Bajaj Auto NEUTRAL RESULTS REVIEW 2QFY16 23 OCT Key highlights. CMP (as on 23 Oct 2015) Rs 2,514 Target Price Rs 2,720

Transcription

1 INDUSTRY AUTOS CMP (as on 23 Oct 2015) Rs 2,514 Target Price Rs 2,720 Nifty 8,295 Sensex 27,471 KEY STOCK DATA Bloomberg/Reuters BJAUT IN/BAJA.BO No. of Shares (mn) 289 MCap (Rs bn) / ($ mn) 728 / 11,216 6m avg traded value (Rs mn) 948 STOCK PERFORMANCE (%) 52 Week high / low Rs 2,695 / 1,913 3M 6M 12M Absolute (%) (0.6) Relative (%) (3.1) SHAREHOLDING PATTERN (%) Promoters FIs & Local MFs 8.13 FIIs Public & Others Source : BSE Navin Matta navin.matta@hdfcsec.com Sneha Prashant sneha.prashant@hdfcsec.com Decent quarter, but lacking catalysts Bajaj Auto s APAT at Rs 9.3bn (+6.5% YoY, -8.1% QoQ) surpassed expectations. Strong domestic Net ASP and muted cost trends led to 130bps QoQ expansion in EBITDA margins to 21.6%. Starting Sept-15, the company hiked prices between Rs 500 and Rs 2,000/vehicle for domestic 2Ws and Rs 2,000/vehicle for 3Ws. The management ssaid it cut export prices from Oct-15, as it is reinvesting part of its forex gains to push up volumes in price sensitive markets. Although positive on Bajaj Auto s exports strategy, we are skeptical about its domestic 2W business. Inability to create a sustainable presence in the executive segment and risk of shift towards leisure bikes in the premium segment are the key challenges. We value the company at 16x core EPS + 1x cash + stake in KTM business to arrive at our TP of Rs 2,720. The stock would trade at 17.2x average of FY17/18E EPS. Maintain NEUTRAL. RESULTS REVIEW 23 OCT 2015 Bajaj Auto Key highlights NEUTRAL Domestic market growth outlook: According to the company, domestic motorcycle demand remains muted and Navratra sales are 7-8% lower compared with last year s. Rural demand is also weak with no signs of change in the near future. Market share trends: The success of CT100 drove Bajaj Auto s domestic motorcycle share by ~300bps to 18% in. This was maintained even in 2Q. The management, however, hopes to push it up to ~22-23% on exit basis in FY16 following ramp-up of its new Pulsar vehicles, incremental volumes from the new Avenger bikes and introduction of a new brand in the midsegment in 4QFY16. Exports growth to accelerate in 2HFY16: Despite macro concerns in several key export regions, Bajaj Auto has maintained 2mn volume guidance for FY16 (implied +18% YoY in 2HFY16). Volume growth from recently entered markets is offsetting any demand weakness in existing markets. Financial Summary (Rs mn) YoY (%) QoQ (%) FY15 FY16E FY17E FY18E Net Sales 60,978 59, , , , , ,080 EBITDA (adj.) 13,171 11, , ,667 49,464 55,620 62,184 APAT 9,331 8, ,149 (8.1) 32,042 38,263 43,206 48,367 Diluted EPS (Rs) (8.1) P/E (x) EV / EBITDA (x) RoE (%) HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

