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Bajaj Auto: Solace from exports - Views on News from Equitymaster
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Bajaj Auto: Solace from exports
Jul 10, 2008

Performance summary
  • Led by 9% YoY growth in volumes, topline grows by 10% YoY
  • Inflationary pressures take toll on margins as they slip 150 basis points on a YoY basis

  • Bottomline falls by 23% YoY mainly due to significantly higher other income of the company in the previous quarter before the demerger.

Standalone Financials
(Rs m) 1QFY08 1QFY09 Change
No of units sold 571,591 620,095 8.5%
Net sales 21,091 23,108 9.6%
Expenditure 18,338 20,440 11.5%
Operating profit (EBDITA) 2,754 2,668 -3.1%
EBDITA margin (%) 13.1% 11.5%  
Other income 1,027 288 -72.0%
Interest (net) 1 9 1433.3%
Depreciation 490 335 -31.6%
Profit before tax 3,290 2,611 -20.6%
Extraordinary income/(expense) - -  
Tax 1,025 860 -16.1%
Profit after tax/(loss) 2,265 1,751 -22.7%
Net profit margin (%) 10.7% 7.6%  
No. of shares (m) 101.2 144.7  
Diluted earnings per share (Rs)* 62.6 48.4  
Price to earnings ratio (x)**   9.3  
(* annualised, ** on 1QFY09 annualised earnings)

Note: Since the current Bajaj Auto is an auto focused demerged entity, the financial performance may not be strictly comparable

What has driven performance in 1QFY09?
  • Once again, it is the buoyancy in exports that has come to the rescue of the company. Thanks to 33% growth in the same, Bajaj Auto was able to improve its overall volumes by a decent 9% YoY. If one were to consider just the domestic volumes, they continued to disappoint for the second year running, managing to remain just about stagnant. It should be noted that these volumes were coming off a low base as domestic volumes had fallen nearly 24% during the first quarter of the previous year on a YoY basis. The stagnation in domestic volumes is thus slightly disturbing. The fact that vehicle financing has become scarce as well as expensive is also not helping matters. A steep fall of 19% in the company’s three wheeler segment also affected domestic volumes. Fortunes though might see a turnaround here with the launch of two new products.

  • Exports continued with their stellar performance with motorcycles exports logging an impressive 49% YoY growth. Thanks to the export buoyancy and domestic slowdown in recent years, exports now account for 31% of the company’s total sales. On the topline growth in value terms, company’s focus on high value products seem to be paying dividends as growth has come in at 10% YoY, slightly higher than the 9% YoY growth in volumes.

    sales break up
    1QFY08 1QFY09 %Change
    Motorcycles 494,042 558,633 13.1%
    Total 2 wheelers 500,255 561,977 12.3%
    Three wheelers 71,336 58,118 -18.5%
    Grand total 571,591 620,095 8.5%
    Exports out of above 149,804 198,717 32.7%

    As far as operating margins are concerned, they were lower by 150 basis points (1.5%) as compared to 1QFY08. This was largely due to 14% jump in raw material expenses. Since prices for most commodities have witnessed a growth on a YoY basis, the company seems to have signed new contracts at higher prices, thus impacting margins. Had it not been for the fall in other expenses, operating margins would have been impacted further.

    cost break up
    (Rs m) 1QFY08 1QFY09 Change
    Raw materials 15,260 17,454 14.4%
    % sales 72.4% 75.5%  
    Staff cost 987 1,081 9.6%
    % sales 4.7% 4.7%  
    Other expenses 2,091 1,904 -8.9%
    % sales 9.9% 8.2%  

    The company’s bottomline has witnessed a steep fall of 23% YoY over 1QFY08. This was mainly due a huge 72% fall in other income. It should be noted that the other income from the previous quarter includes the income from its other operations and its huge investment portfolio, which have now been hived off into separate companies as a part of the demerger process. Hence, the numbers are not exactly comparable.

What to expect?
At the current price of Rs 460, the stock is trading at a P/E of 9.3 times the company’s annualised 1QFY09 earnings. While the company’s prospects in the domestic markets in the near term look weak, its strong position in the Indian two-wheeler space and robust exports make it an attractive long-term story. We will resume the coverage of the company post the receipt of its annual report.

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