Bajaj Auto's Q4FY18 results (Underperformer) - Inline quarter, pressure points persist
Q4FY18 results
- PAT in-line; Operating performance steady: Bajaj Auto’s Q4FY18 PAT at Rs 10.8bn (up 35% yoy) was marginally ahead of estimates of Rs 10.4 bn. This variance was on account of a steady operating performance (EBITDA up 45% yoy) on benefits of operating leverage that was aided by higher other income (+25% yoy) on mark to market gains.
- Revenues in –line ; Operating performance steady: Revenues at Rs 67.8bn (up 38% yoy) reflected the volume trend (up 33% yoy) while realizations improved on a sequential basis by ~2% due to price hikes during the quarter. The EBITDA margins at 19.4% (+10 bps qoq, +90bps qoq) were ~40bp above our estimates. The beat was on account of 80bps and 30 bps qoq reduction in other expenses and employee costs led by operating leverage. Gross margins declined by 100 bps qoq on higher RM costs as commodity costs hardened during the quarter.
- Concall Highlights: (a) Unlike previous years the management refused to provide a volume/margin guidance for the coming quarters in light of the high volatility. (b) It expects exports for Bajaj Auto to reach 1.9mn units in FY19 (+14% yoy), while motorcycle industry growth is expected to grow by 10-11% in FY19 (c) Commodity cost pressures are being felt. However, the company has taken a price hike of 1-1.5% in the domestic market recently 4QFY18/ May-18 to offset raw material price increase. (d) 3W market in FY19 to be driven by new permits in Delhi, Karnataka and Telangana along with market share gains in the diesel segment.(e)It has guided for a capex of Rs 2.5-3 bn for FY19 - does not forsee a major capacity expansion for FY19. (f) The company intends to focus on 125cc plus segments to drive profitable growth.
Key positives: Higher other income
Key negatives: Higher tax rate
Impact on earnings: No major change in earnings estimates.
Valuations & view
Bajaj Auto’s domestic portfolio continues to weaken with new products/brands (Avenger, V, Dominar) failing to enthuse consumers. The increased in discounts in the industry seem to reflect higher competitive pressures. In the near term while the exports are likely to report growth on a low base, they are likely to remain volatile. Moreover, rising commodity costs could be an additional pain point. Maintain Underperformer with a target price of Rs 2,685 (15X FY20EPS and Rs 120 for the KTM stake).
Bajaj Auto is an auto-manufacturing company which is based in India. Co. is engaged in the manufacturing, selling, and exporting of two- and three-wheeler vehicles and spare parts and accessories. Co.'s products include scooters, motorcycles, and mopeds, as well as autorickshaws, such as goods carriers, delivery vans, and passenger carriers. Co. also provides related spare parts and after sales service. Co. offers its products through a network of dealers and maintains a presence in over a dozen countries in Europe, Latin America, the U.S. and Asia.
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