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Bajaj Auto: Exports lend helping hand
Oct 23, 2008

Performance summary
  • Led by 4% YoY growth in volumes, topline grows by 8% YoY during 2QFY09
  • Inflationary pressures take toll on margins as they slip 2.2% YoY during the quarter.
  • Bottomline falls by 45% YoY mainly due to significantly higher other income of the company in the previous quarter before the demerger. Lower operating margin and extraordinary expense also impact bottomline growth.
  • Half yearly bottomline falls 36% YoY.


Standalone Financials
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Units sold 614,093 639,977 4.2% 1,185,684 1,260,135 6.3%
Net sales 23,623 25,484 7.9% 44,714 48,592 8.7%
Expenditure 19,915 22,046 10.7% 38,253 42,486 11.1%
Operating profit (EBDITA) 3,708 3,439 -7.3% 6,461 6,106 -5.5%
EBDITA margin (%) 15.7% 13.5%   14.5% 12.6%  
Other income 1,472 221 -85.0% 2,499 509 -79.6%
Interest (net) 14 59 331.6% 14 68 378.2%
Depreciation 487 331 -32.1% 977 666 -31.8%
Profit before tax 4,679 3,270 -30.1% 7,969 5,881 -26.2%
Extraordinary income/(expense)   (611)     (611)  
Tax 1,315 810 -38.4% 2,340 1,670 -28.6%
Profit after tax/(loss) 3,364 1,849 -45.0% 5,629 3,600 -36.0%
Net profit margin (%) 14.2% 7.3%   12.6% 7.4%  
No. of shares (m) 101.2 144.7   101.2 144.7  
Diluted earnings per share (Rs)*         49.8  
Price to earnings ratio (x)*         10.9  
(* annualised) Note: Since the current Bajaj Auto is an auto focused demerged entity, the financial performance may not be strictly comparable

What has driven performance in 2QFY09?
  • Once again, it is the buoyancy in exports that has come to the rescue of the company. Thanks to 31% YoY growth in the same, Bajaj Auto was able to improve its overall volumes by a respectable 4% YoY. If one were to consider just the domestic volumes, they continued to disappoint, declining 5% YoY. To add to its woes, the company also lost market share in all the segments that it operates in. The fact that vehicle financing has become scarce as well as expensive is also not helping matters. A steep fall of 14% in the companyís three wheeler segment also affected domestic volumes. Fortunes though might see a turnaround here with the launch of two new products.

  • Exports continued with their stellar performance with motorcycles exports logging an impressive 33% YoY growth. Thanks to the export buoyancy and domestic slowdown in recent years, exports now account for 30% of the companyís total sales. On the topline growth in value terms, Bajajís focus on high value products seem to be paying dividends as growth has come in at 8% YoY, higher than the 4% YoY growth in volumes.

  • As far as operating margins are concerned, they were lower by 2.2% as compared to 2QFY08. This was largely due to 11% YoY jump in raw material expenses. Since prices for most commodities have witnessed a growth on a YoY basis, the company seems to have signed new contracts at higher prices, thus impacting margins. Higher other expenses to the tune of 14% YoY also had a negative impact on margins. If one compares on a QoQ basis, then the company has done exceedingly well to improve its margins by 2%.

    cost break up
    (Rs m) 2QFY08 2QFY09 Change
    Raw materials 16,363 18,074 10.5%
    % sales 69.3% 70.9%  
    Staff cost 735 755 2.6%
    % sales 3.1% 3.0%  
    Other expenditure 2,817 3,217 14.2%
    % sales 11.9% 12.6%  

  • Bajajís bottomline has witnessed a steep fall of 45% YoY. This is mainly due a huge 85% fall in other income. It should be noted that the other income from the previous quarter includes the income from its other operations and its huge investment portfolio, which have now been hived off into separate companies as a part of the demerger process. Hence, the numbers are not exactly comparable. Besides, extraordinary expenses related to VRS payment to employees and lower operating profits have also impacted net profits. On a QoQ basis though, the companyís bottomline has improved by 6%.

What to expect?
At the current price of Rs 543, the stock is trading at a multiple of 5.4 times our estimated FY11 cash flow per share. Although the companyís performance for the first half has come in below expectations, improving liquidity scenario and cooling-off in commodity prices gives us confidence that it will be able to make up for lost ground. We remain positive on the company from a medium term perspective.

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