17 May 2013 ... Bajaj Auto. CMP: INR1 ... Bajaj Auto's (BJAUT) net sales declined 4.5% YoY to
INR47.5b (v/s est INR49.9b) ..... Bajaj Auto: an investment profile.
17 May 2013
4QFY13 Results Update | Sector: Automobiles
Bajaj Auto BSE Sensex 20,286 Bloomberg
S&P CNX 6,187 BJAUT IN
Equity Shares (m)
289.4
M.Cap. (INR b)/(USD b)
537/9.7
52-Week Range (INR) 2,229/1,423 1,6,12 Rel.Perf.(%)
-6/-10/-10
Financials & Valuation (INR b) Y/E March
2013 2014E 2015E
Sales
199.9
224.7
259.3
EBITDA
36.3
43.2
49.7
NP
30.4
35.2
40.8
Adj. EPS (INR) 105.1 121.6 141.1 EPS Gr. (%) BV/Sh. (INR)
(2.1)
15.8
16.0
261.5 324.7 396.0
RoE (%)
44.7
41.5
39.1
RoCE (%)
61.3
58.6
53.8
Payout (%)
49.8
48.1
49.4
17.5
15.1
13.0
Valuations P/E (x) P/BV (x)
7.0
5.6
4.6
EV/EBITDA (x)
12.4
10.0
8.2
Div. Yield (%)
2.5
2.7
3.3
CMP: INR1,834
TP: INR2,115
Buy
Bajaj Auto's (BJAUT) net sales declined 4.5% YoY to INR47.5b (v/s est INR49.9b) led by volume decline of 3.5% YoY (-13% QoQ) to 9.8m units (v/s est 1.05m units) and realizations growth of 2.1% YoY (+0.8%) to INR48,372 (v/s est INR47,588). EBITDA margin declined by 80bp YoY (-110bp QoQ) to 17.6% driven by higher other expenditure (60bp YoY, 140bp QoQ). PAT grew 1% YoY (-6.5% QoQ) to INR7.7b (v/s est INR7.4b) due to higher other income and lower tax. Management commentary on 4Q results and outlook: 1) while BJAUT lost 1% market share in FY13 in domestic motorcycles to 24.5%, in terms of retail sales market share is flat, 2) expect exports growth at 10-12% in FY14, revenue growth to be higher driven by favorable USD/INR rates (INR54 in FY14 v/s INR49.5 in FY13), 3) 3Ws expected to grow by 10-12% as well. Strong growth in domestic diesel 3Ws to continue, 4) for 2Ws, 1QFY14 is turning out to be good due to festivals and marriages but has low visibility beyond that due to uncertain macro environment, 5) plans to launch six new Discover (between INR40,000-50,000) in FY14 in the domestic market, 6) channel inventory is at four to five weeks and 7) announced a dividend of INR45/share (flat YoY), comfortable with 50% payout ratio. We lower FY14E/FY15E estimates by 1.5%/1.1% to INR121.6/INR141.1 respectively as we moderate our export volume growth forecast and margin assumption. We estimate BJAUT to reinvest 2/3rd of forex benefits to drive volume growth, both in domestic and exports in FY14E. The stock is trading at 15.1x/13x FY14E/FY15E EPS respectively. Maintain Buy with a target price of INR2,115 (15x FY15E EPS).
Jinesh Gandhi (
[email protected]) + 91 22 3982 5416 Chirag Jain (
[email protected]) + 91 22 3982 5418 Investors are advised to refer through disclosures made at the end of the Research Report.
