Equity Research Bajaj Auto - PDF by ave11649

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									                                                                                                          F
                          Bajaj Auto Ltd                                           BUY
                                                                                                          I
 C.M.P:                         Target Price:
 Rs.1445.60                     Rs.1735.00                                     September 24, 2010
                                                                                                          R
                                                                      SYNOPSIS
  1 Year Comparative Graph                          Bajaj Auto Ltd. is the largest exporter of two
                                                    and three wheelers and the company has a              S
                                                    technical tie-up with Kawasaki Heavy
                                                    Industries of Japan.
                                                                                                          T
                                                    The company has reported a 59% jump in
                                                    motorcycle sales to 289,176 units in August.
                                                    Bajaj has set itself a target of 4 million            C
                                                    vehicles, including 1 million exports, in FY
                                                    2011.
         Bajaj Auto Ltd       BSE SENSEX                                                                  A
                                                    The    company      announced     that   the
Stock Data                                          share allotment committee has made the
                                                    allotment of 144,683,510 equity shares of Rs
                                                                                                          L
Sector                               Automobile
                                                    10 each as bonus shares in proportion of 1
Face Value (Rs.)                       10.00
52 wk. High/Low (Rs.)           1525.00/684.00
                                                    equity share of Rs 10 each for every 1 equity
                                                    share of Rs 10 each.
                                                                                                          L
Volume (2 wk. Avg.)                    45000        The company has launched the new
BSE Code                              532977        Discover 150, its first bike in the 'Commuter
Market Cap (Rs.mn.)                  418298.82      Sports' segment. The new launch is
                                                    compliant with BS III emission norms.                 R
Share Holding Pattern
                                                    Kawasaki      Establishes     New    Indian
                                                    Subsidiary to Import and Sell Motorcycles.            E
                                                    The company’s net sales and net profit are
                                                    expected to grow at a CAGR of 21% and 51%             S
                                                    over FY09 to FY12E.

                                                                                                          E
                                                  Financials
                                                  (Rs. in mn.) FY09     FY10      FY11E     FY12E
                                                                                                          A
                                                  Net Sales    88103.6 119209.8 137091.2 157654.9
V.S.R. Sastry
Equity Research Desk
                                                                                                          R
                                                  EBIDTA       11088.9 25535.6 29304.6      33633.0
vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.
                                                  PAT          6564.8   17010.1 19496.0     22475.4       C
Chief Research Officer                            EPS           45.24    117.51     67.38    77.67
drsastry@firstcallindia.com
                                                  P/E           31.96    12.30      21.46    18.61        H


                                                                                                      1
                Table of Content


  Content                          Page No.

1. Peer Group Comparison              03

2. Investment Highlights              03

3. Company profile                    07

4. Financials                         09

5. Charts & Graph                     11

6. Outlook and Conclusion             13

7. Industry Overview                  14




                                              2
Peer Group Comparison


                                         Market
 Name of the company       CMP(Rs.)    Cap.(Rs.Mn.)   EPS(Rs.)   P/E(x)   P/Bv(x)   Dividend (%)


 BAJAJ AUTO                 1445.60     418298.82      117.51    12.30     7.14       400.00


 HERO HONDA                 1865.15      372447.1      111.34    16.75    10.75       5500.00


 TVS MOTORS                  73.85        35085.2       2.29     32.25     4.05       120.00
*As on 24/09/2010



      Investment Highlights

          Results Updates (Q1 FY11) (Standalone)

             For the first quarter, the top line of the company increased 66%YoY and stood
             at Rs.38900.60mn against Rs.23384.70mn of the same period of the last year.
             The bottom line of the company for the quarter stood at Rs.5901.50mn from
             Rs.2934.90mn of the corresponding period of the previous year i.e. an increase
             of 101%YoY.




             EPS of the company for the quarter stood at Rs.40.79 for equity share of
             Rs.10.00 each.




