Bajaj Auto (BAAUTO) 2575

Transcription

1 Result Update October 26, 2015 Rating matrix Rating : Buy Target : 2910 Target Period : 12 months Potential Upside : 13% What s Changed? Target Changed from 2526 to 2910 EPS FY16E Changed from to EPS FY17E Changed from to Rating changed from Hold to Buy Quarterly Performance Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%) Revenue 6, , , EBITDA 1, , , EBITDA (%) bps bps PAT , Key Financials Crore FY14 FY15 FY16E FY17E Net Sales 20,150 21,612 23,864 28,920 EBITDA 4,106 4,117 5,002 6,214 Net Profit 3,243 2,814 3,758 4,782 EPS ( ) Valuation summary FY14 FY15 FY16E FY17E Core P/E (x) Tgt Core P/E (x) EV/EBITDA(x) P/BV (x) RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalization ( crore) 74,512.8 Total Debt (FY15) ( crore) Cash & Liquid Invests (FY15) ( crore) 6,386.7 EV ( crore) 68, week H/L ( ) 2695 / 1912 Equity capital ( ) Face value ( ) 10 Price performance (%) 1M 3M 6M 12M Bajaj Auto Ltd Hero MotoCorp Ltd TVS Motor Company Ltd Research Analyst Nishit Zota nishit.zota@icicisecurities.com Vidrum Mehta vidrum.mehta@icicisecurities.com Bajaj Auto (BAAUTO) 2575 Good quarter; strength lies in diversification Bajaj Auto reported its Q2FY16 results above our estimates. Net revenues at 6098 crore (up 2.3% YoY, 8.6% QoQ), were marginally above our estimates of 6064 crore on account of the beat on ASPs in the domestic market Reported margins were at 21.6% (up 270 bps YoY, 130 bps QoQ), against our estimates of 21.1%, mainly on account of higherthanestimated gross margin expansion and a richer product mix (higher share of sports segmentpulsar & Avenger) Reported PAT grew 57.9% YoY to 933 crore. Growth appears optically higher due to an exceptional loss of 340 crore in Q2FY15 Regaining lost ground through right strategy BAL s domestic 2W volumes remained flat in FY10FY15, when the industry grew ~11% in the same period. In the same period, BAL s market share declined from 19.1% to 11.1%. The decline in market share was on account of BAL s absence in the scooter segment, which grew at a CAGR of 25.2% in FY1015. In the domestic motorcycle segment, BAL s market share declined from 24% in FY10 to 16.5% in FY15. This decline was due to discontinuance of CT100 (affordable bike in economy segment) & Boxer and wrong brand positioning of the Discover brand. However, BAL has shown signs of a recovery in FY16, led by relaunching of CT100, introducing electric start feature in Platina and launching variants of the Pulsar brand. The management expects to regain the market share lost in the last two years by focusing on the entry level segment (CT100, Platina) and premium/sport segment (Pulsar, KTM, Avenger), which together form ~40% of the market. These initiatives have led to an increase in market share from ~15% in Q4FY15 to ~18% currently. The management is aiming to increase the domestic market share in the motorcycle space to ~24%. Growth in high margin 3W segment BAL has guided for 3W volume of ~ units in the domestic 3W market & ~ in the export market. We expect the new permit order for ~ W in Mumbai region to be a positive for BAL. The impact of this order in 3W domestic sales will be seen in Q4FY16E and FY17E. The 3W currently accounts for 13.6% of total BAL volumes, which we expect to increase to 14.6% in FY17E. Given that 3W commands 25+% EBITDA margins, this increase of 3W in the product mix would be positive for BAL. Overall, we expect 3W volumes to grow at a CAGR of ~15% in FY1517E. IndianGlobal manufacturing OEM BAL is one of the few Indian manufacturing OEMs with a global presence/market share coupled with global R&D standards along with quality management. On the financials front, ~82% of the business operates at ~20% EBITDA margin. The company is following the right strategy, by launching new products in higher growth segments (economy & premium). We believe the earnings trajectory will remain strong at a CAGR of ~30% in FY1517E and remains a lowrisk, high RoCE business. We value BAL on an SOTP basis, valuing the core business at 17x FY17E EPS and investment in KTM to arrive at a target price of We have a BUY rating on the stock ICICI Securities Ltd Retail Equity Research

