Bajaj Auto Ltd - Moneycontrol.com

[Pages:9]Bajaj Auto Ltd

RESULT UPDATE

24th July 2017

India Equity Institutional Research II

Result Update ? Q1FY18 II 24th July, 2017

Bajaj Auto Ltd

CMP

Target

INR 2,813 INR 3,120

Potential Upside 10.9%

Expect Margins to be range-bound

Market Cap (INR Mn) 814,577

Recommendation Accumulate

Sector AUTO

Page 2

Result highlights ? BAL reported Net sales of INR 58,542 Mn for Q1FY18 above our estimates of INR 55,628 Mn. Top-line of the company de-grew by 3.9% on Y-o-Y basis but showed a positive growth of 12.3% on Q-o-Q. Company's top line was dragged down in volumes of domestic motorcycle by ~22% Y-o-Y (AprilJune) leading to overall volume de-growth of 10.7% Y-o-Y. ?EBITDA showed a marginal rise of 3.7% from INR 9,049 Mn in Q4FY17 to INR 9,382 Mn in Q1FY18, which was slightly below our estimates of INR 9,687 Mn. On Y-o-Y basis EBITDA declined by 20.3% from INR 11,763 Mn. EBITDA margins contracted from 19.3% in Q1FY17 to 17.2% in Q1FY18, which was 20bps less than our estimates of 17.4%. This was mainly due to increase in input (metal) cost which led increase in the cost of raw materials 280bps Y-o-Y and 220bps Q-o-Q. ? BAL reported Adj. PAT of INR 9,616 Mn which was above our estimates of INR 9,053 Mn. The company reported a 11.5% increase on Q-o-Q but declined 7.5% Y-o-Y. Sharp increase in "Other Income" led to growth of PAT which was further boosted by INR 470.5Mn dividend from KTM. The company reported Adj.PAT margins of 17.7% which declined by 40 bps Y-o-Y.

Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17

MARKET DATA Shares outs (Mn) EquityCap (INR Mn) Mkt Cap (INR Mn) 52 Wk H/L (INR) Volume Avg (3m K) Face Value (INR) Bloomberg Code

289 2894 814577 3122/2510 281.7

10 BJAUT IN

SHARE PRICE PERFORMANCE 120

105

90

Sensex

MARKET INFO SENSEX NIFTY

Bajaj Auto

32029 9915

KEY FINANCIALS

Particulars (INR Mn) Net Sales EBITDA PAT OPM (%) NPM (%) EPS PE (x)

FY15 216143 41132 30256 19.03% 14.00% 104.6

19.3

FY16 226876 47787 37840 21.06% 16.68% 130.8

18.4

FY17 217667 44194 40795 20.30% 18.74% 141.0

20.0

FY18E 245238 47195 42774 19.24% 17.44% 147.8

19.0

FY19E 280412 52300 47170 18.65% 16.82% 163.0

17.3

Source: Company, KRChoksey Research

Revival in domestic volumes, improving traction in export market to drive growth ahead:

BAL's domestic volume in Q1 FY18 declined by ~23% Y-o-Y mainly attributing from fall in domestic motorcycle volume by ~22%. The changeover from BS-3 to BS-4 (which resulted from preponement of motorcycle buying) and GST transition (leading to less dealer inventory) resulted into market share loss for BAL by around 300bps. On the other hand the industry continued to aggressively push inventory at dealer level and waivered discounts to support growth, BAL stayed away from aggressive discounting thereby protecting the dealer margins.

Going forward we expect BAL to report strong domestic numbers on back refreshed Pulsar segment . Company's other segment like V-15 and V-12 is gaining traction, which is is also likely to aid growth. Company's star product is "Dominar" is steadily improving its volumes. We expect company's star to improve its numbers from ~4,000/month bikes to ~7000/month bikes in coming months on back of festive season and company's focus on bike promotion. Hence, we expect company's domestic volume growth of 10.1% CAGR between FY17 to FY19E.