                                                                                              3
Expenditure for the quarter stood at Rs.31131.30mn, which is around 63%
higher than the corresponding period of the previous year. Raw material cost of
the company for the quarter accounts for 66% of the sales of the company and
stood at Rs.25561.90mn from Rs.14172.00mn of the corresponding period of
the previous year i.e., an increase of 80%YoY. Employee cost stood at
Rs.1263.90mn from Rs.1129.10mn. and accounts for 3% of the revenue of the
company for the quarter i.e., an increase of 12%YoY.




OPM and NPM for the quarter stood at 22% and 15% respectively from 19% and
13% respectively of the same period of the last year.




                                                                                  4
Segment-Wise revenue for the Quarter

      Segment Revenue                    (Rs. million)

      Automotive                                   38900.60
      Investments                                    816.70
      Total                                       39717.30

      Less: Inter Segment Revenue                        0.00

      Net sales/income from Operations            39717.30




                                                                5
Bajaj Auto issues bonus shares in 1:1 ratio

The company announced that the share allotment committee has made the
allotment of 144,683,510 equity shares of Rs 10 each as bonus shares in
proportion of 1 equity share of Rs 10 each for every 1 equity share of Rs 10
each.

August sales jump 55%

The company has reported a growth of 55% in its monthly sales for August
2010. The company has sold total 3,29,364 units in August 2010 as compared
to 2,13,072 units in August 2009.

Motorcycles and three wheelers sales of the company grew by 59% and 34% to
2,89,176 units and 40,188 units, respectively, during the month under review
over the year ago period, while Export sales rose by 31% to 98,578 units in
August this year from 75,164 units in the same month last year.

New Discover 150cc

Bajaj Auto has launched the new Discover 150, its first bike in the 'Commuter
Sports' segment. The new model has been priced at Rs 46,000 (Delhi ex-
showroom) the new launch is compliant with BS III emission norms.

The company had set a target of selling 3.6 million two-wheelers in a year with
Discover brand alone contributing more than one million units.

Kawasaki Establishes      New    Indian   Subsidiary   to   Import   and    Sell
Motorcycles

Kawasaki Heavy Industries, Ltd. announced the launch of India Kawasaki
Motors Pvt. Ltd. (IKM), its new Indian subsidiary specializing in motorcycle
imports and sales.

IKM is expecting its release of several supersport, sport and cruiser models
primarily in the 250 cc class or greater to drive sales up to around 1,000 units
in 2010.

Kawasaki entered into a technical assistance agreement with Bajaj Auto Ltd.
(BAL) in 1984. Under the agreement, BAL has produced and sold motorcycles in
collaboration with Kawasaki. Kawasaki’s new imports and sales subsidiary, IKM
will consign the production of CKD motorcycles to BAL’s Chakan plant. The
locally made motorcycles will then be sold together with imported complete
motorcycles through BAL’s Probiking shops.




                                                                                   6
  Company Profile

  Bajaj Auto Ltd. is the largest exporter of two and three wheelers, founded in 1926. The
  Company has a technical tie-up with Kawasaki Heavy Industries of Japan to produce
  a range of the latest, state of art two wheelers in India. The brand, Pulsar is
  continually dominating the Indian motorcycle market in the premium segment. Its
  Discover DTSi is also a successful bike on Indian roads.

  The Bajaj Group is amongst the top 10 business houses in India. Its footprint
  stretches over a wide range of industries, spanning automobiles (two-wheelers and
  three-wheelers), home appliances, lighting, iron and steel, insurance, travel and
  finance. The group’s flagship company, Bajaj Auto, is ranked as the world’s fourth
  largest two and three- wheeler manufacturer and the Bajaj brand is well-known in
  over a 12 countries in Europe, Latin America, the US and Asia.

  The Company operates in segments, such as automotive, insurance and investment,
  and others. It is engaged in various markets, including, motorcycles, two-wheelers and
  three-wheeler vehicles. On April 9, 2007, Bajaj Auto inaugurated its Greenfield plant
  with a planned capacity of one million motorcycles per year at Pantnagar,
  Uttarakhand. In addition, it has presence in the life and general insurance businesses
  (74% stake in each business) in joint venture with Allianz AG of Germany.

  Distribution network covers 50 countries with dominant presence in Sri Lanka,
  Bangladesh, Columbia, Guatemala, Peru, Egypt, Iran and Indonesia.

