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Bajaj Auto: Exports aid in revenue growth - Views on News from Equitymaster

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Bajaj Auto: Exports aid in revenue growth
May 19, 2012

Bajaj Auto announced the results for the quarter (4QFY12) and year (FY12) ended March 2012. The company reported a 12% YoY increase in revenues, while profits declined by 45% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 12% YoY during the quarter led by a 7% YoY increase in volumes and an approximate 5% increase in average net realisations.
  • Volume increase on account of higher export sales with the same increasing by 26% YoY. Overall domestic volumes (two-wheelers and commercial vehicles) marginally decline during 4QFY12 as compared to the corresponding quarter last year.
  • Operating margins expand by 0.4% YoY on the back of lower raw material and employee costs (as a percentage of sales).
  • Net profits decline by 45% YoY. This is on account of lower extraordinary income during the period. On excluding these during both the periods, net profits increase by 11% YoY.
  • During FY12, the company's revenues and profits (after adjusting for extraordinary items) increased by 19% YoY and 20% YoY each. Overall sales volumes rise by 14% YoY during the year.
  • Company's Board recommends dividend of Rs 45 per share (dividend yield of about 2.9%).

Financial performance: A snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Units sold 949,198 1,017,167 7.2% 3,823,954 4,349,560 13.7%
Net sales 41,448 46,514 12.2% 163,982 195,290 19.1%
Expenditure 33,415 37,309 11.7% 132,270 158,090 19.5%
Operating profit (EBDITA) 8,033 9,206 14.6% 31,712 37,200 17.3%
EBDITA margin (%) 19.4% 19.8%   19.3% 19.0%  
Other income 1,562 1,395 -10.7% 5,765 6,080 5.5%
Finance costs 1 18 3440.0% 17 222 1216.0%
Depreciation 301 434 44.5% 1,228 1,456 18.5%
Exceptional items 7,246 203   7,246 (1,340)  
Profit before tax 16,539 10,351 -37.4% 43,478 40,262 -7.4%
Tax 2,535 2,631 3.8% 10,080 10,221 1.4%
Profit after tax/(loss) 14,004 7,720 -44.9% 33,397 30,041 -10.1%
Net profit margin (%) 33.8% 16.6%   20.4% 15.4%  
No. of shares (m)       289.4 289.4  
Diluted earnings per share (Rs)*         108.4  
Price to earnings ratio (x)*         14.4  
* On a trailing 12-month basis, adjusted for extraordinary items

What has driven performance in 4QFY12?
  • Bajaj Auto's (Bajaj) revenues increased by 12% YoY during the quarter ended March 2012. The growth in revenues was a mix of both - volume rise and higher realisations. The latter (on total operating income) increased by about 5% YoY.

  • The company sold a total of 1,017,167 units during 4QFY12 as compared to 948,198 units in the corresponding quarter last year. During the preceding quarter i.e. 3QFY12, Bajaj sold a total of 1,075,441 units. The volume decline as compared to those in 3QFY12 is due to the seasonality nature of the business. During 4QFY12, total motorcycle volumes grew by 7% YoY, while three-wheeler sales rose by 8% YoY.

  • The revenue growth during the quarter was primarily driven by the strong surge in export volumes, which increased by 26% YoY in absolute terms. Exports (two and three-wheelers both) formed more than 34% of the total volumes during the quarter as compared to 29% during the corresponding quarter last year. Within the exports segment, motorcycles grew by 28% YoY, while CV (three-wheelers) demand grew by 18% YoY. As per the company, business from Africa is growing at a steady pace, with demand from the Nigerian market leading in terms of volumes.

  • Domestic motorcycle sales formed about 61% of the total volumes during the quarter. These volumes declined marginally on a year on year basis. The domestic three-wheeler segment witnessed a 3% YoY reduction in unit sales.

  • Bajaj Auto's operating profits grew by 14.6% YoY as margins expanded by 0.4% to 19.8%. The key reason for the same was lower costs of raw materials as well as lower employee costs (as a percentage of sales). The latter was due to lower gratuity valuations (actuarial).

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Raw materials/ purchases 29,769 33,127 11.3% 117,975 141,025 19.5%
    % sales 71.8% 71.2%   71.9% 72.2%  
    Staff cost 1,338 1,196 -10.7% 4,936 5,401 9.4%
    % sales 3.2% 2.6%   3.0% 2.8%  
    Other expenditure* 2,307 2,987 29.5% 9,359 11,663 24.6%
    % sales 5.6% 6.4%   5.7% 6.0%  
    Total expenditure 33,415 37,309 11.7% 132,270 158,090 19.5%
    * adjusted for capitalised expenses

  • On excluding the extraordinary items during both the quarters, Bajaj's profits grew by 11% YoY. The Rs 203 m income during the quarter was on account of valuation gain on derivative hedging instruments. During the corresponding quarter last year, the net extraordinary income was on account of the company receiving the surplus of the advance sales tax it paid to the Maharashtra government.

  • For the full year FY12, Bajaj's revenues grew by 19% YoY, while profits declined by 10%YoY. However on excluding the extraordinary adjustments during both the year, the profit growth came in at 20% YoY. During the year, the company sold 13.7% more units totaling to 4,349,560 units. Average realisations were higher by about 5% YoY.

What to expect?
At the current price of Rs 1,565, the stock is trading at a multiple of 12.4 times our FY14 estimated EPS.

For FY13, the company has set a target of selling a total of 5 m units, translating as a 15% YoY increase in overall volumes. Bajaj expects motorcycles sales to contribute to about 4.5 m units (90% of total volumes), while three-wheelers would contribute to the rest. During FY12, the company sold a total of 3.8 m motorcycles. Domestic motorcycles volumes stood at over 2.5 m units. The management expects the domestic market to grow at a pace of 6-7 % on an overall basis this year. This 6% to 7% growth in volumes in the domestic market would translate to a total of 2.72 m to 2.75 m units. Therefore, to meet its target the company would have to go all out in selling motorcycles in the export markets this year and therefore are expected to increase by about 38% to 40%, making it seem like a difficult task. Bajaj's management is confident about the growth figures in other regions, barring Sri Lanka. For Sri Lanka, it expects demand to bounce back, albeit, in a deferred manner.

As for concerns over loss of market share, the company's management believes that the loss in market share seems so mainly due to sales to dealers being higher. However, when retail sales (dealers to final consumers) are concerned, it is confident of maintaining its market share. We will shortly update our estimates.

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