Accumulate Bajaj Auto; target of Rs 2452: PLilladher

Prabhudas Lilladher`s research report on Bajaj Auto“Bajaj Auto’s (BJA’s) Q2FY15 operating performance was slightly below our estimate, with EBITDA margins on a lower side at 20.8% v/s our expectation of 21.5%. Revenue grew by 15.1% YoY to Rs59.9bn ahead of our est. of Rs57.9bn, mainly led by 10.0% YoY increase in domestic realisations/vehicle. On account 8.0% increase in material cost/vehicle as compared to 4.8% YoY increase in ASP/vehicle, EBITDA /vehicle declined by 5.8% YoY. As a result, EBITDA grew by only 3.5% YoY to Rs12.4bn in line with our estimate. This led to a muted 1.7% YoY growth in Adj. PAT at Rs8.9bn (PLe: Rs9.2bn). Despite a healthy product mix, where three-wheelers accounted for 14.8% YoY of volumes (11.5% in Q1FY15), margins improved by only 120bps sequentially. We believe EBITDA margin is likely to remain stable in the 19- 20% range as impact of higher ad spend would be neutralised by higher volumes. At the CMP, stock trades at 19.1x FY15E EPS and 15.9x FY16E EPS, which seems fair, given the ~14.0% CAGR in earnings for FY14-FY16E period. We continue to prefer Hero Motocorp over BJA, given the former’s attractive valuation at 16.5x FY16E EPS with earnings CAGR of ~27.0.” “Revenue grew by 15.1% YoY to Rs59.9bn (PLe: Rs57.5bn), mainly led by 10.8% YoY volume growth. ASP/Vehicle increased by 4.8% YoY on account of better product mix in favour of three‐wheelers (14.5% v/s 11.7% YoY) and 740bps improvement in export volumes as of overall volumes. On account of 210bps increase in material cost / sales ratio (Q2FY14 material cost was benign on account of higher realisations/vehicle in the export market) EBITDA margin declined by 220bps YoY to 20.8% lower than our estimate of 21.5%. As a result, EBITDA grew by 3.5% YoY to Rs12.4bn (PLe: Rs12.4bn). Profit is adjusted for Rs3.4bn liability towards National Calamity Contingent Duty pertaining to last 7.5 years. At the same time, MTM loss during the quarter stood at Rs674m. Adj. PAT stood at Rs8.9bn, a growth of 1.7% YoY. With competition set to intensify in the domestic market and product mix skewed towards the commuter segment, we maintain our Neutral stance on the stock. At the CMP, stock trades at 19.1x FY15E EPS and 15.9x FY16E EPS, which seems fair, given the ~14.0 CAGR in earnings for FY14‐FY16E period. We continue to prefer Hero Motocorp over BJA, (we have been maintaining this view since Aug’13) given the former’s attractive valuation at 16.5x FY16E EPS with earnings CAGR of 27.0 over FY14‐FY16E period,” says Prabhudas Lilladher research report.

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