1
Bajaj Auto
Volumes continue to remain under pressure; Market share declines 270bp QoQ in domestic 2W industry in 4Q sequentially
Net sales declined 4.5% YoY to INR47.5b (v/s est INR49.9b) led by volume decline of 3.5% YoY (-13% QoQ) to 9.8m units (v/s est 1.05m units) and realizations growth of 2.1% YoY (+0.8%) to INR48,372 (v/s est INR47,588). Domestic motorcycles' sales declined by 9.8% YoY (-19.1% QoQ) to 556,158 units. On a sequential basis, BJAUT lost 270bp market share in domestic two-wheeler industry. The flagship brand Pulsar though continues to be the segment leader with 48% market share in FY13. Motorcycle exports grew 8% YoY (+1.5% QoQ) to 303,537 units. Growth in motorcycle exports has been primarily driven by the African market. Three-wheeler sales grew 1.4% YoY (-14.1% QoQ) largely driven by domestic market (diesel 3Ws in particular), as export markets were impacted due to high import duties imposed by Sri Lanka. Company continues to dominate the alternate fuel 3W passenger segment with a market share of 87%. Export realizations declined by 5.8% sequentially primarily due to lower share of 3Ws (400bp QoQ) to 16.5%. However, domestic realizations improved by 4.7% QoQ due to price increases and higher share of recently-launched relatively premium commuter motorcycles (Discover 125ST/100T) and marginal increase in 3Ws share. USD realizations stood at INR49.5/USD for 4QFY13, 49.5 for FY13 and 48.2 for FY12. BJAUT sold 25,000 units (including exports of 18,000 units) of KTM motorcycles in FY13. For FY14, it expects to sell 35,000 (including 25,000 units of exports).
Trend in product mix Motorcycles Domestic Exports Total Motorcycles % of total Three Wheelers Domestic Exports Total 3Ws % of total Total Volumes
4QFY13
4QFY12
YoY (%) 3QFY13
556,158 303,537 859,695 87.6
616,516 280,732 897,248 88.2
-9.8 8.1 -4.2
61,284 53,237 60,263 66,682 121,547 119,919 12.4 11.8 981,242 1,017,167
15.1 -9.6 1.4
687,351 298,912 986,263 87.5
64,168 77,310 141,478 12.5 -3.5 1,127,741
QoQ (%)
FY13
FY12 YoY (%)
-19.1 2,463,874 2,566,757 1.5 1,293,231 1,267,648 -12.8 3,757,105 3,834,405 88.7 88.2
-4.0 2.0 -2.0
-4.5 -22.1 -14.1
227,336 202,979 12.0 252,721 312,176 -19.0 480,057 515,155 -6.8 11.3 11.8 -13.0 4,237,162 4,349,587 -2.6 Source: Company, MOSL
Trend in market share (%) 4QFY13 4QFY12 75cc - 125cc 125cc - 250cc Dom. Motorcycles Total Motorcycles Total Dom. 2W Total 2W (incl exports) Dom. 3W 3W (incl exports)
17 May 2013
19.0 40.9 22.6 29.4 16.3 22.2 44.1 56.9
19.9 45.3 24.6 30.6 17.8 23.1 38.9 57.1
YoY 3QFY13 (bp) -90 22.4 -450 44.8 -200 26.0 -110 31.8 -150 19.0 -90 24.2 520 42.3 -20 58.7
QoQ (bp) -340 -400 -340 -230 -270 -200 180 -180
FY13
FY12
YoY (bp) 20.8 20.3 50 43.6 48.2 -460 24.4 25.5 -110 31.6 32.2 -60 17.8 19.0 -120 23.9 24.9 -100 42.0 39.0 300 57.1 58.7 -160 Source: SIAM, MOSL 2
Bajaj Auto
Domestic realization rises but exports decline (INR'000/unit)
Share declines in domestic 2W market by 270bp QoQ (%)
Source: Company, MOSL
Higher other expenditure impacts EBITDA margin by 110bp QoQ; PAT boosted by higher other income and lower tax rate
RM cost declines 60bp sequentially
Reported EBITDA margin declined by 80bp YoY (-110bp QoQ) to 17.6%, while EBITDA margin based on old Schedule VI declined by 90bp QoQ to ~19.2%. While RM cost declined 60bp QoQ to 71.8% (v/s est 72.3%), other expenditure rose 140bp QoQ to 7.6% (v/s est 6.5%) likely due to higher marketing spends/ subventions to financiers. BJAUT had offered finance subventions from January 15 to March 31, 2013 to spur demand. However, it has now been discontinued with an increase in demand and limited benefits on volume increase. Staff cost also increased 60bp QoQ to 3.5% (v/s est 3.1%), likely due to year-end additional provisions/charges for retirement benefits. PAT grew 1% YoY (-6.5% QoQ) to INR7.7b (v/s est INR7.35b) driven by higher other income (INR2.44b v/s est INR1.85b) and lower tax rate (25.8% v/s est 29.8%). Other income is higher on account of forex gains on hedges and gains of INR690m on pre-payment of sales tax loans; investment income declined on both QoQ and YoY basis. Tax rate is lower due to capital gains on sales tax pre-payment loan. Adjusted for this non-taxable gain, tax rate is similar to the past three quarters of FY13.
