2QFY09 Results Update
SECTOR: A T M B L S U O O I E
Bajaj Auto
STOCK INFO. BLOOMBERG
BSE Sensex: 8,701 S&P CNX: 2,584
BJAUT IN
REUTERS CODE
24 October 2008
Previous Recommendation: Buy
YEAR END NET SALES (RS M) PAT (RS M) EPS (RS) EPS GROWTH (%) P/E (X) P/ B V (X) ROE (%) ROCE (%) EV/ SALES
Buy
Rs462
EV/ EBITDA
BJAT.BO
Equity Shares (m) 52-Week Range (Rs) 1,6,12 Rel.Perf.(%) M.Cap. (Rs b) M.Cap. (US$ b)
144.7 -/12/-/66.9 1.0
3/08A 3/09E 3/10E
90,462 99,246 108,381
7,935 9,037 10,416
54.8 62.5 72.0 13.9 15.3
8.4 7.4 6.4
4.2 3.5 2.8
47.8 46.9 44.1
42.5 38.4 38.8
0.7 0.6 0.5
4.7 4.3 3.5
? ?
?
?
?
Bajaj Auto’ 2QFY09 results were better than we had expected. The company posted EBITDA margins of 13.5% s and recurring PAT of Rs2.27b, aided by the VRS at its Akrudi plant. Volumes grew 4.2%; however, realizations increased 3.5% due to price increase of Rs800-1,500 taken in August 2008 and lower excise duty. (Excise duty was reduced from 16% to 12% in the Union Budget; the duty reduction was not fully passed on, resulting in higher net realizations). Revenues grew 8% to Rs25.5b. EBITDA margins expanded by 200bp QoQ (~270bp YoY decline) to 13.5%, translating into EBITDA of Rs3.4b. Lower depreciation (by 33%) and lower tax rate (at 30.5% of PBT v/s 33.4% in 2QFY08) boosted recurring PAT to Rs2.27b (~5% de-growth). 2,331 workers at the Akurdi plant accepted the VRS scheme, which closed on 25 July 2008, resulting in an expense of Rs3.66b. The company would be appropriating this expenditure over next 1.5 years (till March 2010) and has already provided Rs611m in 2QFY09. We are upgrading our earnings estimates by 12% to Rs62.5 for FY09 and by 10.8% to Rs72 for FY10 to factor in savings from the VRS at the Akrudi plant and savings in raw material cost. The stock trades at 7.4x FY09E and 6.4x FY10E EPS. We maintain Buy.
(Rs Million) FY08 1Q 2Q 3Q 4Q 1Q FY09 2Q 3QE 4QE FY08 FY09E
QUARTERLY PERFORMANCE
Total Volumes (nos) Change (%) Realization Change (%) Net Sales Change (%) Total Cost EBITDA As % of Sales Change (%) Other Income Extraordinary Expenses Interest Depreciation PBT Tax Effective Tax Rate (%) Rep. PAT Change (%) Adj. PAT Change (%) E: MOSt Estimates
571,591 (11.7) 36,891 8.4 21,087 18,264 2,823 13.4 333 1 415 2,740 910 33.2 1,830 1,830
614,093 (13.3) 38,460 11.8 23,618 -3.0 19,791 3,827 16.2 4.8 260 14 492 3,581 1,195 33.4 2,386 -28.0 2,386 -24.9
713,144 (9.3) 35,074 0.8 25,013 21,343 3,670 14.7 430 515 19 418 3,147 1,013 32.2 2,134 2,483
552,579 (12.1) 37,541 2.0 20,744 17,969 2,776 13.4 205 671 18 414 1,878 670 35.7 1,208 1,639
620,095 8.5 37,265 1.0 23,108 9.6 20,440 2,668 11.5 -5.5 288 0 9 335 2,611 860 32.9 1,751 -4.3 1,751 -4.3
640,040 4.2 39,817 3.5 25,484 7.9 22,046 3,439 13.5 -16.7 221 611 59 331 2,659 810 30.5 1,849 (22.5) 2,274 (4.7)
728,550 2.2 38,817 10.7 28,280 13.1 24,472 3,808 13.5 3.8 230 611 65 340 3,022 952 31.5 2,070 -3.0 2,488 0.2
568,955 2,451,407 3.0 (9.9) 39,325 36,902 4.8 5.4 22,374 90,462 7.9 19,321 77,366 3,054 13,095 13.6 14.5 10.0 261 1,227 611 1,185 67 52 412 1,740 2,225 11,346 691 3,788 31.1 33.4 1,534 7,558 27.0 1,955 7,935 19.3
2,557,640 4.3 38,804 5.2 99,246 9.7 86,278 12,968 13.1 -1.0 1,000 1,833 200 1,418 10,517 3,313 31.5 7,204 -4.7 8,459 6.6
Jinesh Gandhi (Jinesh@Motilal Oswal.com ); Tel: +91 22 3982 5416
Bajaj Auto
Total volumes increased 4.2% YoY; three-wheeler volumes flat Volumes increased 4.2% in 2QFY09; while two-wheeler sales increased 12.3% YoY, three-wheeler volumes were flat. Volume growth is mainly driven by exports (two-wheeler exports up 33%, three-wheeler exports up 19%); domestic volumes declined 5%.
