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Bajaj Auto: Exports play truant - Views on News from Equitymaster
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Bajaj Auto: Exports play truant
Jul 18, 2012

Bajaj Auto announced the first quarter results of financial year 2012-2013 (1QFY13). The company reported a 3% YoY increase in revenues, while profits grew by 1% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 3% YoY during the quarter led due to continued slowdown in the domestic market and fall in export volumes.
  • Operating margins expand marginally by 0.1% YoY to 17.9% on the back of lower raw material costs (as a percentage of sales).
  • Net profit growth is slower at 1% YoY despite an increase in other income on account of higher tax expenses.

Financial performance: A snapshot
(Rs m) 1QFY12 1QFY13 Change
Units sold 1,092,815 1,078,971 -1.3%
Net sales 47,063 48,657 3.4%
Expenditure 38,665 39,940 3.3%
Operating profit (EBDITA) 8,398 8,717 3.8%
EBDITA margin (%) 17.8% 17.9%  
Other income 1,441 1,820 26.3%
Interest (net) 2 0  
Depreciation 306 352 15.0%
Profit before tax 9,531 10,184 6.9%
Tax 2,420 3,000 24.0%
Profit after tax/(loss) 7,111 7,184 1.0%
Net profit margin (%) 15.1% 14.8%  
No. of shares (m) 289.4 289.4  
Diluted earnings per share (Rs)*   108.7  
Price to earnings ratio (x)*   14.0  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 1QFY13?
  • Bajaj Auto reported a revenue growth of 3% YoY on the back of a 1% YoY decrease in volumes during the quarter. Total motorcycle volumes grew by 2% YoY, while three-wheeler sales fell by 26% YoY during the quarter.

    Domestic motorcycle sales formed about 57% of the total volumes during the quarter but declined by 1% YoY. This was due to slowdown in the economy and subdued demand although the domestic industry witnessed a growth of 6% YoY. Motorcycle exports did relatively better to grow by 7% YoY on account of the African and Latin American markets doing well. In the three-wheeler segment, overall volumes declined by 26% YoY largely due to the 41% YoY fall in export volumes. Domestic volumes in this segment grew by 6% YoY against a flat industry growth. Exports were at the receiving end due to introduction of import barriers in Sri Lanka and political unrest in Egypt.

  • Bajaj Auto's operating profits grew by 4% YoY on the back of a 0.1% YoY margin expansion during the quarter. The key reason for the same was lower costs of raw materials and purchases (as a percentage of sales) which fell from 73.6% in 1QFY12 to 72.1% in 1QFY13.

    Cost break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Raw materials/ purchases 34,659 35,080 1.2%
    % sales 73.6% 72.1%  
    Staff cost 1,431 1,604 12.1%
    % sales 3.0% 3.3%  
    Other expenditure 2,575 3,255 26.4%
    % sales 5.5% 6.7%  
    Total expenditure 38,665 39,940 3.3%

  • Growth in profit before taxes (PBT) was higher than operating profits due to rise in other income. Having said that, growth in net profits was tepid at 1% YoY due to increase in tax expenses.

What to expect?
At the current price of Rs 1,550, the stock trades at a multiple of 11.1 times our estimated FY15 earnings per share and at a multiple of 10.6 times our expected FY15 cash flow per share.

The management is quite confident on the long term outlook of the company and intends to focus on profitable products going forward. For FY13, the management had given a guidance of achieving volumes of 5 m units which could be a bit challenging given the subdued demand conditions in the domestic market and the fall in export volumes during the first quarter. Overall, the growth prospects for the company look strong over the next three years despite short term concerns. After the declaration of FY12 results, we have factored in estimates for FY15 and based on them we recommend investors to hold on to the stock.

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