Reduce Bajaj Auto; target of Rs 1536: Dolat Capital

“Bajaj Auto reported top-line revenue at ` 48.6bn, up 2% YoY. The three wheeler sales were down 26% YoY while two wheeler sales were up 2% YoY.. The company sold ~980,000 motorcycles and ~96,000 three wheelers in 1QFY13. The company reported a 1.4% QoQ decline in its blended realisation as a result of lower 3W sales. Exports of the 3W fell 41% in the quarter, hit by a tax hike in Sri Lanka and political instability in Egypt.”

“The company’s operating margins declined 190bps QoQ to 17.9%. This decline was purely led by lower realization due to lower 3W sales, higher raw material cost and higher staff costs. Market share at 23.5% in motorcycle segment, down 180bps YoY. Bajaj Auto lost market share to Honda Motorcycles. Its share declined from 25.3% in 1QFY12 to 23.5% in 1QFY13. The company reported its PAT at ` 7.2bn converting into an EPS of ` 24.8 for the quarter.”

“3W sales continue to be under pressure. The company maintained its guidance for doing a combined volume of 5mn for FY13. The management mentioned exports to Srilanka will come down by 25-30%. A lot of expectation is built into its new launches to recover lost domestic market share in the 2W segment. We have estimated a 10% volume growth for two wheelers and 6% volume growth for three wheeler segment. This gives us a volume of 4.75mn in FY13. The stock has significantly underperformed YTD on fears of a slowdown in the 3W segment. It currently trades at 11.8xFY14E. We see limited upside from current levels and recommend to book profits,” says Dolat Capital research report.

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