EXPORTS DRIVE VOLUME GROWTH 2QFY09 2QFY08 YOY CHG (%) 1QFY09 QOQ CHG (%)
Motorcycles Domestic Exports Total Motorcycles % of Total Scooters % of Total Total 2 Wheelers % of Total Three Wheelers Domestic Exports Total 3Ws % of Total Total Volumes 37,660 37,284 74,944 11.7 640,040 43,637 31,244 74,881 12.2 614,093 4.2 -13.7 19.3 0.1 30,278 27,840 58,118 9.4 619,943 3.2 Source: Company/SIAM/MOSL 24.4 33.9 29.0 392,401 169,074 561,475 87.7 3,621 0.6 565,096 88.3 404,544 126,972 531,516 86.6 7,696 1.3 539,212 87.8 4.8 -52.9 -3.0 33.2 5.6 388,328 170,305 558,633 90.1 3,192 0.5 561,825 90.6 0.6 13.4 1.0 -0.7 0.5
Realizations increased 3.5% YoY due to price increase of Rs800-1,500 taken in August 2008 and lower excise duty. (Excise duty was reduced from 16% to 12% in the Union Budget; the duty reduction was not fully passed on, resulting in higher net realizations).
TREND IN REALIZA TIONS (PER VEHICLE)
41,000 39,000 36,891 37,000 35,074 35,000 33,000 1Q 2Q FY08 3QE 4Q 1Q FY09 38,460
39,817 37,541 37,265
2Q
Source: CompanyMOSL
The company continues to lose market share in motorcycles (~470bp YoY to 30.6%) due to loss in market share in the executive segment. However, it has been gaining market share in the premium segment for three quarters. In three-wheelers, it witnessed some recovery in market share, after losing market share continuously over 5-6 quarters.
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Bajaj Auto
MARKET SHARE 2QFY09 2QFY08 YOY CHG (BP) 1QFY09 QOQ CHG (BP)
75cc - 125cc Motorcycles 125cc - 250cc Motorcycles Motorcycles Scooters Total 2W Three Wheelers
19.3 58.4 30.6 1.2 24.9 53.6
24.0 62.1 34.4 2.7 27.8 57.5
-470 -370 -380 -160 -280 -390
21.8 57.0 32.2 1.2 26.5 50.5
-250 140 -160 0 -160 310
Source: Company/SIAM/MOSL
Margins expand QoQ, aided by VRS at Akrudi plant EBITDA margins expanded by 200bp QoQ (~270bp YoY decline) to 13.5%, translating into EBITDA of Rs3.4b. 2,331 workers at the Akurdi plant accepted the VRS scheme, which closed on 25 July 2008, resulting in an expense of Rs3.66b. The company would be appropriating this expenditure over next 1.5 years (till March 2010) and has already provided Rs611m in 2QFY09. Margins expanded despite increase in other expenditure (up ~70bp QoQ and 50bp YoY).
TREND IN EBITDA
4,000
EBITDA (Rs m)
EBITDA Margins (%) - RHS
19
3,400
16.2
16 14.7 13.4 11.5 13.5 13
2,800
13.4
2,200 1Q 2Q FY08 3QE 4Q 1Q FY09 2Q
10
Source: Company/MOSL
Lower depreciation (by 33%) and lower tax rate (at 30.5% of PBT v/s 33.4% in 2QFY08) boosted recurring PAT to Rs2.27b (~5% de-growth). Margin expansion expected on back of new product launches Management expects margins to improve in 2HFY09, following two new motorcycle launches in the 125cc+ segment (New Bajaj Platina 125 DTS-Si introduced in September 2008), and the launch of two products in the three-wheeler segment. Manufacturing of XCD at Pantnagar plant would also aid margin expansion.
