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Bajaj Auto: FY12 begins quite well - Views on News from Equitymaster
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Bajaj Auto: FY12 begins quite well
Jul 18, 2011

Bajaj Auto announced the first quarter results of financial year 2011-2012 (1QFY12). The company reported a 23% YoY increase in revenues, while profits grew by 21% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 23% YoY during the quarter. Growth led by an 18% YoY increase in volumes and a 5% YoY increase in average realisations.
  • Operating margins contract by 0.9% YoY on the back of higher input costs (as a percentage of sales).
  • Net profits rise by 21% YoY during 1QFY12. This is higher than the growth in operating profits largely due to lower depreciation charges and benign growth in tax expenses. 

Financial performance: A snapshot
(Rs m) 1QFY11 1QFY12 Change
Units sold 928,336 1,092,815 17.7%
Net sales 38,901 47,773 22.8%
Expenditure 31,131 38,665 24.2%
Operating profit (EBDITA) 7,769 9,108 17.2%
EBDITA margin (%) 20.0% 19.1%  
Other income 817 731 -10.5%
Interest (net) 6 2 -63.5%
Depreciation 318 306 -3.7%
Profit before tax 8,262 9,531 15.4%
Tax 2,360 2,420 2.5%
Profit after tax/(loss) 5,902 7,111 20.5%
Net profit margin (%) 15.2% 14.9%  
No. of shares (m) 144.7 289.4  
Diluted earnings per share (Rs)*   94.6  
Price to earnings ratio (x)*   15.0  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 1QFY12?
  • Bajaj Auto reported a revenue growth of 23% YoY on the back of an 18% YoY increase in volumes during the quarter. Average realisations (on total operating income) increased by over 5% YoY.

The company in total sold 1,092,815 units during 1QFY12 as compared to 928,336 units in the corresponding quarter last year. Total motorcycle volumes grew by 16% YoY and formed about 88% of the total unit sales (89% in 1QFY11). Three-wheeler sales rose by 30% YoY to 129,764 units. 

Domestic motorcycle sales formed about 57% of the total volumes during the quarter and grew by 10% YoY. Motorcycle exports did better to grow by 30% YoY to stand at about 339,876 units (31% of total volumes). Total motorcycle sales stood at about 963,051 units during the quarter. The company's two flagship brand - Pulsar and Discover - contributed to about 65% of the domestic motorcycle volumes.

In the three-wheeler segment, the 30% YoY volumes growth was largely led by exports. While three-wheeler exports grew by a robust 42% YoY, domestic sales were lukewarm at 10% YoY. Three-wheeler exports formed about 67% of the total three-wheeler sales during the quarter. Total three-wheeler volumes formed about 12% 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 0.9% YoY margin contraction during the quarter. 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 25% YoY in absolute terms, while employee and other expenses increased by 10% YoY and 19.5% YoY respectively.
Cost break-up...
(Rs m) 1QFY11 1QFY12 Change
Raw materials/ purchases 27,682 34,665 25.2%
% sales 71.2% 72.6%  
Staff cost 1,264 1,389 9.9%
% sales 3.2% 2.9%  
Other expenditure 2,186 2,611 19.5%
% sales 5.6% 5.5%  
Total expenditure 31,131 38,665  
  • Bajaj Auto’s net profits (up 20.5% YoY) grew at a faster pace as compared to the increase in operating profits. The key reason for the same was lower depreciation charges and a benign rise in tax expenses.
What to expect?

At the current price of Rs 1,422, the stock trades at a multiple of 11.3 times our estimated FY14 earnings per share and at a multiple of 10.8 times our expected FY14 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 FY12, 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. Although uncertainty is likely to persist in the domestic market in the near term, the company expects exports to do pretty well.

On an overall basis, we are confident of the company’s long term outlook and despite short term concerns. We have a positive view on the stock from a 2-3 year perspective.

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