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Bajaj Auto: Realisations drive sales
Jul 22, 2014

Bajaj Auto announced the first quarter results of financial year 2014-2015 (1QFY15). The company's revenues grew by 7% YoY during the quarter, while net profit growth remained flat. Here is our analysis of the results.

Performance summary
  • Revenues grow by 7% YoY during the quarter even as volumes grow by a mere 1% YoY.
  • Operating margins fall by 0.9% YoY to 17.6% during 1QFY15. This leads to an operating profit growth of 2% YoY for the quarter.
  • Net profit growth remains flat on account of higher tax expenses.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Units sold 979,275 988,430 0.9%
Net sales 49,111 52,524 6.9%
Expenditure 40,042 43,273 8.1%
Operating profit (EBDITA) 9,069 9,251 2.0%
EBDITA margin (%) 18.5% 17.6%  
Other income 1,756 2,193 24.9%
Interest (net) 1 1 22.2%
Depreciation 446 692 55.3%
Profit before tax 10,378 10,751 3.6%
Tax 3,002 3,351 11.6%
Profit after tax/(loss) 7,377 7,400 0.3%
Net profit margin (%) 15.0% 14.1%  
No. of shares (m) 289.4 289.4  
Diluted earnings per share (Rs)*   108.8  
Price to earnings ratio (x)*    19.0  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 1QFY15?
  • Bajaj Auto's (BJAT) sales volumes grew by a mere 1% YoY during the quarter. While total motorcycle volumes grew by 2% YoY during the quarter, total commercial vehicles sales (3-wheelers) declined by 5% YoY. With the exception of Discover, most brands in its stable witnessed good growth. Further, the company is looking to bolster Discover volumes by pushing the brand and positioning it better. As far as 3 wheelers are concerned, growth declined on account of weak permit issuances in the country and slowdown in exports.

  • Despite the tepid growth in volumes, BJAT reported a revenue growth of 7% YoY and this can be attributed to an increase in realisations led by a better product and geographical mix.

  • BJAT's operating profits grew by 2% YoY as margins contracted by 0.9% during the quarter. The key reason for the same was higher raw material and staff costs (as a percentage of sales). Staff costs saw an increase on account of wage hikes given.

    Cost break-up...
    (Rsm) 1QFY14 1QFY15 Change
    Raw materials/ purchases 34,067 36,802 8.0%
    % sales 69.4% 70.1%  
    Staff cost 1,837 2,146 16.8%
    % sales 3.7% 4.1%  
    Other expenditure 4,139 4,325 4.5%
    % sales 8.4% 8.2%  
    Total expenditure 40,042 43,273 8.1%

  • Muted growth at the operating level coupled with higher tax expenses led to the flat growth in net profits during the quarter.
What to expect?
At the current price of Rs 2,063, the stock trades at a multiple of 13.1 times our estimated FY16 cash flow per share. Bajaj Auto intends to reposition its Discover brand and this is expected to bolster volumes going forward. The company has lined up a few launches under Pulsar during the second half of FY15. As far as three wheelers are concerned, the company remains positive led by the pickup in exports and release of new permits. Overall exports are also expected to increase on account of orders from Africa and entry into newer markets. Although the fundamentals of the company are good, our view is that the stock is fairly valued at the current price and hence investors should only consider buying it at lower levels.

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