2 Variance analysis Standalone Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments Total Operating Income 6,098 6,064 5, , Marginally above estimates due to higherthanexpected realisations in domestic business Raw Material Expenses 4,055 4,073 4, , Employee Expenses Other Expenses EBITDA 1, , , , EBITDA Margin (%) bps bps Margins came better than estimates on account of higher than estimated gross margins & richer product mix Other Income Depreciation Interest Total Tax Reported PAT PAT growth looks optically higher on a YoY basis on account of an exceptional loss EPS ( ) of 340 crore in Q1FY16 Key Metrics Revneue ( crore) Domestic 3,472 3,294 3, , Higher than estimates on account of higher ASPsricher product mix & price hike Exports 2,836 2,933 2, , tak n a r ss b ard Lower than estimates on account of lower ASPs Blended ASP ( / unit) Domestic 64,727 61,411 61, , Higher share of sports segment & price hike Exports 54,523 56,384 52, , Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 23,999 23, ,698 28, Cut in estimates on account of a reduction in volume estimates EBITDA 4,945 5, ,086 6, EBITDA Margin (%) bps bps Increased estimates on account of better product mix & higher share 3W in the total sales PAT 3,767 3, ,669 4, EPS ( ) Assumptions Current Earlier Comments Units (mn) FY14 FY15 FY16E FY17E FY16E FY17E Motorcycle volumes We have marginally adjusted downward our estimates after the H1FY16 volume trend ThreeWheeler volumes Quadricycle volumes Reduced estimates post the delay in SC judgement Export volumes Domestic revenues ( crore) 12,527 12,255 13,831 16,674 13,563 16,213 Export revenues ($ mn) 1,380 1,582 1,676 2,005 1,751 2,073 US$INR Realisation rate Export ASP ($/unit) Blended ASP ( /unit) 53,557 57,759 60,056 62,938 58,091 60,198 Increase in estimates due to better product mix, higher share of 3W & depreciating currency RM/Vehicle ( /unit) 35,465 36,928 37,113 38,919 37,113 38,919 EBIDTA/Vehicle ( /unit) 10,609 10,801 12,255 13,323 11,723 12,562 ICICI Securities Ltd Retail Equity Research Page 2

3 Key conference call takeaways Gross blended realisations grew 4.5% QoQ (against our estimates of 3%) to ~ Higher realisation can be attributed to better product mix (higher share of sports segmentpulsar & Avenger), price hike taken across board in September ( / per unit in motorcycle segment & 2000/ unit in 3W segment) and favourable exchange rate The company does not expect a significant benefit of a fall in commodity prices in H2FY16 For Q2FY16, dollar realisations were at 65.2 vs in Q1FY16. Sales have been subdued in the festive season so far. Sales have declined ~78% if we compare the Ganesh Utsav & Navratri on a YoY basis BAL has lined up launches in H2FY16, with the launch of three Avenger variants in sports segment in Q3FY16 and an unnamed product in the M3 segment. Further, the management expects the volume of the Avenger to increase from current level of ~3500/month to ~12,000/month by February in CY16. The management expects the product to be successful on account of competitive pricing & strong demand for leisure bikes. In the domestic 3W market, ~ new permits in Maharashtra & reentry of 3W in goods segment will lead to increase in volumes in Q4FY16E and FY17E The total spare part revenues in Q2FY16 was 569 crore of which export revenues was 154 crore. Spare part revenues are skewed towards motorcycle segment (70:30 in favour of motorcycle segment) The favourable benefit of the forex movement is expected to be passed on in the export market to grow the market & maintain leadership. The quadricycle Qute has been dispatched to countries for initial market development where EU certification is valid The new IND AS accounting standard from FY17 will lead to accounting of returns from FMP on accrual basis against cash basis currently. Also, the MTM losses/gains on unrealized hedges will flow into the Balance Sheet instead of the P&L. Going ahead, this will reduce the volatility in other income. ICICI Securities Ltd Retail Equity Research Page 3

