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Bajaj Auto: A year of record profits! - Views on News from Equitymaster
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Bajaj Auto: A year of record profits!
May 12, 2010

Bajaj Auto Ltd has announced its FY10 results. The company has reported a 35% YoY and 160% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by a strong 81% YoY during the quarter, led by 84% growth in volumes
  • Operating profits up nearly threefold during the quarter as margins expand by more than 7%
  • More than fourfold jump in quarterly profits as higher other income and lower extraordinary expenses add further zing to operating performance
  • Bottomline for the full year grows by an impressive 160% on the back of a 35% growth in topline

(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Units sold 440,269 808,973 83.7% 2,194,154 2,852,580 30.0%
Net sales 18,834 33,995 80.5% 88,104 119,210 35.3%
Expenditure 15,976 26,224 64.1% 76,080 93,284 22.6%
Operating profit (EBDITA) 2,858 7,771 171.9% 12,023 25,926 115.6%
EBDITA margin (%) 15.2% 22.9%   13.6% 21.7%  
Other income 229 425 85.5% 1,117 1,225 9.7%
Interest (net) 52 (0) -100.2% 210 60 -71.5%
Depreciation 313 341 9.0% 1,298 1,365 5.1%
Profit before tax 2,723 7,855 188.5% 11,632 25,726 121.2%
Extraordinary income/(expense) (829) (467) -43.7% (2,071) (1,624) -21.6%
Tax 591 2,075 251.0% 3,016 7,075 134.6%
Profit after tax/(loss) 1,302 5,313 308.0% 6,545 17,027 160.2%
Net profit margin (%) 6.9% 15.6%   7.4% 14.3%  
No. of shares (m) 144.7 144.7   144.7 144.7  
Diluted earnings per share (Rs)*         117.7  
Price to earnings ratio (x)*         17.8  
(* annualised)

What has driven performance in FY10?
  • Topline growth for the full year has come in at 30% in volume terms and 35% in value terms, indicating improved realizations. The growth in volumes was led by the domestic motorcycles division, which managed to clock an impressive growth rate of 40% as against the industry growth of 26%. Consequently, the company was able to claw back some of its market share that it lost to competition in the previous two fiscals. We believe that Bajaj Auto's strategy of focusing on just two brands, viz. Pulsar and Discover has paid rich dividends and the company is likely to continue with the same in the future as well. As far as motorcycles exports are concerned, they managed to grow more or less in line with the industry.

  • As far as three wheelers are concerned, sales have continued to be robust across in-city and semi-urban markets, helping the company register a strong growth of 30% YoY as against the industry growth rate of 26%.

    Sales break-up...
    Domestic 4QFY09 4QFY10 Change FY09 FY10 Change
    Motorcycles 249,627 549,701 120.2% 1,276,427 1,781,748 39.6%
    Scooter/scooterette 1,319 258 -80.4% 9,692 3,759 -61.2%
    3 Wheelers 37,641 44,499 18.2% 135,473 176,027 29.9%
    Total 288,587 594,458 106.0% 1,421,592 1,961,534 38.0%
    Motorcycles 124,034 162,689 31.2% 631,383 725,097 14.8%
    Scooter/scooterette 416 - -100.0% 2,080 1,092 -47.5%
    3 Wheelers 27,189 51,782 90.5% 139,056 164,909 18.6%
    Total 151,639 214,471 41.4% 772,519 891,098 15.3%
    Grand total 440,226 808,929 83.8% 2,194,111 2,852,632 30.0%
    Source: SIAM

  • On the margins front, the company has managed to clock its best ever and industry beating margins of around 22% for the full year. This was a huge 8% higher than what it managed to achieve in the previous year and could be attributed mainly to the significant reduction in raw material costs as a percentage of sales. Of course, lower prices of key inputs like steel and aluminium certainly helped the company in improving margins. But its focus on high margin products and better product mix also helped matters. Going forward though, the company expects some amount of margin pressure to set in and has guided for a margin in the region of 20% for FY11.

  • As far as the other cost heads are concerned, lower extraordinary expenses and benign depreciation charges have been able to more than offset the higher tax outgo and thus, bring about a strong 160% improvement in the company's net profits. Also worth adding that the company has managed to end the year with surplus cash and cash investments to the tune of a whopping Rs 32 bn as against a relatively lower Rs 9 bn during same period last year.

What to expect?

At the current price of Rs 2,171, the stock trades at a cash flow multiple of 14x its expected FY12 cash flow per share. The company's performance has come nearly in line with our estimates and as such, we do not feel the need to revise our estimates in the immediate future. We believe that although the growth that the company witnessed in FY10 is unlikely to be repeated, the company will continue to keep posting modest growth rates in the near to medium term. Taking this and it's not so expensive valuations into consideration, we maintain our HOLD view on the stock.

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