CMP 1920.00

Target Price 2092.00

ISIN: INE917I01010

JANUARY 17th

2014

BAJAJ AUTO LIMITED Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Automobiles

BSE Code 532977

Face Value 10.00

52wk. High / Low (Rs.) 2193.85/1657.50

Volume (2wk. Avg.) 51000

Market Cap (Rs. in mn.) 555590.40

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 199972.50 200405.86 214434.27

EBITDA 44307.40 49108.02 50995.78

Net Profit 30435.70 33042.43 35263.11

EPS 105.18 114.19 121.86

P/E 18.25 16.81 15.76

Shareholding Pattern (%)

1 Year Comparative Graph

BAJAJ AUTO LTD S&P BSE SENSEX

SYNOPSIS

Bajaj Auto Ltd is ranked as the world's fourth largest

two and three wheeler manufacturer and the Bajaj

brand is well-known across several countries in

Latin America, Africa, Middle East, South and South

East Asia.

During the quarter, the net profit is increased by

10.48% to Rs. 9045.50 million from Rs. 8187.40

million in Q3 FY13.

Net sales for the quarter were Rs 51312.40 million

against Rs 54127.10 million in the corresponding

quarter of previous year.

Bajaj Auto declared an industry high EBITDA margin

of 21.1% in Q3 FY14 as against 19.8% in Q3 FY13.

Profit before interest, depreciation and tax is Rs.

13570.20 million as against Rs. 17190.00 million in

Q3 FY13, up by 11.69%.

Exports are increased by 23.50% to Rs 21230

million compared to Rs 17190 million in Q3 FY13.

Cash and cash equivalents as on 31st December 2013

stood at Rs 69200 million as against Rs 65160

million as on 30th September 2013.

Profit before tax grew by 12% to Rs 13108.80

million from Rs 11737.60 million in Q3 FY13.

The Company plans to increase the installed

capacity to 6.06 million units per annum by March

2014.

Net Sales and PAT of the company are expected to

grow at a CAGR of 3% and 5% over 2012 to 2015E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Bajaj Auto Ltd 1920.00 555590.40 105.18 18.25 7.03 450.00

Hero Motocorp Ltd 2083.60 416068.90 104.77 19.89 8.31 3000.00

TVS Motor Company ltd 72.35 34301.30 3.38 21.36 2.80 120.00

Eicher Motors Ltd 4982.90 134725.30 90.90 54.81 21.42 200.00

Recommendation & Analysis - ‘BUY’

Bajaj Auto posted net profit of Rs. 9045.50 mn is the highest ever quarterly profit. The company recorded the

operating EBITDA of Rs 10920 mn in Q3 FY14 as against Rs 10850 million in the previous year period. Slowdown

in industrial and economic growth, overall high inflation and rising input cost, Bajaj Auto declared an industry

high EBITDA margin of 21.1% in Q3 FY14 as against 19.8% in Q3 FY13 and its highest ever quarterly profits,

driven by a strong export realization and an average price rise of 500-1,000 on all vehicles during the quarter.

Net sales for the quarter were Rs 51312.40 million against Rs 54127.10 million in last year same quarter. Sales

during festive period, though reasonable, were not robust. Subsequently, in November and December, industry

sales continued to remain sluggish. In addition, the quarter witnessed a marked increase in input cost – steel,

aluminium and other imported components. Profit before tax grew by 12% to Rs 13108.80 million from Rs

11737.60 million in Q3 FY13. Profit before tax for the quarter is the highest ever quarterly profit.

Exports are increased by 23.50% to Rs 21230 million compared to Rs 17190 million in previous year period.

Cash and cash equivalents as on 31st December 2013 stood at Rs 69200 million as against Rs 65160 million as on

30th September 2013.

The company’s outperformance in margins can be attributed to factors including transforming itself into an

Indian multinational company with international business contributing 40% of total revenue. Over the last five

years, strategic initiatives taken to enter into difficult markets, like Africa, is yielding rich dividends. Bajaj Auto

expects exports to remain strong, and is in the process of launching six new products to beat the slowdown and

competition in the country. Over FY2012-15E, we expect the company to post a CAGR of 3% and 5% in its top-

line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘BAJAJ AUTO LTD’ with a target price of

Rs.2092.00 on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q3 FY14,

Bajaj Auto is world’s fourth largest two- and three-

wheeler manufacturer, reported its financial results

for the quarter ended 31st Dec, 2013.