  Manufacturing Plants:

  Bajaj Auto has three plants, two at Waluj and Chakan in Maharashtra and one plant
  at Pant Nagar in Uttranchal, western India.

     •   Waluj         :       Bajaj range of motorcycles and three-wheelers.

     •   Chakan        :       Bajaj range of motorcycles.

     •   Pant Nagar        :   Bajaj range of motorcycles.

Company Products

  It is engaged in various markets, including, motorcycles, two-wheelers and three-
  wheeler vehicles. The products manufactured by the Bajaj Auto include:

  Two Wheelers

     •   Avenger 200 DTS-i

     •   Pulsar 220 DTS-i

     •   Pulsar 180 DTS-i




                                                                                            7
  •   Pulsar 150 DTS-i

  •   Discover 135 DTS-i

  •   Discover DTS-Si

  •   Platina 125 DTS-Si

  •   Platina 100

  •   XCD 135 DTS-Si

  •   Kristal DTS-i


COMMERCIAL VEHICLES

  1. Goods Carriers

  •   Bajaj GC MAX Diesel

  •   Bajaj GC MAX CNG

  •   Bajaj RE600.

  2. Passenger Carriers

  •   Bajaj RE 2S

  •   Bajaj 2S CNG

  •   Bajaj RE 2S LPG

  •   Bajaj 4S

  •   Bajaj RE 4S CNG

  •   Bajaj RE 4S LPG

  •   Bajaj RE Diesel

  •   Bajaj RE GDI

  •   Bajaj Mega Max.




                            8
Financials Results

12 Months Ended Profit & Loss Account (Standalone)

    Value(Rs.in.mn)                FY09               FY10             FY11E             FY12E

      Description                   12m               12m               12m                12m

       Net Sales                   88103.60         119209.80         137091.27         157654.96

     Other Income                    1116.70           1225.00           1347.50            1482.25

      Total Income                  89220.30        120434.80          138438.77         159137.21

      Expenditure                  -78131.40         -94899.20        -109134.08        -125504.19

    Operating Profit               11088.90          25535.60          29304.69          33633.02

         Interest                     -210.10            -59.80            -20.48             -20.89

      Gross profit                  10878.80          25475.80          29284.21          33612.13

      Depreciation                  -1297.90          -1364.50          -1432.73           -1504.36

    Profit Before Tax                9580.90          24111.30          27851.48          32107.77

           Tax                      -3016.10          -7101.20          -8355.45           -9632.33

     Profit after Tax                6564.80          17010.10          19496.04          22475.44

  Extraordinary Items                  -19.80              -9.00          -                  -

       Net Profit                   6545.00          17001.10          19496.04          22475.44

     Equity capital                  1446.80           1446.80           2893.60            2893.60

        Reserves                    17250.10          27836.60          47332.64          69808.08

       Face Value                       10.00             10.00               10.00              10.00

   Total No. of Shares                 144.68            144.68            289.36            289.36

           EPS                          45.24           117.51                67.38              77.67

  Paid up capital of the Company has increased from Rs. 1,446,835,100 to Rs. 2,893,670,200 divided
  into 289,367,020 equity shares of Rs. 10/- each.




