Bajaj Auto Q2 net misses forecast; how's the road ahead?

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Bajaj Auto Q2 net misses forecast; how's the road ahead?

Bajaj Auto shares recovered on Friday, rising 1.4% at Rs 1,635.75 on NSE, after getting thumbs down by the street on Thursday following a mixed results announcement for July-September.

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Moneycontrol Bureau

Bajaj Auto shares recovered on Friday, rising over 2% at Rs 1,652.70 on NSE, after getting thumbs down by the street on Thursday following a mixed results announcement for July-September.

Bajaj Auto's revenue accelerated to a record high in the second quarter, much ahead of market expectations, helped by strong growth in motorcycle sales and exports. However, profit lagged forecasts due to a forex loss on forward contracts.

Analysts remain positive on the stock and are confident that the maker of Pulsar and Discover motorcycles will be able to maintain a strong run rate going ahead.

Yaresh Kothari of Angel Broking told moneycontrol.com that excluding the one-time MTM loss of Rs 95 crore, the numbers were better than expected. The forex loss would also get reversed once the contracts mature, so it was not a huge concern, he noted.

Also, the MTM loss indicates the company may have taken export covers for 2012-13 at favourable rates, said Chirag Shah of Emkay Global Financial Services.

Bajaj Auto has long played second fiddle to Hero MotoCorp on the domestic volumes front as Hero remains strong in the commuter segment and has a strong reach in rural areas. Analysts say that trend is likely to continue going ahead. However, Bajaj should be able to maintain current growth rate and market share in the second half.

"Bajaj Auto should be able to sustain 20-21% revenue growth in the second half. Hero MotoCorp's growth rate will come down due to a high base effect. But Bajaj Auto should be able to maintain the current pace and thus maintain its market share," Vineet Hetamasaria, VP (Research) at brokerage Pinc told moneycontrol.com.

Bajaj Auto recently launched a new 150cc Boxer model to tap the semi-urban and rural markets, and take on the Hero's successful 100cc Splendor motorcycle. It also has plans to launch a new model of its premium Pulsar motorcycle. Both the Boxer and Pulsar are expected to boost the company's sales next year.

"Over long term, we believe, launch of new Pulsar could provide a kicker to domestic growth in 2012-13," said Sanket Maheshwari of ICICI Securities. 

Bajaj Auto also stands to gain in the three-wheeler space. Its commercial vehicle sales rose 17% year-on-year in the second quarter and Angel's Kothari said the sales will get a boost as more states issue new license permits for auto rickshaws. He too expects Bajaj Auto will be able to maintain strong growth momentum in the second half of this fiscal.

While domestic growth will be steady, exports are also likely to remain strong for Bajaj Auto and the recent rupee depreciation could lead to higher realizations from exports. In the second quarter, its realizations driven by price hikes and favourable forex movement improved by 9% year-on-year, pointed out Emkay's Chirag Shah.

With prices of inputs like aluminium on the decline sequentially, margin pressure is also seen easing.

Bajaj Auto's EBITDA margin increased to 20.1% in the second quarter from 19.1% in the first quarter, which was a positive surprise, said Shah. Analysts say the company should easily maintain margins at around 20% for the rest of the fiscal.

Pinc Research has a "buy" rating on Bajaj Auto with a target price of Rs 1,850. Angel Broking has an "accumulate" rating. It had a target price of Rs 1,699 on the stock, which could be revised up slightly post a detailed analysis, Kothari said.

Emkay too maintained its "accumulate" rating with a target price of Rs 1,950 on Bajaj Auto. ICICI Securities downgraded the stock to "add" from "buy" with a target price of Rs 1,806, but said it remains a top pick in the sector.

Nachiket Kelkar 
nachiket.kelkar@network18online.com