Months Dec-13 Dec-12 % Change

Net Sales 51312.40 54127.10 (5.20)

PAT 9045.50 8187.40 10.48

EPS 31.26 28.29 10.48

PBIDT 13570.20 12149.40 11.69

The company’s net profit jumps to Rs. 9045.50 million against Rs. 8187.40 million in the corresponding quarter

ending of previous year, an increase of 10.48%. Revenue for the quarter declined by 5.20% to Rs. 51312.40

million from Rs. 54127.10 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 31.26 a share during the quarter, registering 10.48% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 13570.20 millions as against Rs. 12149.40 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Rs. In Millions

Q3 FY14 Q3 FY13

Cost of Material Consumed 33354.00 35828.60

Employee Benefit Expenses 1847.90 1592.30

Depreciation 459.50 410.80

Other Expenses 2647.90 3360.00

Purchase of Stock in Trade 2345.40 2053.30

Segment Revenue

Latets Updates

• Exports are increased by 23.50% to Rs 21230 million compared to Rs 17190 million in previous year period.

• Cash and cash equivalents as on 31st December 2013 stood at Rs 69200 million as against Rs 65160 million

as on 30th September 2013.

• The Company’s current installed capacity is 5.4 million units per annum. The Company plans to increase the

installed capacity to 6.06 million units per annum by March 2014.

COMPANY PROFILE

Bajaj Auto was founded in 1926. Bajaj Auto is world’s fourth largest two- and three-wheeler manufacturer. Bajaj

Auto is into manufacturing motorcycles, scooters and three wheelers. In India, Bajaj Auto has a distribution

network of 791 dealers and over 1,600 authorized services centers. It has total 3750 rural outlets in rural areas.

In FY2013, Bajaj Auto sold over 3.76 million motorcycles in India and abroad. The manufacturing units are

located in the Industrial estates of Waluj (Aurangabad) and Chakan (Pune) in Maharashtra and Pantnagar in

Uttarakhand.

The company has opened 11 retail stores for bikes across the country, exclusive for high-end and performance

bikes. Bajaj Auto has opened these stores under the name “Bajaj Probiking” in areas like Pune, Nashik,

Ahmedabad, Chennai, Hyderabad, Kolkata, Navi Mumbai, Chandigarh, New Delhi, Faridabad and Manglore. Bajaj

Auto is largest exporter of three-wheelers. It has a distribution network in 57 countries with a dominant

presence in Sri Lanka, Colombia, Bangladesh, Mexico, Central America, Peru and Egypt. It has technical tie up

with Kawasaki Heavy Industries of Japan to manufacture latest models in the two wheeler space. Bajaj Auto has

launched brands like Boxer, Caliber, Wind125, Pulsar and many more. It has also launched India's first real

cruiser bike, Kawasaki Bajaj Eliminator.

Products

• Avenger

• Pulsar

• Discover

• Platina

• Ninja

• KTM

• Pulsar 200 NS

• KTM 200

• BM-150 and BM-100

• Ninja 250R

• Ninja 650R

• Discover 125 ST

Subsidiary Companies

• Bajaj Auto International Holdings BV (BAIH BV)

• PT Bajaj Indonesia (PT BAI)

Global Presence

The Company exports to 57 countries, and is a market leader in 12 of these. The company increasing markets

share every year in Africa, Latin America and South Asia. It is a market leader in motorcycles in Colombia, Central

America, Sri Lanka, Bangladesh, Philippines, Nigeria, Uganda and Kenya.

Bajaj Auto Ltd has a distribution network in 50 countries with a dominant presence in

• Sri Lanka

• Colombia

• Bangladesh

• Mexico

• Central America

• Peru

• Egypt

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

BAJAJ AUTO LTD. FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 2893.70 2893.70 2893.70 2893.70

Reserves and Surplus 57517.00 76125.80 98963.54 118756.25

1. Sub Total - Net worth 60410.70 79019.50 101857.24 121649.95

Non Current Liabilities

Long Term Borrowing 974.80 712.70 1120.50 1288.58

Deferred Tax Liabilities 484.40 1151.00 1289.12 1418.03

Other Long term Liabilities 1570.70 1220.60 1074.13 1031.16

Long Term Provisions 1118.50 1346.10 1642.24 1872.16

2. Sub Total - Non Current Liabilities 4148.40 4430.40 5125.99 5609.93

Current Liabilities

Trade Payables 19577.90 19796.10 23161.44 25245.97

Other Current Liabilities 6043.30 5461.60 5570.83 5737.96

Short Term Provisions 20660.50 16078.60 5627.51 4164.36

3. Sub Total - Current Liabilities 46281.70 41336.30 34359.78 35148.28

Total Liabilities (1+2+3) 110840.80 124786.20 141343.01 162408.15

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 14795.90 18044.30 21653.16 24684.60

