Bajaj Auto- Angel Broking - May 2011

8/6/2019 Bajaj Auto- Angel Broking - May 2011

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY11 4QFY10 % chg (yoy) Angel est. % diffNet sales 4,200 3,399 23.5 4,223 (0.6)EBITDA 862 777 10.9 822 4.8

EBITDA margin (%) 20.5 22.9 (235)bp 19.5 105bp

Reported PAT 1,401 529 165.0 630 122.4Source: Company, Angel ResearchBajaj Auto (BAL) reported its 4QFY2011 results, with revenue in line and earnings

above our estimates. Performance was driven by strong sales of premium

motorcycles, improved operating leverage and higher other income on account of

prepayment of sales tax deferral incentive. We remain positive on BAL though the

DEPB issue remains an area of concern. We recommend Buy on the stock.In-line operating performance driven by favourable product mix: BAL reported astrong 23.5% yoy increase in net sales to `4,200cr (`3,399cr), which was in line

with our expectations of `4,223cr. Revenue growth was driven by 17.2% yoy

growth in volumes with high-margin motorcycles, Pulsar and Discover,

contributing ~70% to total motorcycle sales. Favourable product mix along with

price hikes helped the company to post ~5.05% yoy growth in average net

realisation. EBITDA margin came in 105bp ahead of our estimate at 20.5%,

posting a decline of 235bp yoy. However, better product mix and reduced staff

and other expenditure limited the contraction in operating margin to a certain

extent. As a result, net profit (adjusted for one-time extraordinary items) surged by27.9% yoy to `676cr, better than our estimates of `630cr. There was an

exceptional item related to sales tax deferral incentive/loan to the amount of

`827cr, which boosted the bottom line by 165% to `1,401cr. For FY2011, the

company posted strong top-line growth of 40%, mainly driven by strong volume

growth. Adjusting for the exceptional items, the companys bottom line grew by

nearly 40%.

Outlook and valuation: At `1,291, the stock is trading at 13.3x FY2012E and 12xFY2013E earnings. We remain positive on BAL in the two-wheeler segment,

owing to its diversified business model and strong revenue and earnings visibility.

Currently, the stock is available at reasonable valuations due to the recent decline

in its price. Hence, we recommend Buy on the stock with a Target Price of `1,610,valuing it at 15x FY2013E earnings.Key financials

Y/E March (` cr) FY2010 FY2011E FY2012E FY2013ENet sales 11,921 16,639 19,535 22,122% chg 35.3 39.6 17.4 13.2

Adj. net profit 1,784 2,565 2,799 3,101% chg 132.0 43.8 9.1 10.8

EBITDA margin (%) 20.2 20.0 18.5 18.0

Adj. EPS (`) 58.8 88.7 96.7 107.2P/E (x) 21.9 14.6 13.3 12.0

P/BV (x) 12.8 10.1 7.3 5.4

RoE (%) 74.4 77.3 63.2 51.5RoCE (%) 58.8 69.9 62.5 54.4

EV/Sales (x) 2.9 2.0 1.6 1.4

EV/EBITDA (x) 14.4 10.1 9.1 7.9

Source: Company, Angel Research

BUYCMP `1,291

Target Price `1,610

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code BJAUT@IN

Shareholding Pattern (%)

Promoters 50.0

MF / Banks / Indian Fls 16.5

FII / NRIs / OCBs 16.5

Indian Public / Others 17.0

Abs. (%) 3m 1yr 3yr

Sensex (0.4) 10.6 11.0

Bajaj Auto (3.3) 21.0 327.1

Note: * Listed on May 26, 2008

10

18,141

5,428

BAJA.BO

37,385

0.7

1,665/1,000

63,185

Automobile

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Amit Bagaria022-39357800 Ext: 6824

[email protected] Yaresh Kothari022-39357800 Ext: [email protected]

Bajaj AutoPerformance Highlights

4QFY2011 Result Update | Automobile

May 19, 2011


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Bajaj Auto | 4QFY2011 Result Update

May 19, 2011 2

Exhibit 1:Quarterly performanceY/E March (` cr) 4QFY11 4QFY10 % chg FY2011 FY2010 % chgNet sales (incl. other op. income) 4,200 3,399 23.5 16,609 11,921 39.3Consumption of RM 2,854 2,237 27.6 11,230 7,651 46.8(% of sales) 68.0 65.8 3.3 67.6 64.2