Margins decline 110bp QoQ on higher other cost
Source: Company, MOSL
17 May 2013
3
Bajaj Auto
FY14 demand outlook: Exports, 3Ws to grow 10-12%; Domestic motorcycle outlook currently uncertain Expect export volume to grow at 10-12% in FY14, revenue growth to be higher driven by favorable USD/INR rates (INR54 in FY14 v/s INR49.5 in FY13). Growth in exports would be primarily be driven by Africa and LATAM, whereas ramp-up in Indonesia through Kawasaki would be back-end and full benefit reflecting in FY15. 3W volumes expected to grow by 10-12%, driven by 1) strong growth in domestic diesel 3Ws in FY13 to continue in FY14 as well, 2) Launch of upgrade of entire range of 3W portfolio will drive replacement demand and 3) likelihood of increase in 3W permits. For domestic 2Ws, while 1QFY14 is turning out to be good due to festivals and marriages, visibility beyond that is currently limited due to uncertain macro environment. Arrival of normal monsoon could set a turnaround for the industry.
Retail demand has picked up in April, May is also strong so far but uncertainty remains post that Demand have picked in April due to festivals for the industry as a whole. Demand for May is even stronger sequentially (largely in northern region) due to bunching up of marriages in May this year. However, growth in dispatches is expected to be limited given higher channel inventory and the need for stock correction. Industry turnaround now depends on normal monsoon.
New launches to improve market share in executive segment, to maintain share in premium segment To strengthen positioning in the executive motorcycle segment (largest segment), BJAUT plans to launch 6 new variants of Discover motorcycle (to be priced between INR40-50,000) in FY14 in the domestic market. The company would stay away from the commoditized 100cc motorcycle, where margins are low. It would focus on providing value for money to customers though offering better style, features, technology at competitive prices. The company also plans to launch few premium motorcycles (KTM, Pulsar) to maintain its leadership with 47-48% share in the domestic premium motorcycle segment.
Margins expected to be in the range of 19-20% in FY14, benefitting from favorable Fx While pressures on commodity costs are easing, BJAUT expects higher conversion costs (particularly at vendors end) to dilute the benefit of easing commodity prices in 1QFY14. Margins for FY14 would be supported by favorable USD/INR rates (INR 54/USD in FY14 v/s INR49.5 in FY13). BJAUT has hedged USD850m for FY14 (~57% of estimated exports) in the range of INR53-60 (average INR54/USD), whereas for FY15 hedges are for USD300m with average rate of INR55/USD. It would continue to hedge exposure for FY14/FY15 on rolling quarterly basis. However, the company plans to reinvest 50% of the Fx benefits for spur demand in the export markets. BJAUT could resort to price rationalization; higher ad spends etc to spur export demand.
17 May 2013
4
Bajaj Auto
BJAUT expects a large part of domestic motorcycle growth to be driven by the Discover family of motorcycles, which typically earns 16% EBITDA margins (lower than blended 19-20%). Thus, margins for FY14 could be marginally impacted as the share of Discover motorcycle increases. All major 2W companies, including Bajaj, have undertaken a pricing action of INR500-1000 in April 2013.
Other highlights
Channel inventory is currently in the range of 4-5 weeks. Capex for FY14/15 is around INR5-6b total. Exports benefits declined in FY13 due to reduction in incentives (effective Oct12) to INR4.2b v/s 5.6b in FY12. For FY14, management indicated around 3% of sales as export incentives. Working capital has increased due to increase in VAT refund outstanding by INR3b (to INR11b) and increase in debtors (both domestic & overseas) by INR2.5b. Management expects VAT outstanding to reduce to INR5b by FY14. KTM Duke 390 (390cc motorcycle) is expected to be launched within couple of months. RE60 is expected to be launched in export markets by 4QFY14; currently customer trials are being undertaken. KTM has performed well in CY12 and have boosted Bajaj's consolidated PAT by ~INR0.9b (v/s ~INR250m in FY12). It has also declared a dividend, with Bajaj's share of INR220m to be reflected in 1QFY14 financials. BJAUT currently has 650 dealers and plans to add another ~30 in FY14. Around 35% of domestic motorcycle sales are being sold on finance, of which ~30% of vehicles are financed by Bajaj Finance Ltd.