4 Company Analysis Revenue growth to pick up as uptrading to begin in motorcycle space! The revenue growth of BAL in the coming years is expected to be driven by volume growth across twowheelers (2W), threewheelers (3W), product mix improvements and less by pricing. However, we have factored in moderate revenue growth at ~15.7% CAGR (FY1517E) with the domestic segment expected to be up ~16.6% to 16,674 crore and exports up ~15.6% to 13,034 crore. We expect the domestic motorcycle market share to increase to ~2324% in coming years from the current share of ~1819%. The 3W (including RE60) business is also expected to grow at ~15% CAGR in FY1517E. Exhibit 1: Build modest revenue growth at 15% CAGR in FY1517E ( crore) 35,000 30,000 25,000 20,000 15,000 10,000 5, ,398 19,529 19,997 20,150 21, , ,920 FY11 FY12 FY13 FY14 FY15 FY16E FY17E (%) Revenue % increase Share of exports has increased from ~33% in FY12, FY13 to ~44% in FY15 due to weakness in the domestic business and rapid growth in the global business. Exhibit 2: Revenue mix trend 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,223 13,905 12,527 6,604 6, ,200 12,255 9,758 13,831 10,752 16,674 13,034 FY12 FY13 FY14 FY15 FY16E FY17E Domestic Exports % share of exports ICICI Securities Ltd Retail Equity Research Page 4

5 EBITDA margin to remain high! Looking at BAL s financial performance, we can clearly see that strong consistency is almost synonymous with the company. Currently, BAL faces a margin challenge on the Discover family, which we believe would improve by H2 in terms of market share. However, there will be an enrichment of product mix towards premium segment in H2FY16. We believe BAL will continue to reap the benefit of depreciating currency in FY16E, thereby causing a profitability impact in export markets. Exhibit 3: EBITDA margins to remain steady! ( crore) 7,000 6,000 5,000 4,000 3,000 2,000 1, ,171 3,720 3, ,106 4,117 5,002 6,214 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Exhibit 4: Per vehicle metrics and estimates 67,000 62,000 57,000 52,000 47,000 42,000 37,000 32,000 27,000 22,000 53,860 53,972 36,709 37,233 62,938 60,056 38,919 37,113 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15E Q2FY15E FY15E FY16E FY17E (%) EBITDA EBITDA margin ( ) Avg RM Cost Avg realisation Source: Company press release, ICICIdirect.com Research Return ratios to remain strong as company continues its profit growth! BAL remains a cash generating franchise, which has an annual CFO of ~ 2520 crore and CFO/EBITDA ratios of ~88% (five year average). The company has extremely tight control on working capital and has already worked towards reducing the system inventory in FY15. We believe the cash accumulated in BAL s balance sheet could be better utilised via higher dividend payout as capex requirements are just ~13% of CFO generated annually. ICICI Securities Ltd Retail Equity Research Page 5