2 BAJAJ AUTO : RESULTS REVIEW Topline growth was ahead of expectations as domestic realisation (ex-spares) saw 8% QoQ rise on the back of higher 3W mix and richer 2W model mix Despite 2% QoQ improvement in USD/INR rates, export ASP declined by 1.5% QoQ because of lower 3W mix Gross margin improved by 70bps (vs. our estimate of 100bps) partially on better product mix and balance from lower commodity prices EBITDA margin rose to 21.6% (+130bps QoQ) as staff/other expenses saw muted growth on QoQ basis Quarterly Financials Snapshot: Standalone (Rs mn) YoY (%) QoQ (%) Volumes (in units) 10,56,596 10,55, ,13, Net ASP (Rs/veh) 57,712 56, , Net Sales 60,978 59, , Material Expenses 40,551 41,101 (1.3) 37, Employee Expenses 2,417 2, ,437 (0.8) Other Operating Expenses 4,839 4, , EBITDA 13,171 11, , Interest Cost ,275.0 Depreciation (0.5) Other Income 1,526 1, ,368 (65.1) PBT 13,915 12, ,980 (7.1) Tax 4,584 3, ,832 (5.1) APAT 9,331 8, ,149 (8.1) E/o (adj for tax) - (2,854) RPAT 9,331 5, ,149 (8.1) Margin Analysis: Standalone YoY (%) QoQ (%) Material Expenses % Net Sales (242.4) 67.2 (70.8) Employee Expenses % Net Sales (37.8) Other Expenses % Net Sales (21.2) EBITDA Margin (%) Tax Rate (%) APAT Margin (%) (277.8) Page 2

3 BAJAJ AUTO : RESULTS REVIEW We expect Bajaj s domestic 2W motorcycle sales to see moderate growth on a low base (after three years of continuous decline) Domestic 3W growth outlook aided by new permits being issued in a few states over the next few quarters Expect exports to witness 10% CAGR over FY15-18E as the company continues to improve penetration in existing markets, along with seeding new markets We expect Net ASP growth trends to remain muted given the largely insipid domestic product mix and Bajaj passing on part of its FX benefits in export markets Volume Assumptions (in units) FY14 FY15 FY16E FY17E FY18E Domestic Sales 2,286,155 2,005,123 2,158,933 2,347,750 2,520,474 % YoY -15.0% -12.3% 7.7% 8.7% 7.4% 2W 2,099,242 1,770,778 1,912,871 2,082,002 2,233,467 % YoY -14.8% -15.6% 8.0% 8.8% 7.3% 3W 186, , , , ,007 % YoY -17.3% 25.4% 5.0% 8.0% 8.0% Exports Sales 1,583,935 1,806,078 1,970,607 2,164,365 2,397,877 % YoY 2.4% 14.0% 9.1% 9.8% 10.8% 2W 1,323,173 1,521,306 1,640,272 1,804,299 2,005,406 % YoY 2.3% 15.0% 7.8% 10.0% 11.1% 3W 260, , , , ,472 % YoY 2.7% 9.2% 16.0% 9.0% 9.0% (in units) FY14 FY15 FY16E FY17E FY18E 2W 3,422,415 3,292,084 3,553,142 3,886,301 4,238,872 % YoY -8.9% -3.8% 7.9% 9.4% 9.1% 3W 447, , , , ,479 % YoY -6.7% 16.0% 11.0% 8.6% 8.6% Total Sales 3,870,090 3,811,201 4,129,540 4,512,114 4,918,351 % YoY -8.7% -1.5% 8.4% 9.3% 9.0% Source: SIAM, HDFC sec Inst Research Net Realisations (Rs/vehicle) FY14 FY15 FY16E FY17E FY18E Domestic 42,064 45,355 44,168 44,545 53,958 % YoY 2.1% 7.8% -2.6% 0.9% 21.1% Exports 51,765 54,028 56,161 57,733 59,004 % YoY 19.3% 4.4% 3.9% 2.8% 2.2% Net ASP (incl spares) 50,949 55,373 56,162 57,414 59,096 % YoY 10.8% 8.7% 1.4% 2.2% 2.9% Page 3

4 BAJAJ AUTO : RESULTS REVIEW Our 1-2% EPS cut for FY16/FY17E reflects lower Net ASP assumptions on account of lower export ASP Change In Estimates New Old % chg FY16E FY17E FY16E FY17E FY16E FY17E Volumes (in mn) Net sales 237, , , ,325 (1.7) (2.0) EBITDA 49,464 55,620 50,484 56,377 (2.0) (1.3) EBITDA margin APAT 38,263 43,206 38,977 43,736 (1.8) (1.2) Adj EPS (1.8) (1.2) Source: HDFC sec Inst Research Peer Valuations CMP Mcap Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%) TP Reco (Rs/sh) (Rs bn) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Ashok Leyland NEU Bajaj Auto 2, ,720 NEU Eicher Motors 18, ,470 NEU Hero Motocorp 2, ,836 BUY M&M 1, ,400 NEU Maruti Suzuki 4,381 1,324 4,802 BUY Tata Motors 383 1, BUY SML Isuzu 1, ,181 NEU Source: HDFC sec Inst Research Page 4

