Isec expects Bajaj Auto's volumes to rise by 15-18% next yr

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Isec expects Bajaj Auto's volumes to rise by 15-18% next yr

Isec's auto analyst Karan Mittal tells CNBC-TV18 that on the surface Bajaj Auto's third quarter numbers are positive. The issue however is the NCCD which they have yet to make provision for.

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Excerpts from Business Lunch on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Bajaj Auto See interviews with Bajaj Auto Management See what other Experts & Brokerages are saying about Bajaj Auto See previous Results of Bajaj Auto Bajaj Auto BSE | NSE 31/05/12 Are Mutual Funds betting on Bajaj Auto?

Bajaj Auto reported better than expected third quarter numbers. Its net profit rose 19.20% to Rs 795.19 crore, for the same period last year. Total income rose by 20.52% to Rs 5,153.97 crore, for the same period last year.

During the quarter Bajaj received a show cause notice of Rs 77.93 crore from the Central Excise and Service Tax for payment of National Calamity Contingent Duty (NCCD) on sale of vehicles from its Pantanagar plant. The company disputing the applicability of NCCD filed a writ petition. As the High Court's decision is pending, no provision of the Rs 77.93 crore was made in the quarter.

Isec's auto analyst Karan Mittal tells CNBC-TV18 that on the surface Bajaj's third quarter numbers are positive. The issue however is the NCCD which they have yet to make provision for.

For this year, they are expecting Bajaj Auto's volumes to rise by 15-18%.

Mittal adds that if the RBI cute interest rates next year, they would shift their focus to four-wheelers and Medium & Heavy Commercial Vehicles (MHCV) than look at the two-wheeler segment.

Below is an edited transcript. Watch the accompanying video for more.

Q: What is you first cut analysis of the numbers from Bajaj?

A: On the face of it the numbers do look good because the topline has been more or less in line. The only thing that I can think at this point in time is that they have a show cause notice for the National Calamity Contingent Duty (NCCD) and have not made a provision for that. If we include that in the PAT probably the PAT would be lower than expectations and that is why the stock has reacted negatively.

Q: They have indicated that they are going to contest that link which is maybe why they haven't quite provided for it. What is it that you expect to see in terms of volume growth going into this calendar year because that is a crucial part for two-wheeler companies?

A: For Bajaj Auto we are expecting a volume growth of about 15% to 18% going ahead for this year. What we need to see is probably the volume growth has gone down for most of the two-wheelers than what it had been last year. If you look at the interest rate cuts happening in the next year probably we would rather shift our focus to four-wheelers and Medium & Heavy Commercial Vehicles (MHCV) players than looking at the two-wheeler segment.

Q: At this point from the profit figure that they have reported, what is your price target and earnings target on Bajaj?

A: Our price target for Bajaj stood at Rs 1,532 before the results but then we are looking at revising our target price after the result update. Currently our earnings estimate for FY13 would stand at about Rs 109 for Bajaj.