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Bajaj Auto: A forgettable FY13 - Views on News from Equitymaster
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Bajaj Auto: A forgettable FY13
May 20, 2013

Bajaj Auto announced the fourth quarter results of financial year 2012-2013 (4QFY13). The company reported a 2% YoY growth in revenues, while profits fell by 1% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 2% YoY during the quarter despite the 3.5% YoY drop in volumes.
  • Operating margins decline by 2.2% YoY to 17.6% in 4QFY13 on the back of higher staff costs and other expenditure (as a percentage of sales).
  • Fall in net profits at 1% YoY during the quarter is lower than the 9% YoY drop in operating profits on account of the substantial rise in other income.

Financial performance: A snapshot
(Rsm) 4QFY12 4QFY13 Change FY12 FY13 Change
Units sold 1,017,167 981,242 -3.5% 4,349,560 4,237,162 -2.6%
Net sales 46,514 47,465 2.0%  195,290  199,973 2.4%
Expenditure 37,309 39,099 4.8%  158,090  163,620 3.5%
Operating profit (EBDITA) 9,206 8,366 -9.1% 37,200 36,353 -2.3%
EBDITA margin (%) 19.8% 17.6%   19.0% 18.2%  
Other income 1,395 2,436 74.6% 6,080 7,955 30.8%
Interest (net)  18  2   222 5  
Depreciation 434 466 7.3% 1,456 1,640 12.6%
Profit before tax 10,149 10,334 1.8% 41,602 42,662 2.5%
Exceptional items 203   (1,340)  
Tax 2,631 2,676 1.7% 10,221 12,227 19.6%
Profit after tax/(loss) 7,720 7,658 -0.8% 30,041 30,436 1.3%
Net profit margin (%) 16.6% 16.1%   15.4% 15.2%  
No. of shares (m)       289.4 289.4  
Diluted earnings pershare (Rs)*         105.2  
Price to earnings ratio(x)*         17.3  
(* On a trailing 12-month basis)

What has driven performance in FY13?
  • Bajaj Auto's revenues rose by a mere 2% YoY during the year on account of a 3% YoY drop in volumes. Total motorcycle volumes fell by 2% YoY largely due to the slowdown in the domestic market, while three-wheeler sales fell by 7% YoY on account of poor performance on the exports front.

    Domestic motorcycle sales formed about 67% of the total volumes during the year but dipped by 4% YoY on account of the overall slowdown in the domestic market. Motorcycle exports grew by a lukewarm 2% YoY. In the three-wheeler segment, overall volumes fell by 7% YoY largely due to the 19% YoY fall in export volumes. Growth in the domestic market was decent at 11% YoY during the year.

  • Bajaj Auto's operating profits fell by 2% YoY largely on the back of a 0.8% YoY margin contraction to 18.2% during the year. The key reason for the same was higher staff costs and other expenditure (as a percentage of sales). The latter increased from 6% in FY12 to 6.6% in FY13.

    Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw materials/ purchases 33,127 34,088 2.9% 141,025 144,066 2.2%
    % sales 71.2% 71.8%   72.2% 72.0%  
    Staff cost 1,196 1,666 39.4% 5,401 6,395 18.4%
    % sales 2.6% 3.5%   2.8% 3.2%  
    Other expenditure 2,987 3,344 12.0% 11,663 13,160 12.8%
    % sales 6.4% 7.0%   6.0% 6.6%  
    Total expenditure 37,309 39,099 4.8% 158,090 163,620 3.5%

  • Net profits grew by 1% YoY during the year on account of the subdued growth in operating profits and rise in tax expenses.

What to expect?

At the current price of Rs 1,878, the stock trades at a multiple of 14 times our expected FY15 cash flow per share. The auto industry is expected to face headwinds in the near term as growth in the economy has yet to pick up. On the exports front, the company expects to grow by around 10-12% in FY14 led by expansion in the existing markets. Having said that, Bajaj Auto's management is quite confident on the long term outlook of the company and intends to focus on profitable products going forward. However, because of valuations being expensive, at the current price, we have a 'Sell' view on the stock.

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