Downgrade our estimates on lower export growth and moderate margin assumption We downward revise our FY14E/FY15E estimates by 1.5%/1.1% to INR121.6/INR141.1 respectively as we moderate our export volume growth forecast and margin assumption. We estimate BJAUT to reinvest 2/3rd of forex benefits to drive volume growth, both in domestic and exports in FY14E.
Revised forecast (INR M)
Volumes (units) Net Sales EBITDA EBITDA Margins (%) Net Profit EPS (INR)
17 May 2013
Rev
FY14E Old
Chg (%)
Rev
4,536,921 224,715 43,246 19.2 35,201 121.6
4,602,586 228,563 44,511 19.5 35,743 123.5
-1.4 -1.7 -2.8 -20bp -1.5 -1.5
5,189,437 259,327 49,723 19.2 40,818 141.1
FY15E Old
Chg (%)
5,266,593 -1.5 263,955 -1.8 50,891 -2.3 19.3 -10bp 41,280 -1.1 142.7 -1.1 Source: Company, MOSL
5
Bajaj Auto
Valuation & view
17 May 2013
We expect two-wheeler volume recovery to be back-ended in FY14, with near term volumes expected to remain weak. This coupled with HMSI's continued expansion on capacity, dealer network and product portfolio would result in sustained pressure on the domestic players. We believe BJAUT's business model as superior and expect it to trade at a premium to HMCL given its well diversified product portfolio, significant headstart in exports, well positioned global strategic alliances, premium profitability and consistent step-up in dividends. While valuations are reasonable, demand recovery along with stability in competitive intensity would be the key driver for the stock performance. The stock is trading at 15.1x/13.0x FY14E/FY15E EPS respectively. Maintain Buy with target price of INR2,115 (15x FY15 EPS).
6
Bajaj Auto
Bajaj Auto: an investment profile Company description
Recent developments
Bajaj Auto (BJAUT), the flagship of the Bajaj group, is a leading manufacturer of two-wheelers (~88% of volumes) and three-wheelers (~12% of volumes). It is the market leader in three-wheelers, and is the second largest player in motorcycles and enjoys leadership in the premium segment. It is also the largest exporter of two-wheelers and three-wheelers (~37% of its volumes).
The board has maintained dividend for FY13 at INR45/ share.
Valuation and view The stock is trading at 15.1x/13.0x FY14E/FY15E EPS respectively. Maintain Buy with target price of INR2,115 (15x FY15 EPS).
Key investment arguments Well diversified product and market mix, with motorcycle and three-wheelers in domestic and export markets. Renewed strategy with focus on Discover and Pulsar - two of its most profitable brands Largest exporter of two-wheelers (~69% of exports) and three-wheelers (~84% of exports), with scope to drive overall volume growth
Sector view Long term demand drivers in place, driven by increasing penetration in rural markets and replacement demand from urban markets 2W export provides huge opportunity, with ~2x India opportunity in the markets similar to India. Industry dynamics favorable, with focus on profitability rather than market share.
Key investments risks Increasing competitiveness in two-wheeler industry could restrict pricing power. Economic and political risk in key export markets
Comparative valuations
EPS: MOSL forecast v/s consensus (INR) Bajaj Auto
Hero MotoCorp
Eicher Motors
15.1 13.0 15.8 16.0 41.5 39.1 10.0 8.2
15.0 11.0 6.1 36.6 41.9 48.0 8.7 7.2
26.0 19.7 10.5 31.7 20.5 23.1 17.1 11.7
Mar-13
Dec-12
Mar-12
50.0
50.0
50.0
7.3
8.3
8.4
Foreign
18.6
17.4
16.9
Others
24.2
24.3
24.7
P/E (x) EPS Gr (%) RoE (%) EV/EBITDA (x)
FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E
FY14 FY15
MOSL Forecast 121.6 141.1
Consensus Forecast 126.6 142.8
Variation (%) -3.9 -1.2
Upside (%) 15.3
Reco.
Target price and recommendation Current Price (INR) 1,834
Target Price (INR) 2,115
Buy
Stock performance (1 year)
Shareholding pattern (%) Promoter Domestic Inst
17 May 2013
7
Bajaj Auto
Financials and Valuation
17 May 2013
8
Bajaj Auto
N O T E S
17 May 2013
9
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Bajaj Auto No No No No
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