Staff costs 129.6 86.2 50.4 476.8 399.5 19.4

(% of sales) 3.1 2.5 2.9 3.4

Purchases of goods 122.7 117.7 4.2 568.4 419.8 35.4

(% of sales) 2.9 3.5 3.4 3.5

Other expenses 232.0 181.8 27.6 948.4 858.5 10.5

(% of sales) 5.5 5.3 5.7 7.2

Total expenditure 3,338 2,622 27.3 13,224 9,328 41.8EBITDA 862 777 10.9 3,385 2,593 30.6EBITDA margin (%) 20.5 22.9 20.4 21.7

Interest 0.1 (0.0) - 1.7 6.0 (71.7)

Depreciation 30.1 34.1 (11.9) 122.8 136.5 (10.0)

Other income 101.0 42.5 137.6 365.8 122.5 198.6

PBT (excl. extr. items) 932 786 18.7 3,626 2,573 41.0Extr. income/(expense) 724.6 (49.4) - 724.6 (162.4) -

PBT (incl. extr. items) 1,657 736 125.1 4,351 2,410 80.5(% of sales) 39.5 21.7 26.2 20.2

Provision for taxation 256.2 207.5 23.5 1,011.0 707.5 42.9

(% of PBT) 15.5 28.2 23.2 29.4

Reported PAT 1,401 529 165.0 3,340 1,703 96.1PATM (%) 33.4 15.6 20.1 14.3

Equity capital (cr) 289.4 144.7 289.4 144.7

EPS (`) 48.4 18.3 165.0 115.4 58.8 96.1Source: Company, Angel Research; Note: EPS adjusted for 1:1 bonus issue

Exhibit 2: Volume performance

Y/E March (units) 4QFY11 4QFY10 % chg FY2011 FY2010 % chgTotal two-wheelers 948,195 808,973 17.2 3,823,929 2,852,676 34.0

Motorcycles 836,668 712,432 17.4 3,387,018 2,506,887 35.1

Scooters 0 259 - 27 4,852 (99.4)

Three-wheelers 836,668 712,691 17.4 3,387,045 2,511,739 34.8Total volume 111,527 96,282 15.8 436,884 340,937 28.1Exports (inc above ) 275,843 214,471 28.6 1,203,718 891,098 35.1



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May 19, 2011 3

Net sales up 23.5%, driven by 17.2% volume and 5.05% realisation growth: BALreported strong 23.5% yoy growth in net sales to `4,200cr (`3,399cr), driven by a

17.2% yoy increase in total volumes and a 5.05% yoy increase in average net

realisation. For FY2011, domestic volume grew by 36% yoy, while the domestic

two-wheeler auto industry grew by 23% yoy, resulting in a gain of 2.4% in

domestic market share.

Exhibit 3: Sales growth driven by volume and realisation

Source: Company, Angel Research; Note: Net sales excludes other operating income

EBITDA margin down 235bp yoy to 20.5%, marginally ahead of estimates: During4QFY2011, EBITDA margin came in 105bp ahead of our estimate at 20.5%,

down 235bp yoy. Margin contraction was primarily on account of a 330bp yoy

increase in raw-material cost, which accounted for 68% of net sales during thequarter. Improved operating leverage and better product mix along with higher

commercial vehicle volumes helped the company to restrict yoy and qoq margin

contraction to a certain extent. As a result, overall operating profit for the quarter

increased by 10.9% yoy to `862cr (`777cr). Management has guided to sustain

EBITDA margin at 20% levels in FY2011 and FY2012.

Exhibit 4: 20% EBITDA margin guidance achieved


Exhibit 5: Net profit up 165% yoy, above our estimates

Source: Company, Angel Research; Note: Net sales excludes other

operating income

Net profit up 165% yoy on higher other income: BAL reported net profit growth of165% yoy to `1,401cr (`529cr), which was higher than our expectation of `630cr,

largely due to higher extraordinary income of `725cr on account of exceptional

item related to sales tax deferral incentive/loan to the amount of `827cr. Adjusting

for other income, net profit surged by 27.9% yoy to `676cr, better than our

estimates of `630cr.

1.6

14.0

57.9

84.1

65.4

49.7

27.223.1

0

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1QFY10

2QFY10

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4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

(%)(`cr) Net sales (LHS) Net sales growth (RHS)

19.5 22.0 22.022.9 20.0 20.7 20.3 20.5

68.5 68.5 71.3 71.674.1 73.5 74.0 73.5

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1QFY10

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(%) EBIT DA margin Raw material cost/sales

13.0 14.415.0 16.1 15.8 16.3 16.6

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(%)(` cr) Net profit (LHS) Net prof it margin (RHS)


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May 19, 2011 4

Conference call Key highlights

Production: Management has given volume guidance for FY2012 of ~4.6mnunits with monthly run rate of 0.24mn domestic bikes and 0.14mn exports.

