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Bajaj Auto: Led by realizations - Views on News from Equitymaster
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Bajaj Auto: Led by realizations
Jan 19, 2015

Bajaj Auto announced the third quarter results of financial year 2014-2015 (3QFY15). The company's revenues grew by 10% YoY during the quarter, while net profits declined by 5% YoY. Here is our analysis of the results.

Performance summary
  • Revenues grow by 10% YoY during the quarter although volumes fall by 1% YoY.
  • Operating margins fall by 0.4% YoY to 21.7% during 3QFY15. Thus, operating profits grow at a lower rate of 8% YoY for the quarter.
  • Net profits fall by 5% YoY on account of substantial reduction in other income and higher depreciation charges.

Consolidated Financial Snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Units sold 993,690 984,520 -0.9% 2,934,295 3,028,532 3.2%
Net sales 51,312 56,572 10.2% 152,172 168,727 10.9%
Expenditure 39,959 44,303 10.9% 120,429 135,939 12.9%
Operating profit (EBDITA) 11,354 12,268 8.1% 31,744 32,787 3.3%
EBDITA margin (%) 22.1% 21.7%   20.9% 19.4%  
Other income 2,218 953 -57.1% 5,216 4,282 -17.9%
Interest (net) 2 1 -63.2% 3 2 -28.1%
Depreciation 461 658 42.6% 1,351 2,036 50.7%
Profit before tax 13,109 12,563 -4.2% 35,605 35,031 -1.6%
Exceptional item - -   - (3,403)  
Tax 4,063 3,950 -2.8% 10,811 9,707 -10.2%
Profit after tax/(loss) 9,046 8,612 -4.8% 24,794 21,921 -11.6%
Net profit margin (%) 17.6% 15.2%   16.3% 13.0%  
No. of shares (m) 289.4 289.4   289.4 289.4  
Diluted earnings per share (Rs)*         113.9  
Price to earnings ratio (x)*         21.1  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY15?
  • Bajaj Auto's (BJAT) sales grew by 10% YoY during the quarter led by higher realizations as volumes were down 1% YoY. Realizations were higher on account of a favorable product mix. While total motorcycle volumes fell by 5% YoY during the quarter, total commercial vehicles sales (3-wheelers) surged by 31.5% YoY. As far as motorcycles are concerned, growth was largely led by 'Pulsar' and 'Platina'. 'Pulsar' along with Avenger recorded a 9% YoY growth in volumes (domestic and exports combined) and continued to dominate the domestic market with a share of 45%.

  • The growth in volumes of 3-wheelers was impressive and was led by the domestic market, which was up 26% YoY. This was on account of new permit issues and strong volumes in the diesel segment. The company continues to be the market leader in this space with a share of 42%. Exports did strongly to grow by 16% YoY and 26% YoY in volume and value terms respectively.

  • BJAT's operating profits grew at a lower rate of 8% YoY as margins contracted by 0.4% during the quarter. The key reason for the same was higher staff costs and other expenditure (as a percentage of sales). Raw material costs remained under control.

  • Net profits fell by 5% YoY on account of a substantial reduction in other income and higher depreciation charges. The reduction in other income was due to timing difference arising from investments in FMPs.
What to expect?
At the current price of Rs 2,408, the stock trades at a multiple of 13.4 times our estimated FY17 cash flow per share. Bajaj Auto intends to reposition its Discover brand and this is expected to bolster volumes going forward. The company has also lined up a couple of launches under Pulsar in the domestic market in the coming months. Exports are also expected to increase led by higher volumes and entry into newer geographies, although near term pressure is likely to persist in countries such as Nigeria, Venezuela and the like on the back of weak crude prices. 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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