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Bajaj Auto: Continues to zoom ahead - Views on News from Equitymaster

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Bajaj Auto: Continues to zoom ahead
Jul 22, 2010

Bajaj Auto has announced its 1QFY11 results. The company has reported a 66% YoY and 101% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Net sales grow by 66% YoY, lead by a volumes growth of 70% YoY. The company sold over 928,000 units during the quarter.
  • Operating profits grow at a quicker pace of 71% YoY (as compared to net sales) on the back of a 0.5% YoY expansion in operating margins.
  • Net profits double during the quarter led by a strong operating performance coupled with higher other income and lower interest and depreciation charges.
  • The company’s board recommends an issue of bonus shares in the proportion of 1:1, subject to approval of shareholders.


(Rs m) 1QFY10 1QFY11 Change
Units sold 547,662 928,336 69.5%
Net sales 23,385 38,901 66.4%
Expenditure 18,831 31,131 65.3%
Operating profit (EBDITA) 4,554 7,769 70.6%
EBDITA margin (%) 19.5% 20.0%  
Other income 231 817 252.9%
Interest (net) 60 6 -89.4%
Depreciation 331 318 -3.8%
Profit before tax             4,395             8,262 88.0%
Extraordinary income/(expense)               (240) -   -100.0%
Tax 1,220 2,360 93.4%
Profit after tax/(loss)             2,935             5,902 101.1%
Net profit margin (%) 12.6% 15.2%  
No. of shares (m)             144.7             144.7  
Diluted earnings per share (Rs)*   151.1  
Price to earnings ratio (x)*   16.5  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 1QFY11?
  • Bajaj Auto put up a strong performance during the quarter ended June 2010, with its revenues rising by 66% YoY. The growth in revenues was volume driven, as the company sold nearly 70% more units as compared to the same quarter last year. However, the growth in revenues is marginally lower than the overall increase in volumes. This indicates that realisations were slightly lower.

    In terms of volumes, the company sold a total of 928,336 units as compared to 547,662 units last year. Domestic motorcycles sales volumes (566,121 units during 1QFY11) increased by 72% YoY, while that of exports increased to 262,270 units as compared to 152,555 units last year. This is a strong growth as compared to the overall industry growth of 24%. As per the company, the company’s two motorcycle brands - Pulsar and discover - contribute to nearly 80% of its domestic volume sales.

    As for three-wheeler sales, domestic sales volumes increased at a slow pace of 1.7% YoY to 38,289 units. However, the company saw a good increase in three-wheeler export volumes as sales increased by 141% YoY to 61,629 units. During the quarter, exports formed nearly 35% of total volumes as compared to 33% during the quarter ended June 2009.

    Bajaj auto’s overall market share in the motorcycle segment rose to 33% as compared to 30% during the FY10.

  • Bajaj Auto reported an operating profit growth of 71% YoY, which is higher than the 66% YoY increase in net sales. This was possible due to the 0.5% YoY increase in margins, which stood at 20% during the quarter. Raw material costs increased by about 79% YoY in absolute terms, with their share of net sales rising to 71.2% as compared to 66.2% during the corresponding quarter last year. However, the company did well to constrain its other cost heads - employee costs and other expenditure - as a result of which, operating margins on the whole expanded.

    Cost break-up...
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 15,470 27,682 78.9%
    % sales 66.2% 71.2%  
    Staff cost 1,129 1,264 11.9%
    % sales 4.8% 3.2%  
    Other expenditure 2,231 2,186 -2.0%
    % sales 9.5% 5.6%  

  • Net profits increased at a faster pace of 101% YoY during the quarter. Apart from a strong operating performance, higher other income coupled with lower depreciation and interest costs added to the bottomline. In addition, Bajaj auto also reported an extraordinary expense during the quarter ending June 2009 (Rs 240 m - on account of VRS). On adjusting the same, profits are higher by 85% YoY.

What to expect?
At the current price of Rs 2,489, the stock trades at a multiple of 15.4 times our estimated FY13 earnings per share and at a multiple of 14x our expected FY13 cash flow per share (ResearchPro subscribers, kindly click here). Considering that company continues to outperform the industry in terms of overall sales volumes, we feel the need to revise our estimates. However, we would like to wait for another quarter before we do the same. As mentioned by us in the most recent quarterly review, we currently have a negative view on the stock. However, this may change once we have a relook at the numbers post the second quarter.

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