EBITDA margin: Management has guided for margins to be sustainable at thecurrent levels of ~20%. As per management, the company enjoys superior

margins in the domestic two-wheeler segment compared to its peers. On the

exports front, EBITDA margin is currently at ~20%. In the three-wheeler and

spare parts business, BAL enjoys EBITDA margins in excess of ~30%.

Exports: On the exports front, BAL continues to witness strong demand from Africa, Nigeria, Sri Lanka, Bangladesh and Colombia. The company sees

Africa as a major growth driver for exports.

Management guided that advertisement cost has gone down in absolute termsin FY2011. Going forward, although it will be higher than FY2011 in

absolute terms but as a percentage of sales, it would more or less remain in

the same range.

Management has guided capex of close to `500cr over the next two years,

mainly towards R&D and the four-wheeler segment.

Management also came out strongly about its view on the DEPB scheme.

Management believes that DEPB is here to stay. It is not about only auto, other

sectors such as textiles work on wafer thin margins and removal of DEPB will

majorly hamper the sectors, and the government is unlikely to take such astand. We are of the opinion that DEPB will not be completely removed, but

surely it can be reduced from its current level of 9%. We will factor removal of

DEPB in our numbers only after there is complete clarity on the

same. However, if DEPB does end, then it can negatively affect BALs bottom

line by 78%.


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May 19, 2011 5

Investment arguments Focus on Discover and Pulsar to improve market share: BAL continues to

witness strong demand in the two-wheeler segment from its strong dual

offering of Discover and Pulsar. BAL is positioning itself in line with its strategyof value and price products, wherein it proposes to tap higher-value bike

segments, which have a high-growth potential and fetch better realisations.

BAL has also launched new products in the high-margin 125cc+ segment.

Three-wheeler registering healthy growth: BAL has a strong presence in thethree-wheeler market, with an overall market share (including exports) of

around 55.7% in December 2010. The company tops the passenger

auto-rickshaw segment (62.9% market share), which accounts for ~88% of the

three-wheeler market. The three-wheeler segment fetches higher margins than

the companys two-wheeler business. Although the company has lost some

market share in the three-wheeler domestic market, improving export volumes

have more than compensated to post higher volume growth. We expect thecompanys three-wheeler volumes to grow by 1213% over FY201113E.

High growth potential in export volumes: BAL registered a strong exportsCAGR of 37% during FY200511, aided by a 43% CAGR in two-wheeler

exports and a 22% CAGR in three-wheeler exports. Going ahead, we estimate

BAL to register a 24.6% CAGR over FY201113E, driven by the strong

demand outlook from the exports market. BAL has also hedged around 90%

of its FY2012 exports. Hence, any sharp appreciation of the INR in FY2012

will not have a significant impact on the companys margins.

Outlook and valuationAt `1,291, the stock is trading at 13.3x FY2012E and 12x FY2013E earnings.

We remain positive on BAL in the two-wheeler segment, owing to its diversified

business model and strong revenue and earnings visibility. Currently, the stock isavailable at reasonable valuations; hence, we recommend Buy on the stock with atarget price of `1,610, valuing it at 15x FY2013E earnings.


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May 19, 2011 6

Exhibit 6 Key assumptions

Y/E March FY2009 FY2010 FY2011E FY2012E FY2013ETotal volume (units) 2,451,396 2,194,108 2,851,518 3,847,290 4,314,745Domestic 1,658,230 1,276,427 1,781,748 2,423,177 2,713,959Export 481,549 631,383 725,097 1,000,634 1,140,723

Total motorcycle 2,139,779 1,907,810 2,506,845 3,423,811 3,854,681

Scooters 21,316 11,772 3,737 - -

Total two-wheelers 2,161,095 1,919,582 2,510,582 3,423,811 3,854,681Passenger domestic 127,379 125,273 164,493 197,392 207,261

Goods domestic 26,607 10,197 11,534 3,460 3,460

Exports 136,315 139,056 164,909 222,627 249,342

Total three-wheelers 290,301 274,526 340,936 423,479 460,064Total change (%)Total volume (9.8) (10.5) 30.0 34.9 12.2Domestic (20.2) (23.0) 39.6 36.0 12.0

Export 61.8 31.1 14.8 38.0 14.0

Total motorcycle (10.0) (10.8) 31.4 36.6 12.6

Scooters 4.1 (44.8) (68.3) -

Total two-wheelers (9.8) (11.2) 30.8 36.4 12.6Passenger domestic (8.2) (1.7) 31.3 20.0 5.0