On the export front the company is expected to face headwinds in international arena mainly in nations like Nigeria, Egypt and other African and Latin American markets on back of fall in commodity prices. However, BAL has slowly shifted its focus to nations like Turkey, Indonesia, Myanmar and now Thailand. We believe the resultant impact is likely to trigger volume growth going forward and stable commodity prices should result in demand up-tick in African region. Hence, we have estimated export volume growth of 15.9% CAGR between FY17 to FY19E on back of low base. We expect company's overall volume growth at 11% CAGR between FY17 to FY19E. We also believe company's shift in premium bikes is likely to aid realization, leading to revenue growth of 13.7% CAGR (INR 213,735Mn in FY17 to INR 276,268Mn by FY19E) growth for the same period.

SHARE HOLDING PATTERN (%)

Particulars Promoters FIIs DIIs Others Total

Jun 17

49.3 17.48 8.33 24.89

100

Mar 17

49.3 17.44 7.67 25.59

100

Dec 16

49.3 17.62

8.4 24.68

100

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

13.7%

7.5%

Revenue CAGR between FY 17 PAT CAGR between FY 17 and

and FY 19E

FY 19E

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Bajaj Auto Ltd

Result Update ? Q1FY18 II 24th July, 2017

Page 3

Rising in-put cost, implementation of regulatory norms to weigh on EBITDA margins : We maintain our view that EBITDA margins are will continue to be under pressure on back of up-turn in commodity cycle. Additionally, we believe BAL is likely to incur expenses on implementation of Combi- Brake System (CBS), Anti-lock Braking System (ABS) and preparation for BS-6 norms. We believe, CBS (INR ~2,000/unit), ABS (INR ~5,000 to ~INR 7,000/unit) as an additional cost is likely to be difficult for the company to pass-on as price hike may result in loss of market share. While BAL's bikes are more premium focused, increasing competition (TVS Akula, Suzuki Gixxer and Honda CBR) in the space is likely to keep price hikes in check. Hence we have assumed EBITDA margins to decline from 20.3% in FY17 to fall to 18.7% by FY19E., impacting the overall profitability.

Valuations & Views: We expect BAL to post healthy top-line growth of 13.7% CAGR between FY17 to FY19E, mainly driven by 11% CAGR volume growth. However, going forward we expect the EBITDA margins to remain under-pressure on account increase in commodity prices coupled with implementation of regulatory norms. BAL's portfolio of higher-end bikes are likely to register healthy growth. However, slowness in passing the price hike and constant pressure of competition (HMSI and TVS Motors) are likely to limit market-share growth for Bajaj Auto. While company faces stiff competition in domestic market, we believe exports to revive gradually. While we expect the company to post a top-line growth of 13.7% CAGR, company's profit growth (~7.5% CAGR between FY17 to FY19E) are un-likely to improve anytime soon. Hence, we have assigned a multiple of 19x on FY19E EPS of INR 163 and we have valued the stock on (PE+DCF) basis by allocating a 50-50 weight. Our DCF value stands at INR 2978/share and PE target stands at INR 3,260/ share to arrive at a target price of INR 3,120/share, indicating 11% upside from CMP of INR 2,813.

Bajaj Auto 2-W Volumes

Exports Domestic

13,23,173

15,21,306

14,59,295

12,18,541

14,17,668

17,70,778 18,98,957 20,01,391 22,11,858 24,25,425

55,379

Realization (INR/ Unit)

57,157

58,328

59,665

61,179

FY15

FY16

FY17

FY18E

FY19E

FY15

FY16

Source: Company, KRChoksey Research

30.00

Operating Margins

20.00

19.03

10.00

14.00

21.06 16.68

20.30 18.74

19.24 17.44

FY17

FY18E

FY19E

18.65 16.82

0.00 FY15

FY16

FY17

FY18E

EBITDA Margin (%)

PAT Margin (%)

