraordinary income (marked to market gains) during the quarter.

  • During 9mFY14, the company’s volumes decline by 10% YoY, while revenues came in lower by 0.2% YoY. Profits rose by 9% YoY mainly due to higher other income.
What to expect?
At the current price of Rs 1,930, the stock trades at a multiple of 12.8 times our estimated FY16 earnings per share and at a multiple of 12.3 times our expected FY16 cash flow per share. Although the volumes of ‘Discover’ have stagnated in the past several months, the company has lined up some launches under the Discovery family which are expected to bolster volumes going forward. Thus, in this regard, the company will be focusing on regaining its lost market share by the end of the fiscal. As far as three wheelers are concerned, the company remains positive on the back of new product launches and release of new permits. Although the fundamentals of the company are good, our view is that the stock is fairly valued at the current price and hence investors should only consider buying it at lower levels.

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