Intangible assets 21.40 0.00 0.00 0.00

Capital Work in Progress 117.70 2232.90 2523.18 2775.49

Intangible assets under development 298.80 702.60 772.86 826.96

a) Sub Total - Fixed Assets 15233.80 20979.80 24176.34 27460.10

b) Non- Current Investments 37862.10 37191.50 29009.37 30169.74

c) Long Term loans and advances 6008.70 4623.90 5317.49 5902.41

d) Other non-current assets 14.30 10.20 10.81 11.35

1. Sub Total - Non Current Assets 59118.90 62805.40 58514.00 63543.60

Current Assets

Current Investment 10966.00 27113.30 50052.08 61098.35

Inventories 6785.30 6362.80 5981.03 6280.08

Trade receivables 4227.90 7675.80 9671.51 11605.81

Cash and Bank Balances 16538.30 5588.50 2906.02 3341.92

Short-terms loans & advances 10248.50 13117.20 11543.14 13274.61

Other current assets 2955.90 2123.20 2675.23 3263.78

2. Sub Total - Current Assets 51721.90 61980.80 82829.01 98864.56

Total Assets (1+2) 110840.80 124786.20 141343.01 162408.15

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 195289.80 199972.50 200405.86 214434.27

Other Income 6080.40 7954.90 7722.79 8108.93

Total Income 201370.20 207927.40 208128.65 222543.20

Expenditure -159429.90 -163620.00 -159020.62 -171547.41

Operating Profit 41940.30 44307.40 49108.02 50995.78

Interest -222.40 -5.40 -5.41 -5.84

Gross profit 41717.90 44302.00 49102.62 50989.94

Depreciation -1456.20 -1639.70 -1847.16 -2013.40

Profit Before Tax 40261.70 42662.30 47255.46 48976.55

Tax -10221.20 -12226.60 -14213.03 -13713.43

Net Profit 30040.50 30435.70 33042.43 35263.11

Equity capital 2893.70 2893.70 2893.70 2893.70

Reserves 57517.00 76125.80 98963.54 118756.25

Face value 10.00 10.00 10.00 10.00

EPS 103.81 105.18 114.19 121.86

Quarterly Profit & Loss Statement for the period of 30th June, 2013 to 31st March, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net sales 49110.90 51748.90 51312.40 48233.66

Other income 1756.00 1241.60 2218.40 2506.79

Total Income 50866.90 52990.50 53530.80 50740.45

Expenditure -40043.80 -40429.30 -39960.60 -38586.92

Operating profit 10823.10 12561.20 13570.20 12153.52

Interest -0.90 -0.40 -1.90 -2.21

Gross profit 10822.20 12560.80 13568.30 12151.32

Depreciation -443.90 -442.90 -459.50 -500.86

Profit Before Tax 10378.30 12117.90 13108.80 11650.46

Tax -3001.50 -3746.30 -4063.30 -3401.93

Net Profit 7376.80 8371.60 9045.50 8248.53

Equity capital 2893.70 2893.70 2893.70 2893.70

Face value 10.00 10.00 10.00 10.00

EPS 25.49 28.93 31.26 28.51

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 103.81 105.18 114.19 121.86

EBITDA Margin (%) 21.48% 22.16% 24.50% 23.78%

PBT Margin (%) 20.62% 21.33% 23.58% 22.84%

PAT Margin (%) 15.38% 15.22% 16.49% 16.44%

P/E Ratio (x) 18.49 18.25 16.81 15.76

ROE (%) 49.73% 38.52% 32.44% 28.99%

ROCE (%) 70.70% 57.63% 49.48% 43.12%

EV/EBITDA (x) 12.88 12.43 11.28 10.85

Book Value (Rs.) 208.77 273.07 352.00 420.40

P/BV 9.20 7.03 5.45 4.57

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1920.00, the stock P/E ratio is at 16.81 x FY14E and 15.76 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.114.19 and

Rs.121.86 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 3% and 5% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 11.28 x for FY14E and 10.85 x for FY15E.

