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Bajaj Auto Ltd Research Report - 15th Feb 2016

Automobile | Published on Feb 15th 2016

IT

Results in line with estimates: Bajaj Auto Ltd (BAL)’s 3QFY2016 results have come in in line with our estimates. The company’s revenues expectedly declined by 2% yoy to Rs5,565cr. The decline in revenues was on account of a 3% drop in volumes. Domestic volumes grew in double digits (10%) led by new product launches (Avenger and Pulsar variants) which led to market share gains. However, export volumes fell steeply by 16% yoy led by demand slowdown in Africa and Egypt markets due to slide in crude oil prices. Realisation/vehicle grew 2% yoy led by favourable currency movement (INR depreciation as against the USD). The company realized about INR 66/USD in 3QFY2016 as against INR 63/USD realized in 3QFY2015. The company’s operating margin declined marginally by 70bp yoy to 21% (coming broadly in line with our estimates of 21.5%). Lower export mix and price cuts in African market to stimulate demand led to the dip in margins on a yoy basis. The operating profit at Rs1,171cr was in line with our estimate of Rs1,181cr. Other income more than doubled yoy to Rs200cr, coming in higher than our expectation of Rs165cr. The Net Profit at Rs901cr was broadly in line with our expectations of Rs873cr. Outlook and valuation: The domestic motorcycle industry is likely to recover from FY2017 given the higher income levels, implementation of Seventh pay commission and improvement in rural sentiments on expectations of a normal monsoon. Also, BAL is likely to outperform the industry with new launches scheduled in both the commuter and the sport segments. However, key export markets viz Africa and Middle East (which contribute 70% of export and 35% of overall volumes) are likely to remain under pressure in the near term given the slide in crude oil prices and consequently adverse balance of payments in those markets. We have marginally reduced our earnings estimates given the pressure in the exports. We retain our “Accumulate” rating on the stock with a revised price target of Rs2,585 based on 18x FY2017E earnings.

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Accumulate

CMP 2,303
Target Price 2,585
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)78,200.80
MCAP NSE (Rs in Cr)78,168.96
P/E (x)19.60
EPS (Rs.)137.90
BV (Rs.)525.53
Div Yield (%)2.04
FV (Rs.)10.00
P/BV (x)4.87
EV/Sales (x)3.42
EV/EBITDA (x)16.01

Shareholding Pattern (%)

Promoter49.0
Foreign18.0
Public & Others18.0
Institution8.0
Corporate7.0
Grand Total100.0

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