Bajaj Auto (BAL) reported its 4QFY2011 results, with revenue in line and earnings above our estimates. Performance was driven by strong sales of premium motorcycles, improved operating leverage and higher other income on account of prepayment of sales tax deferral incentive. We remain positive on BAL though the DEPB issue remains an area of concern. We recommend Buy on the stock.
In-line operating performance driven by favourable product mix: BAL reported a strong 23.5% yoy increase in net sales to `4,200cr (`3,399cr), which was in line with our expectations of `4,223cr. Revenue growth was driven by 17.2% yoy growth in volumes with high-margin motorcycles, Pulsar and Discover, contributing ~70% to total motorcycle sales. Favourable product mix along with price hikes helped the company to post ~5.05% yoy growth in average net realisation. EBITDA margin came in 105bp ahead of our estimate at 20.5%, posting a decline of 235bp yoy. However, better product mix and reduced staff and other expenditure limited the contraction in operating margin to a certain extent. As a result, net profit (adjusted for one-time extraordinary items) surged by 27.9% yoy to `676cr, better than our estimates of `630cr. There was an exceptional item related to sales tax deferral incentive/loan to the amount of `827cr, which boosted the bottom line by 165% to `1,401cr. For FY2011, the company posted strong top-line growth of 40%, mainly driven by strong volume growth. Adjusting for the exceptional items, the company’s bottom line grew by nearly 40%.
Outlook and valuation: At `1,291, the stock is trading at 13.3x FY2012E and 12x FY2013E earnings. We remain positive on BAL in the two-wheeler segment, owing to its diversified business model and strong revenue and earnings visibility. Currently, the stock is available at reasonable valuations due to the recent decline in its price. Hence, we recommend Buy on the stock with a Target Price of `1,610, valuing it at 15x FY2013E earnings.
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