Stock Market Result Update on Bajaj Auto for 2QFY2012 with an Accumulate recommendation and a Target Price of `1701 (12 months).
Bajaj Auto’s (BAL) 2QFY2012 operating results were ahead of our estimates, led by superior product mix, higher contribution from exports and lower raw-material expenses. As a result, EBITDA margin touched 20% again, registering 100bp qoq expansion. However, due to a notional forex loss of `95cr, reported net profit came in below expectations. We broadly maintain our volume, revenue and EPS estimates for FY2012/13. We maintain our Accumulate rating on the stock.
Strong operating performance led by EBITDA margin expansion: BAL reported strong 21.3% yoy (10.3% qoq) growth in its top line to `5,267cr, led by a 16.3% yoy (6.5% qoq) jump in volumes and a 3.7% yoy (3.3% qoq) increase in net average realization. Volume performance was driven by robust 37.9% yoy (flat qoq) growth in exports volume, leading to an impressive 50.3% yoy (2.7% qoq) jump in exports revenue. Domestic volume growth was slightly muted and stood at 6.8% yoy (11.3% qoq). Net average realization improved mainly on account of better product mix and price increases. The company’s EBITDA margin at 20.1% (up 100bp qoq) surprised positively, led by qoq and yoy improvement in raw-material expenses, which declined by 97bp yoy (110bp qoq), accounting for 70.6% of sales. During the quarter, mark-to-market (MTM) loss of `95cr relating to hedging contracts was charged to the P&L, as a result net profit grew by 6.4% yoy (2.1% qoq) to `726cr.
Outlook and valuation: We continue to prefer BAL over Hero MotoCorp in the two-wheeler space owing to its diversified business model, healthy revenue and earnings visibility and reasonable valuations. We broadly maintain our volume and earnings estimates for FY2012/13. At `1,616, the stock is trading at 15.5x FY2012E and 14.3x FY2013E earnings. We maintain our Accumulate view on the stock with a target price of `1,701, valuing it at 15x FY2013E earnings.
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