Bajaj Auto (BAL), the second largest two-wheeler manufacturer in India, is a
diversified play with .... In Philippines, Boxer BM-150 and the. Pulsar 135 were ...
Bajaj Auto Ltd October 15, 2012 BSE Code:
532977
NSE Code:
BAJAJ-AUTO
Reuters Code:
Bajaj Auto (BAL), the second largest two-wheeler manufacturer in India, is a diversified play with domestic motorcycle, three wheeler and export portfolio. In the past few years, the company has reported strong growth in exports that now forms nearly 35% of its total volumes. Exports in key destinations and performance of new launches in domestic market augur well for volume growth.
Investor’s Rationale
During the month of September 2012, the total motorcycle sales of the company witnessed recovery as it inclined by 4% MoM to 315,314 and threewheeler sales surge by 11% MoM to 44,838, driven by pick-up in export volumes to Sri Lanka. BAL expects volumes to get a boost with the launch of technologically advanced and aggressively priced new Pulsar 200NS and Discover 125ST.
BAL is the largest exporter of motor-cycles and three-wheeler from the country. Its two-wheeler export volumes grew by 30% to 1.27 million units in FY12, while three-wheeler volumes grew by 35% to 0.31 million units. It exports to 35 countries and enjoys a leadership position in 12 of them. Africa is its largest market, accounting for 41% of the total volumes, Asia and Middle East (40%) and Latin America (20%).
To strengthen its position in the sports bike market in India, BAL has launched its 200CC power bike Duke 200 in collaboration with Austrian manufacturer KTM. The company would also be launching at least one new KTM bike every year in the country to further strengthen its dominant position.
BAJA.BO
Bloomberg Code:
BJAUT:IN
Market Data Rating
BUY
CMP (`) Target (`)
1,744
1,988 ~14%
Potential Upside Duration
Long Term
52 week H/L (`)
1,850/1,410
All time High (`) Decline from 52WH (%) Rise from 52WL (%) Beta Mkt. Cap (` bn) Enterprise Value (` bn)
1,850 5.7 23.7 0.6 504.5 490.2
Fiscal Year Ended Y/E
FY11A
FY12A
FY13E
FY14E
Revenue (`bn)
164.3
195.9
218.8
251.0
Net Profit(`bn)
34.5
30.4
33.2
37.9
Share Capital
2.9
2.9
2.9
2.9
EPS (`)
119.4
105.2
114.6
130.8
P/E (x)
14.6
16.6
15.2
13.3
P/BV (x)
10.5
8.3
6.2
4.8
EV/EBITDA (x)
16.0
13.2
11.8
10.1
ROCE (%)
57.4
54.8
46.8
42.0
ROE (%)
71.9
50.1
41.0
35.8
One year Price Chart
BAL is expanding its partnership with Kawasaki with the aim to capture newer markets to augment the growth in motorcycles market. Initially, the company will use Kawasaki’s network in Indonesia and other Asian countries which are seen as potentially big markets. The alliance is in line with the company’s objective to boost the international revenues.
BAL is set to increase prices in the international market following the duty drawback cut. With effect from Oct 10, 2012, the government has reduced the duty drawback rates on two-wheelers, three-wheelers, and medium and heavy commercial vehicles (MHCVs) to 2% from 5.5%. The company stated that the duty drawback cut will not materially impact margins, while the competition from Chinese players would heat up as they are at a significant cost advantage.
Shareholding Pattern
Sep’12
Jun’12
Promoters
50.02
50.02
-
FII
15.11
14.82
0.29
DII
9.97
9.80
0.17
24.90
25.36
(0.46)
Others
Diff.
