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Bajaj Auto's Sept qtr PAT seen at Rs 30 cr
Motilal Oswal expect Bajaj Auto sales to decline 8.9% YoY to Rs22.2b. Despite three-wheelers contributing higher to the product mix (12.2% v/s 11.4% in 2QFY07), we expect EBITDA margin to dip by 120bp YoY, but increase by 70bp QoQ to 13.8%.
Motilal Oswal has come out with its earning estimates on the auto sector for the quarter ended September '07.
Motilal Oswal report on Bajaj Auto:
Total volumes of Bajaj Auto have declined 13.3% YoY in 2QFY08, the second successive quarter of volume decline. Motorcycle volumes have declined 14.7% YoY while three-wheelers volumes have declined 7.2% YoY.
We expect sales to decline 8.9% YoY to Rs22.2b. Despite three-wheelers contributing higher to the product mix (12.2% v/s 11.4% in 2QFY07), we expect EBITDA margin to dip by 120bp YoY, but increase by 70bp QoQ to 13.8%. We estimate EBITDA at Rs3.1b (decline of 16% YoY) and adj. PAT at Rs3b (decline of 5.4% YoY).
Margins would expand QoQ due to lower salary expenses (annual bonuses are paid in 1Q). We expect margins to improve further in 2HFY08 due to better product mix and higher DEPB benefit due to the revised rate of benefit and higher exports.
The company has launched its new 125cc bike XCD, which it expects to be a blockbuster product. If successful, it would help the company revive its motorcycle sales and improve its EBITDA margin. Bajaj is targeting monthly sales of 50,000 units of XCD by October 2007 itself.
We are upgrading our recommendation to Buy, following the launch of XCD, greater visibility of margin improvement, and expectation of higher two-wheeler volumes 2HFY08 onwards. The stock trades at 19.3x FY08E EPS of 131.3 and 16.5x FY09E EPS of Rs153.5.
