Thursday, January 26, 2012


Strong operating performance continues

Bajaj Auto’s (BAL) 3QFY12 results were better than our expectations with EBITDA margin at 21% (est. 20.7%). Revenues at Rs.50.6bn were higher by 2.3% compared to our estimate of Rs49.5bn, largely on account of better than expected export realizations (up 9.9% QoQ, driven by 3.5% price hike and rupee depreciation). Adjusted PAT stood at Rs.8.39bn higher by 6% compared to our estimate of Rs.7.93bn. We continue to remain positive on the stock and maintain Buy rating with a revised target price of Rs.1,759.

■ Better than expected operating performance driven by higher export realizations: Revenues at Rs.50.6bn stood higher than our estimate by 2.3% largely driven by higher export realizations (up 9.9% QoQ). Though the RMC per unit stood higher by 3% compared to our estimate, higher than expected revenues and marginally lower than expected other overheads helped margin expansion by 90bps QoQ and 60bps YoY at 21%.

 Conference call highlights: 1) Against management commentary from Hero MotoCorp (expecting 10-11% YoY growth for the industry in 4QFY12E), BAL was conservative expecting the growth to moderate to 5-6% in the period. However, the company expects long term CAGR volume growth of 10-12% to continue for the industry over the next 3-5years 2) Export volume growth to remain strong and FY13E should see the repeat of FY12E (YTDFY12 export growth was 30%+) 3) KTM bike will be launched on 24 Feb 2012 and two new
products will be launched between Discover and Pulsar from BAL’s stable.

■ Valuations and Recommendations: At the CMP of Rs.1,561, the stock is currently trading at 14.7x FY12 EPS of Rs.106 and 13.1x FY13E EPS of Rs.119. We continue to remain positive on the stock and maintain BUY rating on the stock with a revised target price of Rs.1,759.