Hold Bajaj Auto; target of Rs 1643: KRChoksey 26-07-2011

KRChoksey has maintained hold rating on Bajaj Auto with a target price of Rs 1643 in its July 22 2011 research report.

“Bajaj Auto’s quarterly results were like the management had suggested and inline with estimates. The growth was mainly led by increase in volumes of the company which significantly grew to 1092815 units in Q1FY12 up by 18% Y-o-Y and 15% Q-o-Q. This volume growth was mainly led by new product launches, new dealer additions, and improved product mix. This has been the highest ever quarterly sales, exports, turnover and operating profit.”

“Bajaj Auto posted strong and improved profits for the quarter with the net sales increasing to Rs  4777.7 Cr. V/s Rs 3890 Cr. in Q1FY11 and Rs 4200 Cr. in Q4FY11 which is an increase of 23% Y-o-Y and 14% Q-o-Q respectively. The total expenditure also increased with increase in top-line. The total expenses stood at Rs 3866.5 Cr. in Q1FY12 V/s Rs 3113.1 Cr. in Q1FY11 and Rs 3338.5 Cr in Q4FY11 which is up by 24% Y-o-Y and 16% Q-o-Q respectively. Although the EBITDA of the company grew by 17% Y-o- Y and 6% Q-o-Q to Rs 910.8 Cr. a drop in EBITDA margins was observed which fell to 19.1% which is lower by 91bps Y-o-Y and 145bps Q-o-Q. This was mainly due to higher RM prices, which increased by 24% Y-o-Y and 5% Q-o-Q to Rs 3175.4 Cr, that continue to dent overall profitability of the company. Bajaj Auto continues to post healthy growth in PAT with total PAT at Rs 711.1 Cr. in Q1FY12 V/s Rs 590.2 Cr. in Q1FY11 and Rs 1400.4 Cr. in Q4FY11 which is a growth of 20% Y-o-Y but lower by 49% sequentially. This sequential drop was mainly due to discounted payment received by the company from Maharashtra state government under Sales tax deferral incentive in the last quarter which had resulted in an exceptional gain of Rs 724.5 Cr. A lower tax rate and lower depreciation in the current quarter the PAT margins were down by only 29 bps Y-o-Y.”

“The company continues to post healthy growth but high input costs continue to play spoil sport. We maintain our positive outlook on Bajaj Auto. With launches of new products as well as refreshes of existing products Bajaj Auto has the entire arsenal it needs to keep its growth momentum ticking. Commodity price should cool off from H2FY12 thereby taking off some pressure on its margins. With DEPB extended to end of Q2FY12 the company has prepared a plan to prevent the negative impact of 8% on its margins by moving on to othe schemes and price hikes in export markets. We expect the company to record EPS of Rs 111.4 & Rs 126.4 in FY12E and FY13E respectively. At the CMP of Rs 1447, Bajaj Auto is trading at 13x its FY12E EPS and 11.4x its FY13E EPS. We value Bajaj Auto at 13x FY13E earnings and recommend “HOLD” on the stock arriving at a Price target of Rs 1643 per share implying an upside of 14% from the current levels,” says KRChoksey research report.