Bajaj Auto ~ world’s third largest motorcycle manufacturer
BAL has three plants at Waluj, Chakan and Uttranchal with a combined installed capacity to produce 5.1 million units of two and three-wheelers
Bajaj's flagship company, Bajaj Auto Ltd (BAL), is ranked as the world's third largest two wheeler manufacturer and the Bajaj brand is well-known across several countries in Latin America, Africa, Middle East, South and South East Asia. BAL was incorporated in 1945 as a private limited company and went public in 1960. BAL, an erstwhile Indian scooter company, has successfully diversified into the motorcycle space. The company's association with Kawasaki and its aggressive spending on capacity and its brand have helped it emerge as a strong player in the Indian motorcycle market. The company has product offering across all segments of motorcycles, with brands like Discover, Pulsar, Platina, XCD etc, and enjoys leadership in premium segment. In the domestic market, the company commands a 44% market share with its Pulsar brand in the fastgrowing high-margin premium motorcycle segment, which accounts for 18.7% of the overall motorcycle market. Currently, the company has three plants at Waluj, Chakan and Uttranchal with a combined installed capacity to produce 5.1 million units of two and three-wheelers. BAL also has vast distribution and domestic retail network (600+ primary dealerships) which provides it a key competitive advantage compared to smaller players and new entrants. BAL is also the largest exporter of two and three wheelers. Its increased focus on exports has effectively changed its domestic/exports revenue mix from 88%/12% in 2006 to 65%/35% in 2012. The Company is now exporting to 35 countries, and enjoys leadership position in 12 countries. It has two subsidiaries PT Bajaj Indonesia (PT BAI) which assembles and markets motorcycles in Indonesia and Bajaj Auto International holdings BV (BAIH BV) which acts as a holding company. BAL holds 47.18% in Austrian motorcycle manufacturer KTM Power Sports AG with investment of €189.9 million through this subsidiary. During FY12, BAL recorded its highest ever sales, exports and profits from operations. It crossed the turnover of `200.0 billion mark and recorded sales of 4.35 million units, consisting of over 3.83 million motorcycles and more than 515,000 three-wheelers. The Company’s two wheeler brands include Pulsar, Avenger, Discover, Platina and Ninja. Its commercial vehicles range include goods carriers, such as GC Max Diesel, GC Max CNG, RE600, and passenger carriers, such as RE 2S, RE 2S CNG, RE 2S LPG, RE 4S and RE 4S CNG. Geography and Product Mix FY11 2,620,206 2,414,603 205,603 1,203,718 972,437 231,281 3,823,924
FY12 2,769,736 2,566,757 202,979 1,579,824 1,267,648 312,176 4,349,560
Domestic
68.5
63.7
2-wheeler 3-wheeler Exports 2-wheeler 3-wheeler Total
63.1 5.4 31.5 25.4 6.1 100
59.0 4.7 36.3 29.1 7.2 100
Domestic 2-wheeler 3-wheeler Exports Two-wheeler 3-wheeler Total Product-mix (% total sales)
September sales pick up on MoM basis
Recently launched Pulsar 200 NS and Discover 125 ST continues to rampup well with overall contribution of ~44,000 units in September.
During the month of Sep’2012, BAL’s total sales volume declined 14% YoY (up 4.4% MoM) to 360,152. Domestic volumes declined by 18% YoY (up 6% MoM) to 226,930 and exports witnessed a 6% YoY (up 1% MoM) decline to 133,222 units. Total motorcycle volumes declined by 15% YoY (up 4% MoM) to 315,314, due to festive season commencing a month later compared to last year. The sale of Discover has been picking up month on month. From 101,962 units in April, it has risen to over 122,698 units (domestic and exports) by September. The company further targets to sell 0.2 million units of Discover every month. Three-wheeler sales de-grew by 3.5% YoY (+11% MoM) to 44,838, driven by pick-up in export volumes to Sri Lanka. Recently launched Pulsar 200 NS and Discover 125 ST continues to ramp-up well with overall contribution of ~44,000 units (~32,000 units in Aug-12 & 20,000 in Jul-12). The sales of new Pulsar 200 NS were 9,000 units and it sold 35,000 Discover 125 ST units. The company stated that its bigger and sportier Pulsar and Discover models contributed ~64% of motorcycle sales. Trend in vehicle sales and growth (% MoM)
In H1FY13, BAL’s sales declined by 4% to 1,911,147 units as against 1,990,408 units during Apr-Sep 2011. Commercial vehicle sales witnessed a fall of 19% to 217,032 units compared to 266,544 units last year. Exports accounted for 805,930 units during H1FY13 compared to 851,498 units in the same time last year. The company is confident for achieving 30% volumes growth this festive season and maintaining 20% EBITDA margin this fiscal. It is eyeing around 70,000 to 80,000 Pulsar sales along with 150,000 units Discover sales in the festive season.
