MOSL: BAJAJ AUTO (Buy)-Better mix, lower staff cost drive above-estimate operating performance
​Bajaj Auto: Better mix, lower staff cost drive above-estimate operating performance
(BJAUT IN, Mkt Cap USD14.4b, CMP INR3232, TP INR3753, 16% Upside, Buy)
- Favorable product mix drives realization: Net sales rose 8.7% YoY (+20.9% QoQ) to INR65.8b (in-line), led by volume growth of 3.8% YoY (+20.6% QoQ). Realization improved 4.7% YoY (flat QoQ) due to a favorable mix (higher share of 3W).
- EBITDA margin recovers from multi-quarter low: EBITDA came in flat YoY at INR13b (in-line), implying EBITDA margin of 19.7% (-170bp YoY, +250bp QoQ; est. of 19.1%). Lower-than-estimated RM cost and lower staff cost boosted the operating performance. The impact of lower other income was diluted by a lower tax rate. Adj. PAT declined 1% YoY to INR11.1b (est. of INR11.2b).
- Management commentary: (a) Company expects domestic motorcycle industry growth at 8-8.5% in FY18, with BJAUT's domestic motorcycles growth at ~3% (+20% in 2HFY18). (b) Recent launches of CT100 ES, Platina and Pulsar 160 NS have started on a positive note. (c) Exports are estimated at 1.7m units, led by ramp-up in nascent markets and recovery in Nigeria. (d) Management guided for domestic 3W volumes at 300k (~20% growth), as momentum in key markets remains strong. (e) It guided for EBITDA margin of ~20%. (f) Impact of higher raw material prices should reflect in 2HFY18, which might be passed on gradually to customers. (g) It plans to launch a new brand in the 125cc segment and an Avenger upgrade in 4QFY18. Also, it is in the process of launching a modified V. (h) Price hikes were taken in export markets in July and October 2017. No price hike was taken in domestic markets in 2QFY18.
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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