6 Exhibit 5: CFO continues to remain strong ( crore) 6,000 5,000 4,000 3,000 2,000 1, , ,567 3, , , , , , (%) FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E CFO CFO/EBITDA BAL is expected to continue to witness strong profit growth in the coming years with FY16 expected to see PAT margins of ~16% on the back of an improving EBITDA performance. We expect profits to gallop to ~ 4782 crore in FY17E at a CAGR of ~30% in FY1517E. Exhibit 6: Profit to start getting pumped up as operational improvement kicks in! 6, ( crore) 5,000 4,000 3,000 2,000 1, , ,004 3, , , ,758 4, (%) FY11 FY12 FY13 FY14 FY15 FY16E FY17E PAT PAT margin Source: Company press release, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 Outlook and valuation With a strong global outlook, BAL s profile strongly resembles an MNC player, with low dependence on a single market. As the rupee continues to remain under pressure, BAL s competitiveness has improved in export markets, along with an improvement in realisations and margins. BAL currently derives margins of 2730% in the export market. With an upside potential in the form of improvement in the domestic demand scenario coupled with the launch of the RE60, we believe a lot of negatives are already priced in BAL s stock price. Despite its absence in the fast growing scooter segment, we believe BAL s focus remains on the global motorcycle space, which differentiates it from others. We feel it has some aces up its sleeve in the 150 cc+ category in the form of new Pulsar/Avenger launches (in competition to Royal Enfield). Both of these could, in any case, provide volume surprises in FY16E and FY17E. Though the market constantly looks at revenue growth possibilities for BAL and cringes today, we feel strategies to chase revenues (e.g. possible scooter entry) while sacrificing profits are not beneficial to shareholders. On the financials front, BAL highlighted the fact that ~82% of business operates at >20% EBITDA margin while for the remaining Platina (7%) and Discover (11%), BAL expects the latter to improve in line with industry averages. The company has one of the lowest fixed cost structure (~7%) in the industry, thus leading to negative working capital and >200% operating RoCE (current). BAL is one of the few Indian manufacturing OEMs with a global presence/market share coupled with global R&D standards along with quality management. We believe BAL s earnings trajectory will remain strong at a CAGR of ~30% in FY1517E and remains a lowrisk, high RoCE business. We value BAL on an SOTP basis, valuing the core business at 17x FY17E EPS and investment in KTM to arrive at a target price of We have a BUY recommendation on the stock. Exhibit 7: SOTP valuation SOTP Valuation Estimated value Per share ( ) Remark Core Business FY17E EPS ( ) Multiple (x) 17.0 Longterm average valuation multiple Value per share ( ) 2,801 Stake in KTM (48%) Total valuation ( crore) 9338 Market Cap of KTM, listed on Vienna Stock Exchange Value towards BAL % stake via Bajaj Auto International Holdings Value per share post 30% holdco disc % holding company discount Total Value per Share ( ) 2,910 Exhibit 8: Valuation Revenues Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY14 20, FY15 21, (13.2) FY16E 23, FY17E 28, ICICI Securities Ltd Retail Equity Research Page 7

8 Company snapshot 3,500 3,000 Target Price: ,500 2,000 1,500 1, Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Jun13 Sep13 Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Apr09 Bajaj Auto unveils going global strategy aided by KTM (stake raised to 30% from 14.5% initially in 2007) May09 Bajaj unveils all new 150/180 cc Pulsar DTSI to enhance market leadership position in premium segment Nov09 Bajaj Auto's export strategy bears strong fruit as volumes rise 46% YoY to ~98,000 odd units (35% of overall share) Jan10 Bajaj Auto takes historic decision to exit scooter business completely and become a pure play motorcycle manufacturer Jul10 Dec10 Feb11 May11 Oct11 Bajaj shuns JV with Nissan for small car venture to continue alone with RE60 Auto stocks slide as oil firms hike petrol prices steeply by ~ 3/ litre Bajaj Auto crosses 1 million units in the exports markets Rising input cost pressures cause automakers to raise prices; Bajaj hikes prices further as DEPB tax benefits reduced by government US$INR skids touching 50 causing market preference towards exporters; Bajaj stands out in the same Mar12 Bajaj Auto raises stake in KTM to ~48%, first product launch KTM Duke 200 cc receives strong response Mar13 Bajaj Auto reports lowest March volumes since FY10 on account of weak domestic motorcycle sales as scooter sales shares rise Oct13 Exceptionally strong Q2FY14 margin performance makes it stand head and shoulders above any domestic & global OEM May14 Bajaj Auto reports lowest overall market share drop in the 2W space to below 15% Mar15 Bajaj Auto reports a market share of 18% in Q4FY15 Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Bajaj Group of Industries 31Mar Life Insurance Corporation of India 31Mar Firodia Group of Industries 31Mar Norges Bank Investment Management (NBIM) 31Mar Lazard Asset Management, L.L.C. 30Sep Sikkim Janseva Pratisthan Pvt. Ltd. 31Mar First State Investments (HK) Ltd. 31Dec Bajaj (Rahulkumar) 31Mar Bajaj Auto Employees Welfare Funds 31Dec BlackRock Institutional Trust Company, N.A. 30Sep Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Sep14 Dec14 Mar15 Jun15 Sep15 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Life Insurance Corporation of India 98.22m 3.03m Capital World Investors m 7.06m Bajaj (Madhur) 46.35m 1.43m Capital Research Global Investors 66.99m 2.07m Bajaj (Niraj) 33.32m 0.96m Eastspring Investments (Singapore) Limited 50.67m 1.65m Norges Bank Investment Management (NBIM) 16.25m 0.50m FIL Investment Management (Hong Kong) Limited 38.03m 1.17m Bajaj (Shekhar P) 14.86m 0.42m JPMorgan Asset Management U.K. Limited 30.66m 0.79m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8