Strong performance witnessed during FY12 BAL recorded its highest ever sales, exports and profits from operations during FY12, augmented by robust growth in exports. The company’s net sales and other operating income grew by over 19% to `196.0 billion. It sold 4.35 million units - consisting of over 3.83 million motorcycles and more than 515,000 three-wheelers. Also, it was able to maintain a market share of over 32%. Exports grew impressively by 31% over last year to 1.58 million units, led by strong demand for two-wheelers and three-wheelers from Africa, Latin America and South East Asia. In revenue terms, exports surged by 45% to `66.0 billion and accounted for 35% of the net sales. Further, the company maintained its status as the most profitable automotive original equipment manufacturer (OEM) in the country with its operating profit growing by 18% YoY at `40.0 billion and margins stood at 18.9%. Profit after tax (PAT) but before exceptional items grew by 18% to `30.95 billion.
BAL sold 4.35 million units in FY12 - consisting of over 3.83 million motorcycles and more than 515,000 three-wheelers
The company continues to dominate the Performance segment as it sold 716,267 motorcycles in FY12, with a market share of 44%. Its key brand, Pulsar, is the only brand in the Performance segment that has crossed the 5 million mark of cumulative sales. To increase the momentum in the Performance segment, BAL has launched the next generation Pulsar 200 NS in January 2012. Further, the company has launched the KTM Duke 200 in January 2012 to the high end market. Moreover, in the mid-Commuter deluxe segment, the company has sold more than 0.1 million motorcycles every month, with annual sales of 1,279,619 bikes in FY12. Within Discover, contribution of the more powerful 125CC+ has nearly doubled to 53% of the brand portfolio this year. With several product and marketing initiatives planned for FY13, Discover is set for further growth. In the domestic market, three-wheeler sales declined by 1.3% to 202,979 units, affected by price hikes, hardening interest rates, and political disturbances. The three-wheeler industry also facing a threat from the small four-wheeler commercial vehicles as consumers look to upgrade better economies and safety features. In the export markets, a steep hike in duty by Sri Lanka also affected the demand strongly. The company is taking number of strategic initiatives to increase the market share of its diesel vehicles including network correction and expansion, promoting alternative fuel in states like Gujarat (using CNG), Andhra Pradesh (LPG) and Karnataka (LPG).
Sales (in ‘000 units)
BAL continued to report strong growth in the international market as its exports surged by 30% to 1,267,648 motorcycles in FY12.
Trend in Revenue, EBITDA and EBITDA Margin %
BAL continued to report strong growth in the international market as its exports surged by 30% to 1,267,648 motorcycles or 69% of all motorcycle exports from India in FY12. Boxer is the largest selling single brand in Africa and contributes 41% to the company’s exports. Asia and the Middle East together make up for 40% of BAL’s annual exports. In Philippines, Boxer BM-150 and the Pulsar 135 were launched and were well received, with the latter helping Bajaj Auto to gain 34% market share in the Sports segment. In Latin America, where Bajaj Auto sells 20% of its total motorcycle exports, the business has grown by 43% over the previous year. However, the company is facing some headwinds due to international events such as substantial rise in import duty in Srilanka, trade restrictions imposed in Argentina, Dollar trade embargo in Iran which may impact the profitability.
Dual brand strategy augurs well for the company
BAL’s two brand strategy to focus on “Pulsar” for sports segment and “Discover” for commuter segment has augmented the growth from the past few years.
BAL’s two brand strategy to focus on “Pulsar” for sports segment and “Discover” for commuter segment has augmented the growth from the past few years. Under the Discover family the company has Discover 100, Discover 125, Discover 125 ST and Discover 150 motorcycles, whereas in Pulsar brand it has Pulsar 135 LS, Pulsar 150 DTS-i, Pulsar 180 DTS-i, Pulsar 220 DTS-i and Pulsar 200 NS. Currently, BAL sells more than 100,000 units of Discover every month, of which more than 65% accounts for 125CC or above category, while 35% is below 125CC. Due to recent petrol hikes, sales of sub-125CC have outgrown the overall sales of 125CC+ motorcycles. Further, to dominate the Pulsar brand, BAL launched the next generation Pulsar 200 NS in January 2012. In the domestic market, the company commands a 44% market share with its Pulsar brand in the fast-growing high-margin premium motorcycle segment, which accounts for 18.7% of the overall motorcycle market. We believe both the brands will continue to generate significant volumes for BAL.
