Bajaj Auto: Exports fuel growth - Views on News from Equitymaster

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Bajaj Auto: Exports fuel growth

Jan 20, 2012

Bajaj Auto announced the third quarter results of financial year 2011-2012 (3QFY12). The company reported a 21% YoY increase in revenues, while profits grew by 19% YoY. Here is our analysis of the results.

Performance summary 
  • Net sales grow by 21% YoY during the quarter led by healthy growth in volumes.
  • Operating margins expand by 0.7% YoY on the back of lower raw material costs (as a percentage of sales).
  • Net profit growth is slower at 19% YoY on account of extraordinary losses during the quarter. Excluding the same, net profit growth stands at 28% YoY.

Financial performance: A snapsho
(Rs m)  3QFY11  3QFY12  Change  9mFY11  9mFY12  Change 
Units sold 946,850 1,075,441 13.6% 2,875,756 3,332,393 15.9%
Net sales 41,771 50,632 21.2% 124,090 151,077 21.7%
Expenditure 33,278 40,018 20.3% 98,855 120,781 22.2%
Operating profit (EBDITA) 8,493 10,614 25.0% 25,234 30,296 20.1%
EBDITA margin (%) 20.3% 21.0%   20.3% 20.1%  
Other income 995 908 -8.7% 2,648 2,384 -10.0%
Interest (net) 4 0   16 205 1148.2%
Depreciation 310 321 3.6% 928 1,022 10.1%
Profit before tax 9,174 11,201 22.1% 26,938 31,453 16.8%
Exceptional items - (589)   - (1,543)  
Tax 2,503 2,660 6.3% 7,545 7,590 0.6%
Profit after tax/(loss) 6,671 7,952 19.2% 19,393 22,321 15.1%
Net profit margin (%) 16.0% 15.7%   15.6% 14.8%  
No. of shares (m)       289.4 289.4  
Diluted earnings per share (Rs)*         105.8  
Price to earnings ratio (x)*         14.6  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY12?  
  • Bajaj Auto reported a revenue growth of 21% YoY on the back of a 14% YoY increase in volumes during the quarter. Average realisations (on total operating income) increased by around 7% YoY.
  • The company in total sold 1,075,441 units during 3QFY12 as compared to 946,850 units in the corresponding quarter last year. Total motorcycle volumes grew by 13% YoY, while three-wheeler sales rose by 19% YoY to 108,363 units.

    Domestic motorcycle sales formed about 56% of the total volumes during the quarter and grew by 7% YoY. Motorcycle exports did better to grow by 27% YoY to stand at about 239,929 units (22% of total volumes). In the three-wheeler segment, the 19% YoY volumes growth was largely led by exports. While three-wheeler exports grew by a robust 35% YoY, domestic sales grew by a mere 1% YoY as high interest rates and fuel prices dampened demand. Three-wheeler exports formed about 52% of the total three-wheeler sales during the quarter. Total three-wheeler volumes formed about 10% of total unit sales.

  • Bajaj Auto's operating profits grew at a stronger pace of 25% YoY on the back of a 0.7% 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). Expansion in margins was also largely attributed to higher realisations from export markets.

    Cost break-up...
    (Rs m)  3QFY11  3QFY12  Change  9mFY11  9mFY12  Change 
    Raw materials/ purchases 29,826 35,636 19.5% 88,220 107,916 22.3%
    % sales 71.4% 70.4%   71.1% 71.4%  
    Staff cost 1,066 1,320 23.9% 3,471 4,020 15.8%
    % sales 2.6% 2.6%   2.8% 2.7%  
    Other expenditure 2,386 3,061 28.3% 7,164 8,845 23.5%
    % sales 5.7% 6.0%   5.8% 5.9%  
    Total expenditure 33,278 40,018 20.3% 98,855 120,781 22.2%

  • Despite the strong growth in operating profits, net profit growth came in lower at 19% YoY. This was largely due to extraordinary losses incurred to the tune of Rs 59 bn during the quarter, which was an MTM loss on the valuation of certain range forward contracts. Excluding the same, growth in net profits stood at 28% YoY.

What to expect?  
At the current price of Rs 1,545, the stock trades at a multiple of 12.3 times our estimated FY14 earnings per share and at a multiple of 11.8 times our expected FY14 cash flow per share.

The management is quite confident on the long term outlook of the company and intends to focus on profitable products going forward. Further, the company is looking at expanding its dealer network. These would be located in the semi-urban and rural markets and would eventually help in boosting volumes. Although uncertainty is likely to persist in the domestic market in the near term due to a high interest rates and fuel prices, the company expects exports to do pretty well. On an overall basis, we are confident of the company's long term outlook despite short term concerns. Having said that, the stock price of the company at the current levels looks fairly valued.

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Jun 23, 2021 (Close)


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