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Bajaj Auto: Continues to zoom at full speed
Oct 19, 2010

Bajaj Auto has announced its 2QFY11 results. The company has reported a 50% YoY and 69% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Net sales grow by 50% YoY, led by a volumes growth of 46% YoY. The company sold over 1 m units during the quarter.
  • Operating profits increase by 42% YoY on the back of a 1.4% YoY contraction in operating margins. This is on the back of higher costs of raw material and purchases (as a percentage of sales).
  • Net profits rise by 69% YoY on the back of a strong operating performance coupled with higher other income and an extraordinary loss during the corresponding quarter last year. On excluding this extraordinary loss, profits during the quarter rise by 52% YoY.
  • During 1HFY11, revenues and profits are higher by 58% YoY and 83% YoY. On adjusting for last year's extraordinary losses, profits during 1HFY11 rise by 66% YoY.


(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Units sold 686,727 1,000,570 45.7% 1,234,389 1,928,906 56.3%
Net sales 28,875 43,418 50.4% 52,260 82,319 57.5%
Expenditure 22,510 34,447 53.0% 41,341 65,578 58.6%
Operating profit (EBDITA) 6,365 8,972 41.0% 10,919 16,741 53.3%
EBDITA margin (%) 22.0% 20.7%   20.9% 20.3%  
Other income 217 837 285.2% 449 1,654 268.6%
Interest (net) - 7   60 13 -78.6%
Depreciation 336 300 -10.8% 667 618 -7.3%
Extraordinary income/(expense) (458) -   (699) -  
Profit before tax 5,788 9,503 64.2% 9,943 17,764 78.7%
Tax 1,760 2,682 52.4% 2,980 5,042 69.2%
Profit after tax/(loss) 4,028 6,821 69.3% 6,963 12,722 82.7%
Net profit margin (%) 14.0% 15.7%   13.3% 15.5%  
No. of shares (m)       144.7 289.4  
Diluted earnings per share (Rs)*         86.7  
Price to earnings ratio (x)*         17.4  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 2QFY11?
  • Bajaj Auto's strong run continued during the quarter ended September 2010. Revenues during the quarter were led by a volume growth of 46% YoY. In addition, the average realisations also increased by over 3% YoY aiding the company to clock a slightly higher increase in revenues as compared to the volume growth.

  • Bajaj Auto recorded strong sales of over 1 m units. Growth during the quarter was led by a 53% YoY rise in domestic motorcycle sales, which stood at over 632,000 units. Motorcycle exports grew by 35% YoY and stood at over 250,000 units. Total motorcycle sales stood at about 883,000 units, contributing to about 88.3% of the total volumes as compared to 87.6% last year. The company's two flagship brand Pulsar and Discover contributed to about 86% of the total domestic motorcycle volumes.

    The company saw good volumes in the three-wheeler segment, especially on the exports side. Total three wheelers sales stood at over 117,000 units, with exports contributing to about 48%. During the same quarter last year, export volumes formed about 44.5% of the total three-wheeler volumes.

    During the quarter, total exports formed nearly 31% of total volumes as compared to 33% during the quarter ended September 2009.

    As per the company, the overall market share in the motorcycle segment rose to 34% as compared to 33% during the 1QFY11.

  • Bajaj Auto's operating profits grew at a slower pace as compared to the increase in revenues on the back of a 1.3% YoY margin contraction during the quarter. The key reason for the same was higher costs of raw materials and purchases (as a percentage of sales). Raw material and purchases costs rose by 61% YoY in absolute terms, while employee and other expenses increased by 6% YoY and 12% YoY respectively.
    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials/ purchases 19,124 30,712 60.6% 34,594 58,394 68.8%
    % sales 66.2% 70.7%   66.2% 70.9%  
    Staff cost 1,074 1,142 6.3% 2,203 2,405 9.2%
    % sales 3.7% 2.6%   4.2% 2.9%  
    Other expenditure 2,312 2,593 12.1% 4,543 4,779 5.2%
    % sales 8.0% 6.0%   8.7% 5.8%  
    Total 22,510 34,447   41,341 65,578  

  • Bajaj Auto's net profits grew at a faster pace as compared to the increase in operating profits. The key reason for the same was higher other income as well as absence of any extraordinary loss (on account of VRS of employees). On excluding the extraordinary loss last year, the company's net profits rose by 52% YoY. Lower depreciation (on account of lesser capex) also aided the company at the bottomline level.

What to expect?
At the current price of Rs 1,511, the stock trades at a multiple of 18 times our estimated FY13 earnings per share and at a multiple of 17 times our expected FY13 cash flow per share (ResearchPro subscribers, kindly click here).

Going forward, the company expects its margins to remain at similar levels. This is despite input costs falling as compared to the quarter gone by. As per the company's management, there has not been much amount spent on brand building and advertising. This was done due to the strong demand that the industry is witnessing as it is. However, post the upcoming festive season, the company expects the whole industry to not witness any more problems relating to capacity constraints. In other words, this means that the growth in demand is not likely to remain as what we have seen in the past year or so. Keeping this in mind, the company will be investing a good amount on brand building and marketing to boost volumes.

The company's performance in the year till date has outperformed our estimates by far. As such, we will have to revise our future estimates. We will come out with an updated view on the company soon.

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