                                                                                                     9
Quarterly Ended Profit & Loss Account (Standalone)



   Value(Rs.in.mn)      31-Dec-09       31-Mar-10      30-Jun-10       30-Sep-10E


      Description          3m              3m             3m              3m

       Net sales          32955.50       33994.50       38900.60         44346.68

     Other income           351.30          425.00         816.70           767.70

     Total Income         33306.80        34419.50       39717.30         45114.38

     Expenditure         -26178.40       -26681.80      -31131.30        -35489.68

   Operating profit        7128.40        7737.70        8586.00          9624.70

        Interest                -0.20           0.10           -6.30           -6.49

      Gross profit         7128.20         7737.80        8579.70          9618.21

     Depreciation          -356.80         -341.10        -318.20          -334.11

   Profit Before Tax       6771.40         7396.70        8261.50          9284.10

          Tax             -2020.00        -2101.20       -2360.00         -2785.23

    Profit after Tax       4751.40         5295.50        5901.50          6498.87

  Extraordinary Items       -                -9.00         -               -

      Net Profit           4751.40        5286.50        5901.50          6498.87

     Equity capital        1446.80         1446.80        1446.80          2893.60

      Face Value                10.00        10.00             10.00           10.00

  Total No. of Shares       144.68          144.68         144.68           289.36


         EPS                    32.84        36.54             40.79           22.46




                                                                                    10
Key Ratio



        Particulars          FY09 A   FY10 A   FY11 E   FY12 E

EBIDTA %                      13%      21%      21%      21%

PAT %                         7%       14%      14%      14%

P/E ratio (x)                31.96    12.30    21.46    18.61

ROE - %                       35%      58%      39%      31%

ROCE - %                      28%      57%      44%      37%

EV/EBIDITA (x)                7.89     8.31    15.99    15.55

Debt Equity Ratio             0.84     0.46     0.27     0.19

Price/Book Value              4.68     7.14     8.33     5.75
A-Actual    E-Expected



Charts:

    •      Net sales & PAT




                                                                 11
•   P/E Ratio (x)




•   P/BV (X)




                    12
  •   EV/EBITDA(X)




Outlook and Conclusion

  At the market price of Rs.1445.60, the stock is trading at 21.46 x and 18.61 x for
  FY11E and FY12E respectively.

  On the basis of EV/EBDITA, the stock trades at 15.99 x for FY11E and 15.55 x for
  FY12E.

  Price to book value of the company is expected to be at 8.33 x for FY11E and 5.75
  x for FY12E respectively.

  EPS of the company is expected to be at Rs.67.38 and Rs.77.67 for the earnings of
  FY11E and FY12E respectively.

  The company announced that the share allotment committee has made the
  allotment of 144,683,510 equity shares of Rs 10 each as bonus shares in
  proportion of 1 equity share of Rs 10 each for every 1 equity share of Rs 10 each.

  The company has reported a 59% jump in motorcycle sales to 289,176 units in
  August. The company had sold 182,441 units in August last year. Exports went up
  by 31% to 98,578 units in August, 2010, from 75,164 units in August, 2009.

  The company has introduced its new range of 'RE' passenger vehicles -- RE145D
  and RE445M -- at its Akurdi facility near Pune.

  We recommend ‘BUY’ this stock with a target price of Rs.1735.00 for medium to
  long term investment.




                                                                                       13
Industry Overview

Introduction:

The growth of the Indian middle class along with the growth of the economy over the
past few years has attracted global auto majors to the Indian market. India provides
trained manpower at competitive costs making India a favoured global manufacturing
hub.

Propped by the increase in its car sales after the launch of General Motors’ (GM) new
model Beat, along with the robust growth in the Indian automobile sector, Kevin E
Wale, President and Managing Director, General Motors China Group stated that India
should be among the top ten markets for the company globally by 2011.


Production:

In recent times, India has emerged as one of the favourite investment destinations for
automotive manufacturers.

   •   Nissan Motor India has announced its 'Made-in-India' compact car (hatchback)
       Nissan Micra at its manufacturing plant at Oragadam, near Chennai. Toshiyuki
       Shiga, Chief Operating Officer, Nissan Motor Company stated that the India-
       made Micra will supply to strategic markets such as Europe, Middle East and
       Africa

   •   The German luxury car major, BMW has launched four new variants of its new-
       generation 5-Series sedan in India

   •   In a bid to capture a bigger share of the ever-expanding consumer base of
       luxury segment automobiles in India. Volkswagen has launched its luxury
       sedan model Phaeton, its latest luxury model

   •   Hyundai plans to bring forth an upgraded version of i30, latest C segment five-
       door hatchback which is designed by Hyundai European team in Germany and
       is based on the Hyundai i-flow HED-7 hybrid concept. As per the manufacturer,
       i30U has entered mass production in March 2010 after debuting at the Geneva
       Motor Show

   •   Y V S Vijay Kumar, Executive-Vice President, Hindustan Motors India stated
       that the company’s Thiruvallur plant has a capacity of 12,000 units and in two
       years, the company plans to double its manufacturing capacity to reach 24,000
       units.

