Buy Bajaj Auto; target Rs 1,933: Motilal Oswal

"Bajaj Auto 1QFY13 results are below estimates, with EBITDA margins at 17.9% (v/s est 18.7%) and adj PAT at INR7.2 (v/s est INR7.27b), impacted by adverse product/market mix and lack of operating leverage. Volumes de-grew by 1% YoY (+6% QoQ) to 1.08m units (v/s est 1.1m). Realizations up 4.7% YoY (-1.4% QoQ) to INR45,095/unit (v/s est INR45,440). Net revenues grew by 3% YoY (5% QoQ) to INR48.6b (v/s est INR49.8b). EBITDA margin declined by 190bp QoQ (+10bp YoY) to 17.9% (v/s est 18.7%), impacted by adverse product (lower 3W volumes) and market mix (lower exports), higher staff cost (+70bp QoQ) despite 6% QoQ higher volume growth and higher other expenses (no benefit of operating leverage). Higher other income at INR1.8b (v/s est INR1.3b) boosted adj PAT to INR7.2b (v/s est INR7.27b) - 1% YoY growth (-5% QoQ)."

"We cut FY13EPS estimates by 1% each to model higher cost push, impact of which is diluted by price increase in domestic market from Jul-12 of ~1% (over & above ~1.25% increase in April). However, we upgrade FY14 EPS by ~5% to INR138, as we change our USD/INR to 52 (v/s 50 earlier). We model volume growth of ~8%/13% for FY13/FY14 and EBITDA margins of 18.6%/18.9% respectively. We model USD/INR rate of 50 each for FY13 and 52 for FY14 (v/s 49.5 for 1QFY13 v/s 48.2 for FY12). Our estimates could see further upgrade as it hedges its FY14 receivables at favorable rate of over 55. If it hedges FY14 Fx exposure at 55, our EPS would see upgrade of ~5% to ~INR145. The stock is valued at 13.9x FY13E EPS of INR109.7 and 11x FY14E EPS of INR138.1, and ~3.3% dividend yield on FY13 basis. Maintain Buy with target price of INR1,933 (14x FY14E EPS)," says Motilal Oswal research eport.

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