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Bajaj Auto
Translational forex loses routed through reserves Bajaj Auto has created a hedging reserve to account for the impact of fluctuation in foreign currency arising out of instruments acquired to hedge future exports. The company has reported accumulated unrealized net loss of Rs1.68b (~Rs980m in 1QFY09) on account of hedging and has parked this amount in the hedging reserve that has been created. This amount would be ultimately written off through the Profit and Loss account when the underlying transaction expires. Upgrading earnings estimates; maintain Buy We are upgrading our earnings estimates by 12% to Rs62.5 for FY09 and by 10.8% to Rs72 for FY10 to factor in savings from the VRS at the Akrudi plant and savings in raw material cost. The stock trades at 7.4x FY09E and 6.4x FY10E EPS. We maintain Buy.
REVISED FORECAST (RS M) F 9 Y0 E REV OL D CHG (%) REV F 0 Y1 E OL D CHG (%)
Net Sales Net Profit EPS (Rs)
99,246 9,037 62.5
95,087 8,061 55.7
4.4 12.1 12.1
108,381 10,416 72.0
103,911 9,402 65.0
4.3 10.9 10.8 Source: MOSL
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Bajaj Auto
Bajaj Auto: an investment profile
Company description Bajaj Auto, the flagship of the Bajaj group, is a leading manufacturer of two and three wheelers. The company is a market leader in three wheelers and is 2nd largest player in motorcycles. The company has product offering across all segments of motorcycles, with brands like CT 100, Boxer, Caliber, Discover, Pulsar etc, and enjoys leadership in premium segment. Key investment arguments ? Superior product mix with dominance in the premium motorcycle segment. ? Largest exporter of two-wheelers (~55% of exports) and three-wheelers (~98% of exports), with scope to drive overall volume growth. ? Acquisition of 22.6% stake in KTM Sports, with both companies to co-develop a range of products to be manufactured by BAL for both BAL and KTM brands. Key investments risks ? Increased competitive intensity, which may lead to pricing pressure. ? Higher interest have led to pressures on volume growth.
COMP ARA TIVE V UA AL TIONS BAJAJ AUTO HERO HONDA TVS MOTOR EPS: MOST FORECAST VS CONSENSUS (RS) MOST FORECAST CONSENSUS FORECAST VARIA TION (%)
Recent developments ? Plans to launch two bikes in 125cc+ segment and two 3-Wheelers. Valuation and view ? The stock trades at 7.4x FY09E and 6.4x FY10E EPS. ? Maintain Buy with target price of Rs905 (SOTP based). Sector view ? Numerous motorcycle launches will lead to an increase in the competitive scenario. ? Domestic two wheeler demand will continue to surpass estimates on back of rural pull. ? Despite large number of players market share remains concentrated amongst the top two.
P/E (x) EPS Gr (%) RoE (%) EV/EBITDA (x)
FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E
7.4 6.4 13.9 15.3 41.7 36.6 4.7 3.7
13.0 10.6 31.1 22.0 37.8 33.0 8.0 6.5
22.9 13.4 -3.0 71.1 4.1 6.7 10.0 7.4 FY09 FY10
62.5 72.0
109.6 108.4
-43.0 -33.5
TARGET PRICE AND RECOMMEND TION A CURRENT PRICE (RS) TARGET PRICE (RS) UPSIDE (%) RECO.