5 4QFY14 4QFY14 4QFY14 4QFY14 BAJAJ AUTO : RESULTS REVIEW Volumes Remain Flattish Dom ('000) Exports ('000) % YoY (RHS) 1, % 1, % % 0.0% % % % % NET ASP YOY growth moderating due to weaker product mix 62,000 60,000 58,000 56,000 54,000 52,000 50,000 48,000 Net ASP % YoY (RHS) 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Gross Margins Continue To Expand Gross profit/vehicle (Rs) Gross margin (RHS) 20, % 16, % 32.0% 12, % 8, % 4, % % EBITDA Margin Expands By 130bps QoQ 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - EBITDA/vehicle (Rs) EBITDA margin (RHS) 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% Page 5

6 4QFY14 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 4QFY14 4QFY14 BAJAJ AUTO : RESULTS REVIEW Domestic 2W Mix Improves Economy Executive Premium 100% 80% 31% 36% 40% 40% 43% 35% 40% 60% 13% 45% 33% 36% 34% 21% 40% 14% 52% 20% 46% 31% 36% 24% 25% 26% 0% Exports of 2W Improves With Higher Pulsar Volumes Boxer Pulsar CT D-125cc Others 100% 13% 12% 11% 11% 18% 13% 11% 7% 9% 17% 11% 6% 6% 80% 8% 11% 10% 10% 12% 12% 10% 22% 60% 16% 15% 16% 12% 16% 16% 40% 20% 20% 53% 53% 47% 52% 53% 54% 38% 0% Source: SIAM, HDFC sec Inst Research Source: SIAM, HDFC sec Inst Research Overall Domestic 2W Market Share Stable At ~18% > cc > cc > cc >150 cc- 200cc >200 cc 60% 50% 40% 30% 20% 10% Bajaj Auto One-year forward Core P/E chart Core P/E Avg Core P/E +1 SD -1 SD % 12 Source: SIAM, HDFC sec Inst Research Source: Bloomberg, HDFC sec Inst Research Page 6

7 BAJAJ AUTO : RESULTS REVIEW Income Statement Standalone (Rs mn) FY14 FY15E FY16E FY17E FY18E Net Sales 201, , , , ,080 Growth (%) Material Expenses 138, , , , ,976 Employee Expenses 7,266 8,973 10,070 11,261 11,868 Other Operating Expenses 13,718 16,866 19,285 20,573 23,052 EBIDTA 41,825 41,667 49,464 55,620 62,184 EBIDTA (%) EBIDTA Growth (%) 15.0 (0.4) Other Income 7,064 5,824 8,403 9,525 10,562 Depreciation 1,796 2,674 3,186 3,398 3,620 EBIT 47,093 44,817 54,682 61,748 69,126 Interest PBT 47,088 44,753 54,662 61,723 69,096 Tax 13,915 12,711 16,398 18,517 20,729 APAT 33,174 32,042 38,263 43,206 48,367 APAT Growth (%) 8.9 (3.4) EO items (net of tax) (768) (3,905) RPAT 32,406 28,137 38,263 43,206 48,367 Adj EPS Adj EPS Growth (%) 8.9 (3.4) Balance Sheet Standalone (Rs mn) FY14 FY15E FY16E FY17E FY18E SOURCES OF FUNDS Share Capital 2,894 2,894 2,894 2,894 2,894 Reserves 93, , , , ,943 Total Shareholders Funds 96, , , , ,837 Long-term Debt 592 1,124 1,124 1,124 1,124 Short-term Debt Total Debt 592 1,124 1,124 1,124 1,124 Deferred Taxes 1,432 1,416 1,416 1,416 1,416 Long-term Provisions & Others TOTAL SOURCES OF FUNDS 98, , , , ,376 APPLICATION OF FUNDS Net Block 20,060 19,172 22,469 22,571 23,451 CWIP 2,830 3, Investments, LT Loans & Advs 85,496 91, , , ,533 Inventories 6,397 8,142 9,094 10,160 11,395 Debtors 7,962 7,170 7,795 8,708 9,767 Cash & Equivalents 4,955 5,862 5,675 6,506 8,631 ST Loans & Advances, Others 19,775 20,262 21,952 24,734 27,750 Total Current Assets 39,089 41,435 44,516 50,108 57,543 Creditors 21,114 17,998 19,535 21,785 24,455 Other Current Liabilities & Provns 28,258 28,165 31,594 35,139 39,196 Total Current Liabilities 49,372 46,162 51,129 56,925 63,651 Net Current Assets (10,283) (4,727) (6,613) (6,816) (6,108) Misc Expenses & Others TOTAL APPLICATION OF FUNDS 98, , , , ,376 Page 7

