Results marginally ahead of estimates on strong operating performance: Bajaj
Auto (BAL)’s 2QFY2016 results have come in marginally ahead of our estimates,
owing to a robust operating performance, despite flattish volumes and high
competitive intensity.
Revenues grew marginally by 2% yoy to Rs6,098cr, coming slightly ahead of our
estimates of Rs5,960cr. Volumes remained flat in both the domestic (due to rural
weakness) as well as export (due to slowdown in Nigeria and high base effect of
the corresponding previous year) markets. However, higher INR/USD realization
during the quarter of INR65.2/USD as against INR61.5/USD in 2QFY2015,
coupled with a better product, mix led to a marginal top-line growth. Operating
margin at 21.6% was ahead of our estimate of 21.1%, primarily driven by higher
export realisation. Given the robust operating performance, the Adj Net Profit at
Rs933cr, was slightly ahead of our expectation of Rs919cr.
Outlook and valuation: The domestic motorcycle industry is likely to remain
sluggish in the near term given the weakness in rural demand. However, BAL is
likely to outperform the industry with new launches scheduled in both the
commuter and the sport segments. Also, the relatively higher contribution of
urban geographies in BAL’s sales should help the company in mitigating the rural
slowdown. Further, export volumes are expected to revive from 2HFY2016, given
the company’s entry into newer markets, initiation of price cuts by partly passing
on the benefits of higher USD realization, and owing to the low base effect of the
corresponding previous year period. Also given the trend of INR depreciation vis a
vis the USD, the margins are likely to remain high for BAL. Given the above
positives, we upgrade our recommendation on the stock from “Neutral” to
“Accumulate” with a revised price target of Rs2,672 based on 17x FY2017

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