Bajaj Auto –Buy- Anand Rathi – Sharekhan
By- Anand Rathi
Bajaj Auto more than doubled profit in 3Q, with EBITDA margin maintained at a peak 22%. The performance was driven by market share gains and increased operating leverage. Maintain BUY, with a target price of Rs2,120.
In FY10 year-to-date (YTD), Bajaj has consistently gained motorcycle market share – from a low of 22.4% in 4QFY09 to 33.2% in 3QFY10. Volume grew 63.9% y-o-y and sales 56.7% to Rs33 billion.
EBITDA margin was flat q-o-q at 22% – peak level – reflecting benefits from operating leverage (on higher volume). Despite the raw-material-to-sales ratio increasing 230bps q-o-q, operating performance was sustained. Cost control and focussed sales promotion were other contributors.
After excluding Rs458 million extraordinary expense for VRS, adjusted profit rose 143.4% y-o-y to Rs5.1bn, 8% above our estimate. We iterate our buy on the stock and expect it to further gain market share. We believe the valuation discount to
HH is likely to narrow– or even turn into a premium briefly – as Bajaj Auto gains market share.
By-Sharekhan
Bajaj Auto Ltd (BAL) yet again reported a robust performance in Q3FY2010 results, which were in line with our expectations. For the quarter, the total operating income of the company grew by 56.7% year-on-year (yoy) to Rs3,295.6 crore (against our expectation of Rs3,365.7 crore). The operating income grew mainly due to a strong 64% volume growth. The net realization for the quarter, however, declined by 3.6% y-o-y.
The operating profit margin (OPM) for the quarter expanded by 741 basis points to 22% (against our expectation of 21.4%) mainly on account of a lower raw material cost as a percentage of sales on a year-on-year (y-o-y) basis. The raw material cost as a percentage of sales declined by 386 basis points to 68.5%. Furthermore, a 284-basis-point y-o-y decline in the other expenses as a percentage of sales boosted the margin for the quarter. Consequently, the operating profit grew by a hefty 136.6% y-o-y to Rs723.5 crore (against our expectation of Rs721.3 crore).
A higher tax incidence at 28% against 24.9% in Q3FY2009 led the adjusted net profit to grow by 129.2% y-o-y to Rs521 crore (which is in line with our expectation of Rs509 crore). Taking into account the impact of a write-off of Rs45.8 crore on account of a voluntary retirement scheme offered to its workmen in the Akurdi plant, the reported net profit stood at Rs475.1 crore, which is an increase of 185.9% y-o-y.
At the current market price of Rs1,698, the stock is trading at 14.8x its FY2010E and 13.4x its FY2011E adjusted earnings per share (EPS) of Rs114.8 and Rs127.1 respectively. We maintain our BUY recommendation and price target of Rs1,907 for the stock. We shall come out with a detailed note after the conference call with the company’s management.
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