Goods domestic (37.2) (61.7) 13.1 (70.0) -

Exports (3.1) 2.0 18.6 35.0 12.0

Total three-wheelers (9.8) (5.4) 24.2 24.2 8.6Source: Company, Angel Research


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May 19, 2011 7

Exhibit 7: One-year forward P/E band

Source: Company, Bloomberg, Angel Research

Exhibit 8: One-year forward P/E chart


Exhibit 9: BAL Premium/Discount to Sensex P/E


Exhibit 10: Auto stocks vs. Sensex


Exhibit 11: Valuation summary

Reco CMP TP Upside P/E (x) EV/EBITDA (x) RoE (%) FY2010-13E EPSAutomobile (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E CAGR (%)Ashok Leyland Buy 49 64 31.2 10.3 9.1 7.4 6.6 15.0 15.2 22.6

Bajaj Auto Buy 1,291 1,610 24.7 13.3 12.0 9.1 7.8 63.2 51.4 22.2Hero Honda Neutral 1,794 1,753 (2.3) 17.3 15.4 9.4 7.8 62.4 59.5 3.9

Maruti Buy 1,214 1,506 24.1 13.5 12.1 7.5 6.0 16.9 15.8 6.3

Mahindra and Mahindra Buy 677 881 30.2 13.8 12.7 8.3 7.2 27.3 24.4 14.1

Tata Motors Buy 1,154 1,456 26.2 7.5 6.9 4.9 4.1 39.2 31.4 109.5

TVS Motor Buy 52 62 18.8 11.9 10.1 6.0 5.1 20.7 21.0 41.0


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May 19, 2011 8

Profit & Loss Statement

Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013EGross sales 9,050 12,118 16,951 19,985 22,648Less: Excise duty 613 610 932 1,099 1,246Net sales 8,437 11,509 16,019 18,886 21,402

Other operating income 373 412 621 649 720

Total operating income 8,810 11,921 16,639 19,535 22,122% chg (2.3) 35.3 39.6 17.4 13.2

Total expenditure 7,829 9,515 13,311 15,928 18,139

Net raw materials 6,463 8,070 11,854 14,032 15,945

Other mfg. costs 192 214 240 283 321

Personnel 538 583 465 612 685

Other 635 648 753 1,001 1,188

EBITDA 982 2,406 3,328 3,607 3,984% chg (15.7) 145.0 38.3 8.4 10.5

(% of Net Sales) 11.1 20.2 20.0 18.5 18.0

Depreciation & Amortisation 130 136 127 136 147

EBIT 852 2,269 3,201 3,471 3,836% chg (14.0) 166.3 41.1 8.4 10.5

(% of Net Sales) 10.1 19.7 20.0 18.4 17.9

Interest & other Charges 21 6 2 4 4

Other Income 122 144 364 421 476

(% of PBT) 14.6 6.2 10.2 10.8 11.1

Recurring PBT 953 2,408 3,563 3,887 4,308% chg (15.9) 152.6 48.0 9.1 10.8

Extraordinary (Expense)/Inc. (115) (82) - - -

PBT 838 2,326 3,563 3,887 4,308Tax 299 705 998 1,088 1,206

(% of PBT) 35.6 30.3 28.0 28.0 28.0

PAT (reported) 655 1,703 2,565 2,799 3,101ADJ. PAT 769 1,784 2,565 2,799 3,101% chg (4.9) 132.0 43.8 9.1 10.8

(% of Net Sales) 9.1 15.5 16.0 14.8 14.5

Basic EPS (`) 26.6 58.8 88.7 96.7 107.2Fully Diluted EPS ( ) 26.6 58.8 88.7 96.7 107.2% chg (4.9) 121.3 50.7 9.1 10.8


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May 19, 2011 9

Balance Sheet

Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013ESOURCES OF FUNDSEquity Share Capital 145 145 289 289 289Preference Capital - - - - -

Reserves & Surplus 1,725 2,784 3,416 4,861 6,609

Shareholders Funds 1,870 2,928 3,705 5,150 6,898Total Loans 1,570 1,339 1,189 1,064 989

Deferred Tax Liability 4 2 2 2 2

Total Liabilities 3,444 4,269 4,896 6,215 7,889APPLICATION OF FUNDSGross Block 3,350 3,379 3,725 4,254 4,756

