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Bajaj Auto: A quarter of records! - Views on News from Equitymaster
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Bajaj Auto: A quarter of records!
Oct 15, 2009

Performance summary
  • Topline grows by a decent 15% YoY during the quarter. Volume growth comes in at 7% YoY.
  • Operating profits jump a strong 85% YoY as the company achieves record operating margins of 22%, a more than 8% expansion as compared to the previous quarter.
  • Further aided by benign depreciation charges and lower extraordinary expenses, net profits during the quarter witness a spectacular growth of 118% YoY, enabling the company to post its highest ever quarterly profits.
  • Half yearly bottomline grows by 93% YoY on the back of a 8% growth in topline.


(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Units sold 640,042 686,727 7.3% 1,260,137 1,234,389 -2.0%
Net sales 25,192 28,875 14.6% 48,239 52,260 8.3%
Expenditure 21,753 22,510 3.5% 42,132 41,341 -1.9%
Operating profit (EBDITA) 3,439 6,365 85.1% 6,106 10,919 78.8%
EBDITA margin (%) 13.6% 22.0%   12.7% 20.9%  
Other income 221 217 -1.7% 509 449 -11.8%
Interest (net) 59 -   68 60 -12.1%
Depreciation 331 336 1.5% 666 667 0.1%
Profit before tax 3,270 6,247 91.0% 5,881 10,642 80.9%
Extraordinary income/(expense) (611) (458) -25.0% (611) (699)  
Tax 810 1,760 117.3% 1,670 2,980 78.4%
Profit after tax/(loss) 1,849 4,028 117.9% 3,600 6,963 93.4%
Net profit margin (%) 7.3% 14.0%   7.5% 13.3%  
No. of shares (m) 144.7 144.7   144.7 144.7  
Diluted earnings per share (Rs)*         68.5  
Price to earnings ratio (x)*         22.9  
(* annualised)

What has driven performance in 2QFY10?
  • The 15% growth in topline during the quarter was driven by both higher volumes as well as improved product mix. Motorcycles, which account for nearly 90% of all the vehicles sold by the company, grew by 5% in the domestic markets, whereas exports of the same improved 10%. The growth in the domestic markets was driven by new launches like the upgraded version of the Pulsar as well as the Discover DTS-Si. The company also managed to grow the domestic sales of its three wheelers by an impressive 27% during the quarter, a feat that could be attributed to its marketing initiatives geared towards the in-city segment. On the exports front, with the revival of its key exports market, it witnessed highest ever quarterly exports and the company is now well poised to exceed its target of 0.8 m vehicles for the year.

    Sales break-up…
    Domestic 2QFY09 2QFY10 % change 1HFY09 1HFY10 % change
    Motorcycles 392,403 413,707 5.4% 780,731 743,901 -4.7%
    Scooter/scooterette 3,049 1,372 -55.0% 5,821 2,909 -50.0%
    3 Wheelers 37,660 47,854 27.1% 67,938 84,950 25.0%
    Total 433,112 462,933 6.9% 854,490 831,760 -2.7%
    Exports            
    Motorcycles 169,074 185,934 10.0% 339,379 338,489 -0.3%
    Scooter/scooterette 572 468 -18.2% 1,144 624 -45.5%
    3 Wheelers 37,284 37,392 0.3% 65,124 63,516 -2.5%
    Total 206,930 223,794 8.1% 405,647 402,629 -0.7%
    Grand total 640,042 686,727 7.3% 1,260,137 1,234,389 -2.0%

  • As far as margins are concerned, the company has managed to achieve record operating margins to the tune of 22% during the quarter. This was higher by more than 800 basis points as compared to the same quarter last year and enabled the company to grow its operating profits by 85% on a YoY basis. The drastic improvement in margins could be attributed to greater sales of high value products such as Pulsars, Discovers and three wheelers as well as benefits emerging out of the economies of scale. Going forward, while the same level of margins may not continue, it could indeed come higher than historical levels as the company focuses more on high value products.

    Cost break-up…
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Raw materials 19,015 19,124 0.6% 36,469 34,594 -5.1%
    % sales 75.5% 66.2%   75.6% 66.2%  
    Staff cost 755 1,074 42.3% 1,836 2,203 20.0%
    % sales 3.0% 3.7%   3.8% 4.2%  
    Other expenditure 1,984 2,312 16.6% 3,827 4,543 18.7%
    % sales 7.9% 8.0%   7.9% 8.7%  

  • With depreciation charges remaining benign and extraordinary losses coming in lower as compared to same quarter last year, the company has managed to more than double its net profits during the quarter, growing it by 118% YoY.

What to expect?
At the current price of Rs 1,550, the stock trades at price to cash flow multiple of 20x its expected FY12 cash flow per share. With its superlative performance in the first half, especially during 2QFY10, the company has already achieved nearly 90% of our projected EPS for the year. This necessitates having a re-look at our projections and upgrading the company’s earnings as well as its target price. However, with the stock trading at 22x its trailing twelve month earnings, we believe that most of the upside seems to have been already factored into the price.

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