Results in line with estimates: Bajaj Auto Ltd (BAL)’s 3QFY2016 results have come
in in line with our estimates. The company’s revenues expectedly declined by 2%
yoy to Rs5,565cr. The decline in revenues was on account of a 3% drop in
volumes. Domestic volumes grew in double digits (10%) led by new product
launches (Avenger and Pulsar variants) which led to market share gains.
However, export volumes fell steeply by 16% yoy led by demand slowdown in
Africa and Egypt markets due to slide in crude oil prices. Realisation/vehicle grew
2% yoy led by favourable currency movement (INR depreciation as against the
USD). The company realized about INR 66/USD in 3QFY2016 as against INR
63/USD realized in 3QFY2015. The company’s operating margin declined
marginally by 70bp yoy to 21% (coming broadly in line with our estimates of
21.5%). Lower export mix and price cuts in African market to stimulate demand
led to the dip in margins on a yoy basis. The operating profit at Rs1,171cr was in
line with our estimate of Rs1,181cr. Other income more than doubled yoy to
Rs200cr, coming in higher than our expectation of Rs165cr. The Net Profit at
Rs901cr was broadly in line with our expectations of Rs873cr.
Outlook and valuation: The domestic motorcycle industry is likely to recover from
FY2017 given the higher income levels, implementation of Seventh pay
commission and improvement in rural sentiments on expectations of a normal
monsoon. Also, BAL is likely to outperform the industry with new launches
scheduled in both the commuter and the sport segments. However, key export
markets viz Africa and Middle East (which contribute 70% of export and 35% of
overall volumes) are likely to remain under pressure in the near term given the
slide in crude oil prices and consequently adverse balance of payments in those
markets. We have marginally reduced our earnings estimates given the pressure
in the exports. We retain our “Accumulate” rating on the stock with a revised price
target of Rs2,585 based on 18x FY2017E earnings.

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