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Bajaj Auto: Slow quarter, a good year till date - Views on News from Equitymaster

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Bajaj Auto: Slow quarter, a good year till date

Jan 19, 2011

Bajaj Auto has announced its 3QFY11 results. The company has reported a 27% YoY and 40% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 27% YoY during the quarter. Growth led by a 17% YoY increase in volumes and a 9% YoY increase in average realisations.

  • Operating profits increase by 17% as expenses increase at a faster pace (as compared to the net sales). Operating margins contract by 1.6% YoY on the back of higher input costs (as a percentage of sales).

  • Net profits rise by 28% YoY during 3QFY11 (adjusted for extraordinary items). Apart from a decent operating performance, a higher other income and a lower tax outgo helped the company boost the profits.

  • During 9mFY11, net sales and profits rose by 46% YoY and 66% YoY. On adjusting for last year’s extraordinary losses, profits during 9mFY11 are higher by 51% YoY.

Financial performance: A snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Units sold 809,248 946,850 17.0% 2,043,607 2,875,756 40.7%
Net sales 32,956 41,771 26.7% 85,215 124,090 45.6%
Expenditure 25,720 33,278 29.4% 67,061 98,855 47.4%
Operating profit (EBDITA) 7,235 8,493 17.4% 18,155 25,234 39.0%
EBDITA margin (%) 22.0% 20.3%   21.3% 20.3%  
Other income 351 995 183.1% 800 2,648 231.1%
Interest (net) 0 4 1700.0% 60 16 -72.6%
Depreciation 357 310 -13.1% 1,023 928 -9.3%
Extraordinary income/(expense) (458) -   (1,157) -    
Profit before tax 6,771 9,174 35.5% 16,715 26,938 61.2%
Tax 2,020 2,503 23.9% 5,000 7,545 50.9%
Profit after tax/(loss) 4,751 6,671 40.4% 11,715 19,393 65.5%
Net profit margin (%) 14.4% 16.0%   13.7% 15.6%  
No. of shares (m)       144.7 289.4  
Diluted earnings per share (Rs)*         87.0  
Price to earnings ratio (x)*         15.1  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY11?
  • Bajaj Auto reported a revenue growth of 27% YoY on the back of a 17% YoY increase in volumes during the quarter. Average realisations (on total operating income) increased by over 8% YoY.

    The company in total sold 946,850 units during the quarter ended December 2010 as compared to 808,158 units last year. Total motorcycle volumes grew by 18% YoY and formed about 87% of the total unit sales (88% last year). Three-wheeler sales rose by 13% YoY to 108,363 units.

    Domestic motorcycle sales formed about 63% of the total volumes during the quarter and grew by 23% YoY. On the other hand, motorcycle exports grew by 7% and stood at about 240,000 units (25% of total volumes). Total motorcycle sales stood at about 838,500 units during the quarter. The company’s two flagship brand – Pulsar and Discover – contributed to about 70% of the volumes.

    In the three-wheeler segment, the volumes growth seemed to have slowed down as volumes increased by 13% YoY only. While three-wheeler exports grew by 14% YoY, domestic sales grew by 11% YoY. Three-wheeler exports formed about 52% of the total three-wheeler sales during the quarter. During the same quarter last year, export volumes formed about 52% of the total three-wheeler volumes. Total three-wheeler volumes formed about 11% of total unit sales.

    During the quarter, exports formed nearly 31% of total volumes as compared to 34% during the quarter ended December 2009.

    As per the company, the overall market share in the motorcycle segment rose to 31% as compared to 34% during 2QFY11.

  • Bajaj Auto’s operating profits increased at a slower pace as compared to the increase in revenues on the back of a 1.6% YoY margin contraction during the quarter. The key reason for the same was higher costs of raw materials and purchases (as a percentage of sales). Raw material and purchases costs rose by 32% YoY in absolute terms, while employee and other expenses increased by 15% YoY and 7% YoY respectively.

    Cost break-up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials/ purchases 22,567 29,826 32.2% 57,161 88,220 54.3%
    % sales 68.5% 71.4%   67.1% 71.1%  
    Staff cost 930 1,066 14.6% 3,133 3,471 10.8%
    % sales 2.8% 2.6%   3.7% 2.8%  
    Other expenditure 2,224 2,386 7.3% 6,767 7,164 5.9%
    % sales 6.7% 5.7%   7.9% 5.8%  
    Total expenditure 25,720 33,278   67,061 98,855  

  • Bajaj Auto’s net profits grew at a faster pace as compared to the increase in operating profits. The key reason for the same was higher other income (mainly treasury income) and no extraordinary losses during the quarter. On excluding the extraordinary loss of last year, the company’s net profits rose by 28% YoY. Lower depreciation (on account of lower capex) also aided the company at the bottomline level.

What to expect?
At the current price of Rs 1,310, the stock trades at a multiple of 12 times our estimated FY13 earnings per share and at a multiple of 11.3 times our expected FY13 cash flow per share (ResearchPro subscribers, kindly click here).

During the earnings call, the management seemed quite confident on the long term outlook of the company. Bajaj Auto has gone in for a price hike across products (domestic and exports). And as such would help it offset the impact of the rising prices to a certain extent.

Further, the company is looking at expanding its dealer network. From April this year, about 130 new dealers will be added to the company’s network. These would be located in the semi-urban and rural markets and would eventually help in boosting volumes.

On an overall basis, we are confident of the company’s long term outlook and believe investors should not take into consideration the short term concerns. We have a positive view on the stock from an FY13 perspective.

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