FY19E

Source: Company, KRChoksey Research

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Bajaj AutoLtd

Result Update ? Q1FY18 II 24th July, 2017

Page 4

Q1FY18 Result Snapshot

Exhibit 1: Consolidated Result Update (INR Mn)

Particulars (Mn) No. Of. Vehicles Sold Gross Realization Gross Sales Other operating income Gross Sales & Other Operating Income Total Expenditure

(Increase) / Decrease In Stocks Purchase of Finished Goods Cost of Raw Materials Operating & Manufacturing Expenses Employee Cost Excise duty paid on sales Expenses Capitalized PBIDT (Excl OI) EBITDA Margins (%) Depreciation EBIT & Exceptional Item Exceptional Items Other Income EBIT Interest EBT Tax Net Profit from ordinary activity after tax Share of profit after tax of associate Other Comprehensive Income (net of tax) PAT SPouArcTe:MCoamrpgainny,(K%R)Choksey Research EPS

Source: Company, KRChoksey Research

Con-call Highlights:

Q1FY18 888434 64611 57403

1139 58542 49160 544 3319 34229 4268 2727 4118

-46 9382 16.0% 753 8629 -320 3235 11544

2 11542 3642 7900 471 1248 9619 13.5% 28.90

Q4FY17 787627 65012 51205

923 52128 43079 -792 3799 30195 4523 2274 3155

-77 9049 17.4% 757 8292

2937 11230

2 11227 3218 8009 613

8622 15.4% 29.80

Q1FY17 994733 60161 59844 1043.4 60888 49124

15 3383 35230 4405 2683 3408

11763 19.3% 774.7 10989

2670.6 13659

2.2 13657 3873 9784 616.5

10400 16.1% 35.90

Q-o-Q 12.8% -0.6% 12.1% 23.4% 12.3% 14.1% -168.7% -12.6% 13.4% -5.7% 19.9% 30.5% -40.4% 3.7% -133bps -0.6% 4.1%

10.1% 2.80% 0.0% 2.8% 13.2% -1.4% -23.3%

11.6% -187bps -3.0%

Y-o-Y -10.7% 7.4% -4.1% 9.2% -3.9% 0.1% 3627.4% -1.9% -2.8% -3.1% 1.6% 20.8%

-20.2% -329bps -2.9% -21.5%

21.1% -15.48% 9.1% -15.5% -6.0% -19.3% -23.7%

-7.5% -257bps -19.5%

?Company's margin declined mainly on back of increase in commodity prices, which led to COGS increase from 67% to 69% of sales. Impact of excise duty on Patanagar plant impacted the margins by 50bps which further dented the EBITDA margin.

?To mitigate the rise in input cost, company had increased its prices in the month of May across the segment, only discounts were offered on CT-100 in the month of April.

?Company paid compensation of INR 320 Mn towards revaluation of inventory at dealer level including 3-Wheelers. Company also offered discounts in lieu of Post GST prices between 14TH June to 30TH June. At the end of 30th June, 2017 company's left over stood at 155,000 vehicles.

?The company expects its new model V-12 will achieve target of 25,000 per month and expects Avenger to do 12,000 to 15,000 units per month from September onwards.

?Management remains optimistic about export sales and aims to achieve 800,000 units by H1FY18 on back of expansion in geographical boundaries.

?The management indicated a big alliance is around the corner in a Liesure Biking segment but declined to comment on pricing and geographies.

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Bajaj AutoLtd

Result Update ? Q1FY18 II 24th July, 2017

Page 5

Annual Report Highlights:

Bajaj Motorcycles- Yearly Performance BAL crossed 2Mn domestic sales mark in FY17. The company sold 200,1391 units in FY17 which grew by 5.4% from 189,8957 units sold in FY16. The growth was driven mainly due to success of new products launched in recent times like V12, Pulsar NS 160, Platina UG etc. BAL has been successful in capturing market share in major motorcycles segments.

The CT and Platina in utility segment, company sold 836,304 units in FY17 with a market share of 32.0% In commuter segment The V, sold 203,262 units of V15 and newly launched V12 sold 31,000 units in FY17. Pulsar and Avenger in sports segment reported sales of 734,590 units in FY17. In this segment BAL acquired market share of 45% from 43% in FY16.