� Price to Book Value of the stock is expected to be at 5.45 x and 4.57 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.2092.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

With the increasing growth in demand on back of rising income, expanding middle class and young population

base, in addition to a large pool of skilled manpower and growing technology, will propel India to be among the

world's top five auto-producers by 2015.

India is also one of the key markets for hybrid and electric medium-heavy-duty trucks and buses.

Ford Motor Co plans to convert India into global production centre for compact cars, once its Sanand plant in

Gujarat comes on stream in 2014, under a project codenamed B562 that may induce three different compact cars

from the same platform.

Key Statistics

The Indian automobile industry produced a total 1.69 million vehicles including passenger vehicles, commercial

vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a

growth of 8.18 percent over the same month last year.

The cumulative foreign direct investment (FDI) inflow into the Indian automobile industry during April 2000 to

July 2013 was recorded at US$ 8,932 million, amounting to 4.5 per cent of the total FDI inflows (in terms of US$),

according to Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce.

The overall automobile exports grew by 2.03 per cent during April-August 2013. Furthermore, the production of

passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound

annual growth rate (CAGR) of 13 per cent during 2012-2021, according to Automotive Component

Manufacturers' Association of India (ACMA).

Major Developments & Investments

• Hero MotoCorp plans to establish 20 manufacturing and assembly facilities to expand its presence across

50 countries by 2020

• Nissan Motor India, the Indian unit of Japanese auto maker Nissan Motor Co Ltd, has entered into an

agreement with Ennore Port Ltd (EPL), to export at least 60,000 cars a year through the port for the next

10 years

• TVS Motor Co plans to launch two new motorcycle models in the Kenyan market. These motorcycles will

be specific to the Kenyan markets in terms of usability, reliability and durability. Moreover, the firm also

plans to set up a two-wheeler assembly line in Uganda and will also launch two motorcycle models in the

African nation

• HMIL has invested US$ 2 billion in two state-of-the-art passenger car manufacturing facilities in India.

Moreso, India contributes 25 per cent of the firm’s global sales

• Mahindra & Mahindra (M&M) plans capital expenditure and investments worth Rs 10,000 crore (US$

1.63 billion) over the next two years

• Maruti Suzuki India Ltd (MSIL) is setting up an operational integrated research & development (R&D)

centre in Rohtak, Haryana. The test tracks at the new facility would be longer and considerably enhanced

in technical capabilities than the ones at the Suzuki Motor Corp (SMC) facility in Japan

• Tech Mahindra has signed an agreement with Volvo Car Corporation. The IT company will provide Volvo

with a service to maintain and develop a range of applications that can increase efficiency and reduce

costs

• Isuzu Motors India plans to start contract manufacturing of its sports utility vehicles (SUV) and pick-up

trucks at Hindustan Motors' (HM) Chennai plant from December 2013

• Daimler India Commercial Vehicles (DICV) has expanded its network across the country. The company

plans to establish dealership facilities in over 100 identified locations across India by 2014

Government Initiatives

The Government of India plans to introduce fuel-efficiency ratings for automobiles to encourage sale of cars that

consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas,

Government of India.

The Union Budget 2013-14 added some incentives to the industry.

• The period of concession available for specified part of electric and hybrid vehicles till April 2013 has

been extended upto March 31, 2015

• The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles,

yachts and similar vessels was increased. The duty was raised from 75 per cent to 100 per cent on cars/

motor vehicles (irrespective of engine capacity) with CIF value more than US$ 40,000; from 60 per cent

to 75 per cent on motorcycles with engine capacity of 800 cc or more and on yachts and similar vessels

from 10 per cent to 25 per cent

• In addition, an increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine

capacity exceeding 1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs

registered solely to be used for tax purposes

• An exemption from BCD on lithium ion automotive battery for manufacture of lithium ion battery packs

for supply to manufacturers of hybrid and electric vehicles

• The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13

per cent

The Government of India allows 100 per cent FDI in the automotive industry through automatic route. The

Government also plans to accelerate the supply of electric vehicles over the next eight years. It is expected that

there will be a demand for 5-7 million electricity-operated vehicles by 2020.

With special focus on exports of small cars, MUVs, two & three wheelers and auto components; the automotive

sector’s contribution to the gross domestic product (GDP) is expected to double reaching a turnover worth US$

145 billion in 2016, according to the Automotive Mission Plan (AMP) 2006-2016.

Road Ahead

The vision of AMP 2006-2016 sees India, “to emerge as the destination of choice in the world for design and

manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for

more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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