Less: Acc. Depreciation 1,808 1,900 2,026 2,162 2,310

Net Block 1,542 1,480 1,699 2,091 2,446Capital Work-in-Progress 22 42 37 43 48

Goodwill - - - - -

Investments 1,809 4,022 4,651 5,905 7,494Current Assets 2,325 3,001 4,260 4,443 4,768

Cash 137 101 263 (263) (459)

Loans & Advances 1,491 2,180 2,883 3,305 3,638

Other 697 719 1,114 1,401 1,588

Current liabilities 2,438 4,275 5,751 6,266 6,867

Net Current Assets (112) (1,274) (1,491) (1,823) (2,098)Mis. Exp. not written off 183 - - - -

Total Assets 3,444 4,269 4,896 6,215 7,889


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May 19, 2011 10

Cash Flow Statement

Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013EProfit before tax 838 2,326 3,563 3,887 4,308

Depreciation 130 136 127 136 147Change in Working Capital 145 800 (175) 46 177

Less: Other income 402 (180) 334 600 511

Direct taxes paid 299 705 998 1,088 1,206

Cash flow from operations 413 2,737 2,183 2,381 2,915(Inc.)/Dec. in Fixed Assets (353) (49) (342) (534) (508)

(Inc.)/Dec. in Investments 49 (2,213) (629) (1,254) (1,589)

(Inc.)/Dec. in loans and advances (141) (10) (128) (240) (98)

Other income 122 144 364 421 476

Cash flow from investing (324) (2,127) (734) (1,606) (1,718)Issue of Equity - - 145 - -

Inc./(Dec.) in loans 236 (231) (150) (125) (75)

Dividend Paid (Incl. Tax) 339 372 1,354 1,354 1,354

Others (582) (786) (2,635) (2,530) (2,672)

Cash flow from financing (8) (645) (1,286) (1,301) (1,393)Inc./(Dec.) in Cash 81 (35) 162 (526) (196)

Opening cash balances 56 137 101 263 (263)Closing cash balances 137 101 263 (263) (459)


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May 19, 2011 11

Key Ratios

Y/E March FY2009 FY2010 FY2011E FY2012E FY2013EValuation ratio (x)P/E (on FDEPS) 48.6 21.9 14.6 13.3 12.0P/CEPS 47.6 20.3 13.9 12.7 11.5

P/BV 20.0 12.8 10.1 7.3 5.4

Dividend yield (%) 0.9 3.1 3.1 3.1 3.1

EV/Sales 4.1 2.9 2.0 1.6 1.4

EV/EBITDA 37.7 14.4 10.1 9.1 7.9

EV / Total Assets 10.7 8.1 6.9 5.3 4.0

Per share data (`)EPS (Basic) 26.6 58.8 88.7 96.7 107.2

EPS (fully diluted) 26.6 58.8 88.7 96.7 107.2

Cash EPS 27.1 63.6 93.0 101.4 112.3

DPS 11.0 40.0 40.0 40.0 40.0

Book Value 64.6 101.2 128.1 178.0 238.4

DuPont analysisEBIT margin (%) 10.1 19.7 20.0 18.4 17.9

Tax retention ratio (x) 0.6 0.7 0.7 0.7 0.7

Asset turnover (x) 2.8 3.2 3.8 3.5 3.0

RoIC (Post-tax) 18.5 43.8 54.4 46.5 38.5

Cost of Debt (Post Tax) 0.0 0.0 0.0 0.0 0.0

Leverage (x) 0.0 0.0 0.0 0.0 0.0

Operating RoE (%) 18.5 43.8 54.4 46.5 38.5

Returns (%)RoCE (Pre-tax) 26.7 58.8 69.9 62.5 54.4

Angel RoIC (Pre-tax) 25.8 54.5 69.1 53.6 46.0

RoE 44.5 74.4 77.3 63.2 51.5

Turnover ratios (x) Asset Turnover (Gross Block) 2.8 3.5 4.7 4.9 4.9

Inventory / Sales (days) 15 12 12 13 14

Receivables (days) 14 10 11 12 12

Payables (days) 49 51 49 48 48

WC cycle (ex-cash) (days) (11) (25) (34) (31) (26)

Solvency ratios (x)Net debt to equity (0.2) (1.0) (1.0) (0.9) (0.9)

Net debt to EBITDA (0.4) (1.2) (1.1) (1.3) (1.5)

Interest Coverage (EBIT/ Interest) 40.6 379.5 1,346.6 815.8 970.2


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May 19 2011 12

Disclosure of Interest Statement Bajaj Auto

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www. angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should makesuch investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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Bajaj Auto- Angel Broking - May 2011