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Bajaj Auto: Benefits from a weaker rupee

Jul 19, 2013 | Updated on Oct 30, 2019

Bajaj Auto announced the first quarter results of financial year 2013-2014 (1QFY14). The company reported a 1% YoY growth in revenues, while net profits grew by 3% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 1% YoY during the quarter despite the 9% YoY drop in volumes due to higher realisations.
  • Operating margins improve by 0.6% YoY to 18.5% in 1QFY14 on the back of lower raw material costs (as a percentage of sales).
  • Despite the 4% YoY growth in operating profits, net profits grow by 3% YoY on account of lower other income and higher depreciation charges.

(Rs m) 1QFY13 1QFY14 Change
Units sold 1,078,971 979,275 -9.2%
Net sales 48,657 49,111 0.9%
Expenditure 39,940 40,044 0.3%
Operating profit (EBDITA) 8,717 9,067 4.0%
EBDITA margin (%) 17.9% 18.5%  
Other income 1,820 1,756 -3.5%
Interest (net) 0 1  
Depreciation 352 444 26.0%
Profit before tax 10,184 10,378 1.9%
Tax 3,000 3,002 0.0%
Profit after tax/(loss) 7,184 7,377 2.7%
Net profit margin (%) 14.8% 15.0%  
No. of shares (m) 289.4 289.4  
Diluted earnings per share (Rs)*   105.8  
Price to earnings ratio (x)*   18.6  
(* On a trailing 12-month basis)

What has driven performance in 1QFY14?
  • Bajaj Auto's revenues rose by a mere 1% YoY during the quarter on account of a 9% YoY drop in volumes. Total motorcycle volumes fell by 12% YoY largely due to the slowdown in both the domestic and the export markets, while three-wheeler sales bucked the trend and registered a healthy 24% YoY growth largely led by the robust 44% YoY growth in exports.

    Domestic motorcycle sales formed about 58% of the total volumes during the quarter but dipped by 8% YoY on account of the overall slowdown in the domestic market. The premium segment, in which Bajaj Auto is the market leader with 46% share, declined by around 11% YoY and this was reflected in the company's numbers as well. The strike at the Chakan plant near Pune also impacted volumes during the quarter. Motorcycle exports plunged 21% YoY on account of problems such as geo-political crises in Egypt, and the ban on the use of motorcycle as taxi in a few provinces of Nigeria. As far as three wheelers are concerned, volume growth in the domestic markets was subdued at 1% YoY.

  • Bajaj Auto's operating profits grew by 4% YoY largely on the back of a 0.6% YoY margin expansion to 18.5% during the quarter. The key reason for the same was lower raw material costs (as a percentage of sales), which decreased from 72.1% in 1QFY13 to 69.4% in 1QFY14. The company also benefitted from the depreciation of the rupee against the dollar.

    Cost break-up...
    (Rs m) 1QFY13 1QFY14 Change
    Raw materials/ purchases 35,080 34,067 -2.9%
    % sales 72.1% 69.4%  
    Staff cost 1,604 1,837 14.5%
    % sales 3.3% 3.7%  
    Other expenditure 3,255 4,141 27.2%
    % sales 6.7% 8.4%  
    Total expenditure 39,940 40,044 0.3%
  • Despite the 4% YoY growth in operating profits, net profits grow by 3% YoY on account of lower other income and higher depreciation charges.

What to expect?
At the current price of Rs 1,967, the stock trades at a multiple of 12.5times our expected FY16 cash flow per share. The auto industry is expected to face headwinds in the first half of this fiscal as growth in the economy has yet to pick up. On the exports front, Bajaj Auto expects to grow by around 10-12% in FY14 led by expansion in the existing markets. Three wheelers performed better than two wheelers and the company's outlook on the former is positive on the back of launch of upgrades and release of new permits. The strike at the Chakan plant is still ongoing with the outcome on legal suits still pending. In the meanwhile, the company has shifted production to its plant at Waluj. Overall, because valuations are expensive, at the current price, we have a 'Sell' view on the stock.

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Jun 17, 2021 (Close)


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