   •   India's second largest heavy commercial vehicle maker Ashok Leyland Ltd and
       Japanese car maker Nissan Motor Co. Ltd announced the launch of three light
       commercial vehicles (LCVs) from 2011 through 2013




                                                                                         14
   •   According to Andrew Palmer, senior vice-president, Nissan, the company will
       start marketing a light commercial vehicle (LCV) under its brand name, from its
       Oragadam plant near Chennai, in the second half of 2011

   •   Honda Motorcycle and Scooters India (HMSI), the Indian subsidiary of Japanese
       auto giant Honda Motor Corporation, will launch its superbike 2010 VFR 1200F
       in India by December 2010, according to a HMSI executive


Domestic Market/ Sales:

   •   According to the Society of Indian Automobile Manufacturers (SIAM), overall
       vehicle sales grew 30 per cent in May 2010 to 1,208,851 units, and 8 per cent
       over the previous month of April 2010. Two wheeler sales rose 29 per cent, with
       motorcycle sales increasing 26 per cent to 725,311 units, and scooter sales
       rising 45 per cent to 157,509 units in May 2010. Commercial vehicle sales rose
       58 per cent in May 2010.

   •   According to SIAM, the medium and heavy commercial vehicle (M&HCV)
       segment registered a growth of 33.5 per cent at 245,058 units and total
       commercial vehicle (CV) sales went up by 38.3 per cent to 531,395 units in
       2009-10. At an estimated 25 per cent growth, while the M&HCV segment would
       be about 306,000 units, total CV sales would be about 664,000 units in 2010-
       11.

   •   Passenger vehicles sales alone grew by 33.93 per cent in the month of April
       2010 as per SIAM report. The growth within this segment was largely driven by
       a 39.48 per cent growth witnessed in passenger car sales whereas exports
       continue to grow stronger for the industry as overall exports posted a growth of
       87.61 per cent as reported by SIAM.

   •   Furthermore, the three wheelers segment witnessed a sales increase of 20.41
       per cent in April 2010 over April 2009. Two wheeler segment also continued the
       growth trend registering an upswing of 22.07 per cent at 8,55,670 in April 2010
       compared with 7,00,987 in the corresponding period of last year.

   •   Mahindra and Mahindra (M&M) became the world's number one tractor
       company by selling a record of 1.59 lakh tractors in 2009 surpassing John
       Deere of the US.

Road Ahead:

R Seshasayee, managing director, Ashok Leyland, stated that the company plans to
invest around US$ 436.6 million over the next two years. The commercial vehicle
major said it had earmarked US$ 262 million for capex in addition to investments
earmarked for the various joint ventures (JVs) to the tune of US$ 174.7 million.

The market for electric vehicles, particularly two-wheelers or e-bikes, is expected to
grow with the governments at the Centre and states offering fiscal incentives and as
awareness about the ecological benefits of using these vehicles spreads, according to




                                                                                          15
Ms Hemalatha Annamalai, Founder and Chief Executive Officer of Ampere Vehicles Pvt
Ltd (AMPVL), Coimbatore.

Furthermore, following the initiative taken by the Society of Manufacturers of Electric
Vehicles (SMEV), the government has given duty concession on the import of certain
key components needed by the industry. In addition, the Tamil Nadu Government has
also reduced Value Added Tax (VAT) from 12.5 per cent to four per cent benefitting the
industry.

Pune-based Automotive Research Association of India (ARAI) and DSM of the
Netherlands have entered into an alliance to develop new lighter materials that could
substitute metals in the automotive industry, and help auto components shed weight.
According to the Society of Indian Automobile Manufacturers (SIAM), total commercial
vehicle (CV) sales is estimated to grow to 664,000 units in 2010-11, while the medium
and heavy commercial vehicle (M&HCV) segment would be about 306,000 units.

The Indian automotive industry is all geared up for a roller coaster journey of growth
and there is every reason to remain positive about the Indian auto sector in the future.




                                                                                           16
________________                   ____             _________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.




                                                                                               17
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