462
905
95.8
Buy
STOCK PERFORMANCE (SINCE 26 MA 2008) Y SHAREHOLDING PA TTERN (%) SEP-08 JUN-08 SEP-07
Bajaj Auto (Rs) - LHS 650 550 450 350 May-08
Rel. to Sensex (%) - RHS 20 8 -4 -16
Promoter Domestic Inst Foreign Others
50.3 10.6 13.0 26.1
50.3 8.4 14.2 27.1
30.0 8.9 20.8 40.4
Jun-08
Aug-08
Sep-08
Oct-08
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Bajaj Auto
I N C O M E S T A T E M ENT Y/E MARCH 2008 2009E
(Rs Million) 2 0 10 E
RATIOS Y/E MARCH 2008 2009E 2 0 10 E
Net Sales Change (%) Total Income Change (%) Total Expenditure EBITDA Change (%) % of Net Sales Depreciation EBIT Interest & Finance Charges Other Income Non-recurring Expense PBT Tax Effective Rate (%) PAT Change (%) Adj. PAT Change (%)
86,633 -6.8 90,462
95,034 9.7 99,246
103,853 9.3 108,381
Basic (Rs) EPS EPS growth (%) Cash EPS Book Value per Share 64.5 1 09.7 20.0 54.8 62.5 13.9 59.6 1 33.2 22.5 72.0 1 5.3 69.8 163.3 25.0
9.7
77,526 12,936 86,278 12,968 0.3 14.3 1,740 11,196 52 1,262 1,024 11,383 3,788 33.3 7,595 -36.9 7,935 1 3.1 1 ,418 11,550 200 1 ,000 1 ,833 10,517 3,313 31.5 7,204 -5.1 9,037 1 3.9
9.2
93,632 14,749 13.7 13.6 1,51 6 1 3,233 200 1,150 1,833 12,350 3,767 30.5 8,583 19.1 10,416 15.3
DPS Valuation (x) P/E Cash P/E EV/EBITDA EV/Sales Price to Book Value Dividend Yield (%)
8.4 7.2 4.7 0.7 4.2 4.3
7.4 7.8 4.3 0.6 3.5 4.9
6.4 6.6 3.5 0.5 2.8 5.4
P rofitability Ratios (%) RoE RoCE 47.8 42.5 46.9 38.4 44.1 38.8
Leverage Ratio Debt/Equity (x) 0.8 0.7 0.6
CASH FLOW STATEMENT Y/E MARCH 2008 2009E
(Rs Million) 2 0 10 E
OP/(Loss) before Tax
BALANCE SHEET Y/E MARCH 2008 2009E (Rs Million) 2 0 10 E
1 ,1 1 96 1 ,262 1 ,740 -4,420 15,295 25,073 -1 ,024 24,049 -1 ,984 46,079 44,095 435 -2,91 1 -52 -2,894 -5,421 62,722 835 63,557
1 ,550 1 1 ,000 1 8 ,41 -3,31 3 6,660 17,315 -1 ,833 15,482 -1 ,571 0 - 1,571 0 0 -200 -3,809 -4,009 11,736 561 12,296
1 3,233 1,150 1,51 6 -3,767 -422 11,710 -1,833 9,877 -2,01 6 0 -2,016 0 0 -200 -4,232 -4,432 5,262 5,578 10,840
Interest/Div. Received Depreciation & Amort. Direct Taxes Paid (Inc)/Dec in Working Capital CF from Oper. Activity Extra-ordinary Items CF after EO Items (Inc)/Dec in FA+CWIP (Pur)/Sale of Invest. CF from Inv. Activity Inc. / Dec.in Networth Inc/(Dec) in Debt Interest Paid Dividends Paid
Share Capital Reserves Net Worth Deferred Tax Loans Capital Employed Gross Fixed Assets Less: Depreciation Net Fixed Assets Capital WIP Investments Net Current Assets Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Others Current Liab. & Prov. Sundry Creditors Other Liabilities Provisions Net Current Assets Application of Funds E: M OSt Estimates
1,447 1 4,429 15,876 10 1 1 3,343 29,329 29,947 1 7,261 12,686 347 1 8,571 - 1,939 3,496 2,753 561 8,888 800 18,773 9,445 988 8,340 - 2 0 , 7 12 29,329
1 ,447 17,824 19,271 10 1 13,343 32,724 33,294 18,679 13,186 0 18,571 956 4,213 3,370 5,578 8,888 800 23,311 11,235 988 11,088 -22,355 32,724
1,447 22,1 76 23,622 10 1 1 3,343 37,076 34,294 20,1 95 13,686 0 1 8,571 4,807 4,604 3,683 9,374 8,888 800 22,944 1 2,277 988 9,679 - 18 , 137 37,076
CF from Fin. Activity Inc/(Dec) in Cash Add: Beginning Balance Closing Balance
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Bajaj Auto
N O T E S
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Bajaj Auto
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