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Bajaj Auto: Pick up seen in volumes
Oct 30, 2014

Bajaj Auto announced the second quarter results of financial year 2014-2015 (2QFY15). The company's revenues grew by 15% YoY during the quarter, while net profits declined by 29% YoY. Here is our analysis of the results.

Performance summary
  • Revenues grow by 15% YoY during the quarter as volumes grow by 10% YoY.
  • Operating margins fall by 3% YoY to 18.9% during 2QFY15. This leads to an operating profit decline of 0.5% YoY for the quarter.
  • Net profits fall by 29% YoY on account of an extraordinary expense incurred during the quarter. Barring the same, net profits grow by 11% YoY on account of the substantial fall in tax expenses.

(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Units sold 961,330 1,055,582 9.8% 1,940,605 2,044,012 5.3%
Net sales 51,749 59,631 15.2% 100,860 112,155 11.2%
Expenditure 40,428 48,363 19.6% 80,470 91,636 13.9%
Operating profit (EBDITA) 11,321 11,268 -0.5% 20,390 20,519 0.6%
EBDITA margin (%) 21.9% 18.9%   20.2% 18.3%  
Other income 1,242 1,136 -8.5% 2,998 3,329 11.0%
Interest (net) 0 1 25.0% 1 2 23.1%
Depreciation 445 686 54.4% 890 1,378 54.8%
Profit before tax 12,118 11,717 -3.3% 22,496 22,468 -0.1%
Exceptional item - (3,403)   - (3,403)  
Tax 3,746 2,405 -35.8% 6,748 5,756 -14.7%
Profit after tax/(loss) 8,372 5,909 -29.4% 15,748 13,309 -15.5%
Net profit margin (%) 16.2% 9.9%   15.6% 11.9%  
No. of shares (m) 289.4 289.4   289.4 289.4  
Diluted earnings per share (Rs)*         112.1  
Price to earnings ratio (x)*         22.8  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 2QFY15?
  • Bajaj Auto's (BJAT) sales volumes grew by 10% YoY during the quarter. While total motorcycle volumes grew by 6% YoY during the quarter, total commercial vehicles sales (3-wheelers) surged by 40% YoY. As far as motorcycles are concerned, growth was largely led by 'Pulsar' and 'Platina'. The latter grew by 16% and now enjoys a market share of 19%. The growth in 3-wheelers was impressive and was led by both the domestic and the export markets. The company continues to be the market leader in this space with a share of 46%. Exports did strongly to grow by 29% YoY. While mature markets continued to do well, newer markets where the company has entered also started yielding results.

  • BJAT reported a decent revenue growth of 15% YoY. Besides the growth in volumes, this can be attributed to an increase in realisations led by a better product and geographical mix.

  • BJAT's operating profits fell by 0.5% YoY as margins contracted by 3% during the quarter. The key reason for the same was higher raw material costs and other expenditure (as a percentage of sales). MTM losses on forex particularly played a role in impacting margins. Staff costs remained under control.

  • Net profits fell by 29% YoY on account of an extraordinary expense of Rs 3.4 bn incurred during the quarter. This is the disputed duty (National Calamity Contingent Duty) that the company is now liable to pay as per an order passed by the high court of Uttarakhand. Excluding the same, net profits managed to grow by 11% YoY despite the fall in operating profits on account of a substantial drop in tax expenses.
What to expect?
At the current price of Rs 2,555, the stock trades at a multiple of 14.3 times our estimated FY17 cash flow per share. Bajaj Auto intends to reposition its Discover brand and this is expected to bolster volumes going forward. According to the management, the newly launched Discover 150 has been well received in the domestic market and hence the company is confident of the Discover brand reporting positive growth. 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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