In Niche super sports segment BAL sells KTM, PULSAR RS200, Dominar 400. Cumulatively company sold 63,575 units in FY17. With KTM solely selling 34,970 units in FY17, posting a growth of 15% Y-O-Y basis.

The domestic market showed a decent performance in FY17, Exports on the other hand had an opposite story. The key markets of company faced currency devaluations and restrictions on repatriation of hard currency. Motorcycle exports of BAL declined sharply by 16.5% from 1,459,295 units exported in FY16 to 1,218,541 units exported in FY17.

Bajaj Commercial Vehicles: BAL sold 240,064 units in passenger sales segment and exported 190,958 units in FY17 showing a decline of 5.4% and 31.8% respectively. In Goods carrier segment which company entered in FY15 Company sold 13,162 in FY17 from 1,325 units sold in FY16. Overall company reported a decline of 16.9% from 534,995 units sold in FY16 to 44,4462 units sold in FY17. BAL in domestic market increased its market share from 47.4% to 49.5%. In exports company captured market share of 70.3% in FY17 from 69.2% in FY16.

In Petrol and alternate fuel market BAL is the market leader with 88% of market share. The market share acquired by the company in small diesel category is 71%. And BAL grew its market share from 20% to 23% in Diesel segment. Despite poor exports, BAL grew its market share to 40%+ in South Asia and Middle East, and 25% in Latin America. 85% sales come from 21 countries where BAL is either No.1 or No.2 in motorcycles.

In 3 wheelers BAL continues its market leadership, and it will continue to enter new markets. Like in FY17 company entered 4 new markets each for motorcycles and 3 wheelers. 3 out of 4 of these markets are in ASEAN.

Engine Norms: In India BAL has successfully upgraded all its models to comply with Bharat Stage 4(BS4) norms. The company had commenced the upgrading procedure in January enabling the availability at sales point. BAL upgraded complete range of two-wheelers and three-wheelers before the ban on sale of BS-III variants. This enabled company to minimise the loss caused to companies because of the ban imposed by Supreme Court of India. Company is also working on Electric Vehicle (EV)

Bajaj Auto International Holdings BV (BAIH BV): BAIH BV is a Netherlands based subsidiary of BAL. In total BAL has invested INR 12,190 million in through this subsidiary and hold about 48% stake in KTM AG of Austria, one of the fastest growing motorcycle in the world. KTM posted a record breaking numbers in calendar year 2016. The company sold 203,423 motorcycles posting a growth of 11% and Turnover grew by 12% to Euro 1,140 million. KTM reported PAT of INR 5,310 million an upside of 13%. BAL as its share of profit received INR 2,550 million. BAL itself manufactured 65,955 units if KTM Duke at its Chakan plant.

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Bajaj AutoLtd

Result Update ? Q1FY18 II 24th July, 2017

Page 6

We attended the AGM of Bajaj Auto Limited on 20th July, 2017 following are its key highlights:

?The company started off it operations making scooters and over the years transformed itself into a complete Motorcycle company, revolutionizing the Sports bikes segment in India

?Company over the years also expanded its geographical presence from a mere domestic player to an export player, expanding its presence in more than 70 countries.

?Company's exports which contributed ~2% to3% in early 2000s' has grown to ~40% by FY17. And is also a number 1 or 2 player in the 14 countries

?The Management said they expect to continue a focused approach of becoming the best motorcycle company in the world and expects it to be driven by the best technology

?The Management expects its export market to revive in coming months and company focuses to increase its geographical presence by offering different products in different market.

