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Bajaj Auto: Hurt locally - Views on News from Equitymaster
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Bajaj Auto: Hurt locally
May 22, 2009

Performance summary
  • Topline falls by 3% for the full year on a YoY basis led by 10% lower volumes
  • Operating margins contract 70 basis points as costs fall at a lower rate than the topline
  • Net profits fall 13% for the full year as lower other income and exceptional losses further dent profitability
  • Net profits for the fourth quarter grow 8% YoY on the back of a 9% fall in topline
  • The company has announced a dividend of Rs 22 per share for FY09 (dividend yield of 2.3%)


(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Units sold 552,588 440,269 -20.3% 2,451,407 2,194,154 -10.5%
Net sales 20,745 18,834 -9.2% 90,462 88,104 -2.6%
Expenditure 18,129 15,976 -11.9% 77,526 76,080 -1.9%
Operating profit (EBDITA) 2,616 2,858 9.3% 12,935 12,023 -7.1%
EBDITA margin (%) 12.6% 15.2%   14.3% 13.6%  
Other income 204 229 12.1% 1,227 1,117 -9.0%
Interest (net) 18 52 187.3% 52 210 307.2%
Depreciation 414 313 -24.4% 1,740 1,298 -25.4%
Profit before tax 2,388 2,723 14.0% 12,371 11,632 -6.0%
Extraordinary income/(expense) (511) (829) 62.4% (1,025) (2,071) 102.0%
Tax 670 591 -11.7% 3,788 3,016 -20.4%
Profit after tax/(loss) 1,208 1,302 7.8% 7,558 6,545 -13.4%
Net profit margin (%) 5.8% 6.9%   8.4% 7.4%  
No. of shares (m) 144.7 144.7   144.7 144.7  
Diluted earnings per share (Rs)*         45.2  
Price to earnings ratio (x)*         20.9  
(* annualised)

What has driven performance in FY09?
  • The company sold 10% less vehicles as compared to FY08. While domestic sales plunged 22% YoY, growth in exports came in at an impressive 25% YoY. Motorcycles, the company’s mainstay fell by 23% and this was largely responsible for its poor performance in the domestic markets. In light of a subdued economy and strong competition from market leader Hero Honda, the company found it tough to grow volumes. The same factors also impacted its three wheeler business, which saw volumes dip by 12% in the domestic markets. With the company expected to launch new products in both the segments in the current fiscal, domestic market performance should witness an upswing. However, economic scenario and availability of finance remain the key factors. On the exports front, the company has done well to grow its volumes by 25% over FY08. Had it not been for a fall in the fourth quarter, exports growth would have looked even better. Besides growth in exports, the company was also able to improve its product mix, evident from the 3% fall in topline despite a 10% fall in overall volumes.

    Sales break-up…
    Domestic 4QFY08 4QFY09 Change FY08 FY09 Change
    Motorcycles 356,275 249,670 -29.9% 1,658,230 1,276,470 -23.0%
    Scooter/scooterette 2,747 1,319 -52.0% 20,839 9,692 -53.5%
    3 Wheelers 35,508 37,641 6.0% 153,997 135,473 -12.0%
    Total 394,530 288,630 -26.8% 1,833,066 1,421,635 -22.4%
    Exports            
    Motorcycles 123,630 124,034 0.3% 481,549 631,383 31.1%
    Scooter/scooterette 260 416 60.0% 477 2,080 336.1%
    3 Wheelers 34,168 27,189 -20.4% 136,315 139,056 2.0%
    Total 158,058 151,639 -4.1% 618,341 772,519 24.9%
    Grand total 552,588 440,269 -20.3% 2,451,407 2,194,154 -10.5%

  • On the costs front, operating margins fell 70 basis points as all the cost heads increased as a percentage of sales. But for a significant improvement in margins during the fourth quarter, operating margins for the full year would have contracted even further. Raw material costs as a percentage of sales reduced by a whopping 4.8% during the fourth quarter and this helped improve the margin scenario not only for the quarter but also for the full year. It is also an indicator of things to come on the margins front, as prices of key raw materials continue to rule below their last year’s highs.

    cost break up
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Raw materials 15,240 12,952 -15.0% 66,204 64,635 -2.4%
    % sales 73.5% 68.8%   73.2% 73.4%  
    Staff cost 863 946 9.7% 3,416 3,544 3.7%
    % sales 4.2% 5.0%   3.8% 4.0%  
    Other expenditure 2,026 2,078 2.6% 7,906 7,902 -0.1%
    % sales 9.8% 11.0%   8.7% 9.0%  
  • PBT for the full year has come in lower by 6%, a slight improvement from the 7% fall in operating profits. This was brought about by a strong 25% fall in depreciation charges. But a more than two fold jump in extraordinary losses, thanks mainly due to VRS settlement charges and forex losses, has resulted in a bottomline decline of 13% for the company for the full year.

What to expect?
At the current price of Rs 944, the stock is trading at a P/E of 11.6 times its expected FY11 earnings per share. The company’s earnings have come in way below our estimates, mainly due to our aggressive assumptions on the margins front. However, there is no real threat to our target price as it is based on our FY11 projections and we do believe that by then, the increase in margins that we are hoping for should materialize. We will come out with an updated report on the company shortly.

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