9 Financial summary Profit and loss statement Crore (Yearend March) FY14 FY15 FY16E FY17E Total operating Income Growth (%) Raw Material Expenses 13, , , ,504.4 Employee Expenses Other expenses 1, , , ,341.9 Total Operating Expenditure 16, , , ,706.4 EBITDA Growth (%) Depreciation Interest Other Income PBT 4, , , ,735.7 Total Tax 1, , , ,953.3 PAT Growth (%) EPS ( ) Cash flow statement Crore (Yearend March) FY14 FY15 FY16E FY17E Profit after Tax 3, , , ,782.3 Add: Depreciation (Inc)/dec in Current Assets ,753.1 Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments , , ,800.0 (Inc)/dec in Fixed Assets Others 2, , CF from investing activities Inc/(dec) in loan funds Dividend paid & dividend tax 1, , , ,708.5 Inc/(dec) in Sec. premium CF from financing activities Net Cash flow Opening Cash ,555.6 Closing Cash Balance sheet Crore (Yearend March) FY14 FY15 FY16E FY17E Liabilities Equity Capital Reserve and Surplus 9, , , ,864.5 Total Shareholders funds 9, , , ,153.8 Total Debt Deferred Tax Liability Other noncurrent liabilities Total Liabilities Assets Gross Block 4, , , ,050.9 Less: Acc Depreciation 2, , , ,861.5 Net Block 2, , , ,189.4 Capital WIP Total Fixed Assets 2, , , ,291.2 Investments 8, , , ,453.3 Inventory ,105.1 Debtors Loans and Advances , ,686.3 Other current assets Cash , Total Current Assets 3, , , ,957.3 Creditors 2, , , ,694.0 Provisions 1, , , ,330.6 Other current liabilities Total Current Liabilities 4, , , ,878.9 Net Current Assets , Deferred Tax asset Application of Funds Key ratios (Yearend March) FY14 FY15 FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Net sales PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) Core P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Auto & Auto Ancillary) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Amara Raja (AMARAJ) Hold Apollo Tyre (APOTYR) Buy Ashok Leyland (ASHLEY) Hold Bajaj Auto (BAAUTO) Buy Balkrishna Ind. (BALIND) Hold Bharat Forge (BHAFOR) Buy Bosch (MICO) Hold Eicher Motors (EICMOT) Hold Escorts (ESCORT) Hold Exide Industries (EXIIND) Buy Hero Mototcorp (HERHON) Hold JK Tyre & Ind (JKIND) Buy M&M (MAHMAH) Buy Mahindra CIE (MAHAUT) Buy NA Maruti Suzuki (MARUTI) Buy Motherson (MOTSUM) Hold Tata Motors (TELCO) Buy Wabco India (WABTVS) Hold ICICI Securities Ltd Retail Equity Research Page 10

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/10%; Sell: 10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11

12 ANALYST CERTIFICATION We /I, Nishit Zota, MBA & Vidrum Mehta, MBA Research Analyst, 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. Terms & conditions and other disclosures: ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH ICICI Securities Limited (ICICI Securities) is a fullservice, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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