3-wheeler and 4-wheeler passenger carrier vehicles to enhance the growth
BAL’s market share in threewheeler increased by 40 basis points from 39.1% in FY11 to 39.5% in FY12
In FY12, domestic sales for three-wheelers of BAL declined by 1.3% to 202,979 vehicles. However, with a fall lower than the industry, the company’s market share increased by 40 basis points from 39.1% in FY11 to 39.5% in FY12. Besides, exports for three-wheelers as a whole grew by over 34% to 362,876 units, of which, BAL’s exports grew by 35% to 312,176 three-wheelers. BAL is well-positioned in the faster growing, higher volume passenger carrier three-wheeler market with the market share of 48% in FY12. Also, it has no competition in Sri Lanka in the three wheelers segment. The company is also examining the possibility of setting up a local assembly in Sri Lanka. Besides, it has also plans to start commercial production of the RE60 towards end Q3FY13/early Q4FY13. Initially the sales are expected to happen in Sri Lanka followed by India. We believe the portfolio of both three-wheeler and four-wheeler passenger carrier vehicles will enhance BAL's revenue, market share and margins beginning in 2014. Trend in Three-Wheeler sales Domestic
Exports
Total 3-wheelers
FY11
FY12
FY11
FY12
FY11
FY12
Industry sales
526,022
513,251
269,967
362,876
795,989
876,127
BAL's sales
205,603
202,979
231,281
312,176
436,884
515,155
39.1%
39.5%
54.9%
58.8%
BAL's market share
Tie-up with Kawasaki to aid in capturing newer markets and boost the international revenues BAL is expanding its partnership with Kawasaki with the aim to capture newer markets to augment the growth in motorcycles market.
BAL is expanding its partnership with Kawasaki with the aim to capture newer markets to augment the growth in motorcycles market. The two companies will partner together right from the starting point of the brand for the products and would be joint branded products like Kawasaki Bajaj. Initially, the company will use Kawasaki’s network in Indonesia and other Asian countries which are seen as potentially big markets. Earlier, the company launched Kawasaki Ninja 650R to garner the market share in premium motorcycle segment.
The alliance is in line with the company’s objective to boost the international revenues. Its persistent focus on exports has effectively changed its domestic/exports revenue mix from 88%/12% in 2006 to 65%/35% in 2012. Earlier, its exports were almost negligible but they have grown rapidly in last 7-8 years to 1.5 million vehicles, which included about 1.2 million motorcycles with the total export value of `65.0 billion. This has diversified the company's revenue streams, and enabled it a strong presence in Africa, Southeast Asia, and Latin America.
Growth is expected to revive from H2FY13 BAL is well placed to capitalize on strong demand from the high-growth export markets and steady domestic demand. Its fast-growing export presence in two and three wheelers should aid margin expansion and ride out uncertainties regarding regulations and permits. The KTM franchise is expected to further enhance its image, product mix, technological platforms and market share. This would give it the dual benefits of boosting exports (through the Duke 125) and a new high-end product in India. BAL is expanding its installed capacity from 5.1 million units currently to 6.36 million units by March 2013 to boost the sales growth.
Post flat domestic volume performance in H1FY13, we believe the uptick in volumes in domestic markets for BAL will be on back of the recent refreshed launches of Pulsar and Discover (Pulsar 200 NS, Discover 125 ST). With price cuts already being taken to support the volumes in Sri-Lanka, we expect three wheeler export volumes to stabilize at new normal levels. In domestic market, the recent price hikes are also expected to support the realizations. Further, the company is expanding its installed capacity from 5.1 million units currently to 6.36 million units by March 2013 to boost the sales growth. Thrust on new product launches, increased marketing initiatives and improving delivery are expected to support growth and help BAL outperform the industry. Plant – wise installed capacities Plant
FY11
FY12
Product Range
Motorcycles : 1,500,000
Motorcycles: 1,500,000
3 Wheelers: 540,000
3 Wheelers: 540,000
Boxer, Platina, Discover and 3 Wheelers
Waluj Subtotal
2,040,000
2,100,000
Chakan
1,200,000
1,200,000
Pulsar, Avenger, Ninja and KTM
Pantnagar
1,800,000
1,800,000
Platina, Discover, Boxer
Grand Total
5,040,000
5,100,000
Waluj
BAL likely to raise prices to mitigate the effect of reduction in duty drawback
We believe the company would increase the price and pass on the deduction to maintain margins.