8 BAJAJ AUTO : RESULTS REVIEW Cash Flow Standalone (Rs mn) FY14 FY15E FY16E FY17E FY18E Reported PAT 33,174 32,042 38,263 43,206 48,367 Non-operating & EO items 814 (3,855) 0 (0) (0) PAT from Operations 33,988 28,187 38,263 43,206 48,367 Interest expenses Depreciation 1,796 2,674 3,186 3,398 3,620 Working Capital Change 4,220 (4,649) 1,699 1,034 1,417 Other Operating Items 281 (16) OPERATING CASH FLOW ( a ) 40,290 26,261 43,168 47,663 53,435 Capex (2,507) (2,438) (3,500) (3,500) (4,500) Free cash flow (FCF) 37,783 23,823 39,668 44,163 48,935 Investments (21,192) (6,037) (19,000) (19,000) (19,000) INVESTING CASH FLOW ( b ) (23,699) (8,475) (22,500) (22,500) (23,500) Debt Issuance (293) Interest expenses (5) (65) (20) (25) (30) FCFE 37,490 24,354 39,668 44,163 48,935 Share capital Issuance Dividend (16,927) (17,346) (20,835) (24,307) (27,780) FINANCING CASH FLOW ( c ) (17,225) (16,879) (20,855) (24,332) (27,810) NET CASH FLOW (a+b+c) (634) 907 (186) 831 2,125 Non-operating and EO items Closing Cash & Equivalents 4,955 5,862 5,675 6,506 8,632 Key Ratios Standalone FY14 FY15E FY16E FY17E FY18E PROFITABILITY (%) GPM EBITDA Margin APAT Margin RoE RoIC RoCE EFFICIENCY Tax Rate (%) Asset Turnover (x) Inventory (days) Debtors (days) Payables (days) Cash Conversion Cycle (days) (12) (5) (4) (4) (4) Debt/EBITDA (x) Net D/E (x) Interest Coverage (x) 9, ,734 2,470 2,304 PER SHARE DATA EPS (Rs/sh) CEPS (Rs/sh) DPS (Rs/sh) BV (Rs/sh) VALUATION P/E P/BV EV/EBITDA OCF/EV (%) FCF/EV (%) FCFE/mkt cap (%) Dividend Yield (%) Page 8

9 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 BAJAJ AUTO : RESULTS REVIEW RECOMMENDATION HISTORY Bajaj Auto 2,800 2,600 2,400 2,200 2,000 TP Date CMP Reco Target 17-Oct-14 2,373 NEU 2, Dec-14 2,473 NEU 2, Jan-15 2,420 NEU 2, May-15 2,300 NEU 2, Jul-15 2,497 NEU 2,505 9-Oct-15 2,431 NEU 2, Oct-15 2,514 NEU 2,720 1,800 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 9

10 BAJAJ AUTO : RESULTS REVIEW Disclosure: We, Navin Matta, MBA & Sneha Prashant, MBA authors, and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai Board : Page 10