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Bajaj Auto: Strong finish to the year - Views on News from Equitymaster
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Bajaj Auto: Strong finish to the year
May 19, 2011

Bajaj Auto announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company reported a 24% YoY increase in revenues, while profits grew by 163% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 24% YoY during the quarter. Growth led by a 17% YoY increase in volumes and a 7% YoY increase in average realisations.
  • Operating margins contract by 1.3% YoY on the back of higher input costs (as a percentage of sales).
  • Net profits rise by 17% YoY during 4QFY11 (adjusted for extraordinary items). This is higher than the growth in operating profits largely due to higher other income and lower depreciation charges.
  • During FY11, net sales and profits rise by 39% YoY and 96% YoY. On adjusting for extraordinary items during both the years, profits during FY11 grow by 40% YoY.

Financial performance: A snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Units sold 808,973 948,198 17.2% 2,852,580 3,823,954 34.1%
Net sales 33,995 42,000 23.5% 119,210 166,089 39.3%
Expenditure 26,224 33,385 27.3% 93,284 132,240 41.8%
Operating profit (EBDITA) 7,771 8,615 10.9% 25,926 33,849 30.6%
EBDITA margin (%) 22.9% 20.5%   21.7% 20.4%  
Other income 425 1,010 137.6% 1,225 3,658 198.6%
Interest (net) (0) 1   60 17 -71.7%
Depreciation 341 301 -11.9% 1,365 1,228 -10.0%
Extraordinary income/(expense) (458) 7,246   (1,615) 7,246  
Profit before tax 7,397 16,569 124.0% 24,111 43,508 80.4%
Tax 2,075 2,565 23.6% 7,075 10,110 42.9%
Profit after tax/(loss) 5,322 14,004 163.1% 17,036 33,397 96.0%
Net profit margin (%) 15.7% 33.3%   14.3% 20.1%  
No. of shares (m)       144.7 289.4  
Diluted earnings per share (Rs)*         90.4  
Price to earnings ratio (x)*         14.2  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in FY11?
  • Bajaj Auto reported a revenue growth of 39% YoY on the back of a 34% YoY increase in volumes during the year. Average realisations (on total operating income) increased by over 5% YoY.

    The company in total sold 3,823,954 units during FY11 as compared to 2,852,580 units last year. Total motorcycle volumes grew by 35% YoY and formed about 89% of the total unit sales (88% last year). Three-wheeler sales rose by 28% YoY to 436,884 units.

    Domestic motorcycle sales formed about 63% of the total volumes during the year and grew by 36% YoY. Not just that, motorcycle exports also did well and grew by 34% YoY to stand at about 972,437 units (25% of total volumes). Total motorcycle sales stood at about 3,387,043 units during the year. The company’s two flagship brand - Pulsar and Discover - contributed to about 70% of the volumes.

    In the three-wheeler segment, the 28 % YoY volumes growth was largely led by exports. While three-wheeler exports grew by a robust 40% YoY, domestic sales were lukewarm at 17% YoY. Three-wheeler exports formed about 53% of the total three-wheeler sales during the year. During last year, export volumes formed about 48% of the total three-wheeler volumes. Total three-wheeler volumes formed about 11% of total unit sales.

  • Bajaj Auto’s operating profits increased at a slower pace as compared to the increase in revenues on the back of a 1.3% YoY margin contraction during the year. 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 46% YoY in absolute terms, while employee and other expenses increased by 19% YoY and 11% YoY respectively.

    Cost break-up...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials/ purchases 23,544 29,768 26.4% 80,704 117,988 46.2%
    % sales 69.3% 70.9%   67.7% 71.0%  
    Staff cost 862 1,296 50.4% 3,995 4,768 19.4%
    % sales 2.5% 3.1%   3.4% 2.9%  
    Other expenditure 1,818 2,320 27.6% 8,585 9,484 10.5%
    % sales 5.3% 5.5%   7.2% 5.7%  
    Total expenditure 26,224 33,385   93,284 132,240  

  • 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 extraordinary income during the year. On excluding the impact of extraordinary items during both the periods, the company’s net profits rose by 40% 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 1,287, the stock trades at a multiple of 11.7 times our estimated FY13 earnings per share and at a multiple of 11.1 times our expected FY13 cash flow per share (ResearchPro subscribers, kindly click here).

The management is 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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Feb 22, 2018 10:45 AM


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