BAL is set to increase prices in the international market following the duty drawback cut. With effect from Oct 10, 2012, the government has reduced the duty drawback rates on two-wheelers, threewheelers, and medium and heavy commercial vehicles (MHCVs) to 2% from 5.5%. The duty drawback rates are refund of duties paid on imported inputs for the products that will be exported. The company stated that the duty drawback cut will not materially impact margins, while the competition from Chinese players would heat up as they are at a significant cost advantage. Earlier, in Oct 2011, the government had reduced the export benefits, wherein the duty drawback rates were reduced from 9.5% to 5.5% and BAL had undertaken price increases to the tune of 3.5-4% to offset increase in the costs. We believe the company would increase the price and pass on the deduction to maintain margins. This could affect the volumes in the immediate future but the same tends to normalise over the period of time.
Balance Sheet (Consolidated) Y/E (`million)
Profit & Loss Account (Consolidated)
FY11A
FY12A
FY13E
FY14E
2,893.7
2,893.7
2,893.7
2,893.7
Reserve and surplus
45,178.5
57,923.5
78,066.0
102,905.8
Net Worth
48,072.2
60,817.2
80,959.7
105,799.5
2.9
1.7
1.7
1.7
Loan funds
1,338.8
974.8
984.5
1,004.2
EBITDA margin (%)
Long Term Provisions
1,255.4
1,131.6
1,154.2
1,188.9
Depreciation
38,884.0
46,643.7
49,908.8
55,897.8
1,937.1
1,570.7
1,617.8
1,682.5
297.1
484.4
484.4
484.4
91,787.5
111,624.1
135,111.2
166,059.0
3,685.6
4,346.0
4,346.0
4,346.0
15,565.1
15,270.8
18,325.0
23,822.4
2,277.1
5,799.0
7,422.7
9,129.9
Current Assets
30,632.1
52,041.9
69,159.5
89,353.0
Investments
35,240.9
33,761.8
35,449.9
38,994.9
Other Assets
4,017.7
14.3
17.9
22.3
369.0
390.3
390.3
390.3
91,787.5
111,624.1
135,111.2
166,059.0
Share Capital
Minority Interest
Current liabilities Other liabilities Deferred Tax Liabilities Capital Employed Goodwill Fixed Assets Loans & advances
Deferred Tax Assets Capital Deployed
Key Ratios (Consolidated) Y/E
FY12A
FY13E
FY14E
EBITDA Margin (%)
19.2
18.9
19.0
19.1
EBIT Margin (%)
19.1
18.8
18.8
18.9
NPM (%)
21.0
15.5
15.2
15.1
ROCE (%)
57.4
54.8
46.8
42.0
ROE (%)
71.9
50.1
41.0
35.8
EPS (`)
119.4
105.2
114.6
130.8
P/E (x)
14.6
16.6
15.2
13.3
BVPS(`)
166.1
210.2
279.8
365.6
10.5
8.3
6.2
4.8
3.2
2.6
2.3
2.0
EV/EBITDA (x)
16.0
13.2
11.8
10.1
EV/EBIT (x)
16.6
13.8
12.2
10.5
EV/Operating Income (x)
FY11A
FY12A
FY13E
FY14E
Total Income
164,290.9
195,946.5
218,875.9
251,038.6
Expenses
132,706.2
158,846.8
177,390.7
203,023.2
31,584.7
37,099.7
41,485.2
48,015.4
19.2
18.9
19.0
19.1
1,238.9
1,467.3
1,584.7
1,774.8
30,345.8
35,632.4
39,900.5
46,240.6
23.9
227.9
26.5
28.4
Exceptional
8,268.2
(1,340.0)
-
-
Other Income
5,789.6
6,066.1
6,187.4
6,373.0
Profit Before Tax
44,379.7
40,130.6
46,061.4
52,585.2
Tax
10,062.9
10,196.6
12,897.2
14,723.9
231.1
550.8
-
-
1.0
1.4
-
-
34,548.9
30,454.0
33,164.2
37,861.4
21.0
15.5
15.2
15.1
EBITDA
EBIT Interest
Share in Profit/ (Loss) of Associates Minority Interest Net Profit NPM (%)
Valuation and view FY11A
P/BVPS (x)
Y/E (`million)
Revival in exports demand, new product launches and model upgrades would benefit the company in capturing a larger market share. The company expects H2FY13 to see the improved growth owing to festive season. Further, the management expects that exports to Egypt and Sri Lanka will return to normal levels by H2FY13. At a CMP of `1,744, Bajaj Auto is attractively placed at EV/EBIDTA of ~10.1x FY14E, 13.3x FY14E P/E and 4.8x FY14E P/B. Considering the above aspects, we rate the stock as ‘BUY’ with a price objective of `1,988, implying potential upside of ~14% for the coming 12 months.
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