?Company expects South East Asia as a major growth driver in exports. Company's KTM launch in Indonesia, Malaysia and now Thailand is expected to drive the brand KTM

?Company expects to make Electric Vehicle (EVs) by the end of 2018 in commercial vehicle segment

?Company's Quadricycle, which has been facing regulatory issues has a capacity of 25,000 p.a., the management said if everything goes perfect company may be able to release Quadricycle in India

?In the domestic front, company claims to have launched highest number of successful launches compared to its competitors. The "V", "Dominar" and the new Pulsar NS have brought in incremental volume of 25,000 units a month, compared with 22,500 units in total by the new products from all other players.

?The company aims to garner 20% market share in domestic 2-W wheeler industry in next 18 months. Company has also planned 8 new variants of bike in existing models.

?Company is also on track to roll out "Husqvarna" in 2018 both in India and abroad. Company is also likely to come out with an alliance in "Liesure" biking segment, where company has had no presence.

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Bajaj AutoLtd

Exhibit 2: Income Statement INR Mn Total Sales Total Raw Materials COGS EBITDA Depreciation Interest & Finance charges Other Income Extraordinary items EBT (as reported) Tax PAT Min. Int. Share in gain/loss of assoc. RPAT APAT

Source: Company, KRChoksey Research

Exhibit 3 : Balance Sheet

INR Mn Equity Share Capital Reserves Net worth Total loans Deferred tax liability (Net) Capital Employed Gross Block Depreciation Net block CWIP Goodwill Investments Inventories Sundry debtors Cash and bank Loans and advances Other Current Assets Total Current assets Total Current liabilities Net Current assets Capital Deployed

Source: Company, KRChoksey Research

Result Update ? Q1FY18 II 24th July, 2017

FY15 216143 148514 148514 41,132 2675

65 5840 -3403 40830 12711 28119

0 2137 30256 30256

FY16 226876 150569 150569 47,787

3072 5

8243 0

52953 17328 35625

0 2214 37840 37840

FY15 2894 108060 110953 2518 1416 114887 41009 21837 19172 1017 5308 31847 8142 7170 5927 12953 3471 95668 44769 50900 114887

FY16 2894 127561 130454 2398 1883 134735 43903 23646 20257 269 5956 84449 7191 7179 8670 8716 2320 46259 29531 16728 134735

FY17A 217667 146242 146242 44,194 3073

14 12222

0 53329 15081 38248

0 2546 40795 40795

FY17A 2894 175672 178566 2546 3136 184248 46737 26719 20018 106

0 94270 7284 9533 3014

758 13597 94685 32128 62557 184248

FY18E 245238 166820 166820

47,195 3231 25 13338

0 57278 16754 40524

0 2250 42774 42774

FY18E 2894 191365 194259 3281 3637 201177 50746 29950 20796 155

0 101720 8344 10876 14407 1013 14400 114803 37203 77600 201177

Page 7

FY19E 280412 192078 192078 52,300 3552

28 14747

0 63466 18547 44920

0 2250 47170 47170

FY19E 2894 207496 210389 4211 4256 218857 57670 33502 24168 220

0 111176 9709 12590 13968 1342 15415 125472 43473 81999 218857

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



India Equity Institutional Research II

Result Update ? Q1FY18 II 24th July, 2017

Bajaj AutoLtd

Exhibit 4 FY17: Cash flow statement

INR Mn PAT Depriciation & Amortization Incr/(Decr) in Deferred Tax Liability (Incr)/Decr in Working Capital Cash Flow from Operating

FY15 30595 1069

-16 -41046 -11874

FY16 32648 1809 467 36914 74816

FY17A 28119 3073 1254 -51485 -8911

FY18E 35625 3231

501 -3649 40606

Page 8

FY19E 38248 3552

619 -4838 44253

(Incr)/ Decr in Gross PP&E (Incr)/Decr In Work in Progress (Incr)/Decr In Investments (Incr)/Decr in Other Non-Current Assets Cash Flow from Investing

-177 -692 29734 2912 31777

-2893 748 -52603 -1081 -55829

-2834 163 -9820 5735 -6757

-4010 -48 -7451 6391 -5117

-6924 -66 -9455 -388

-16833

(Decr)/Incr in Debt (Decr)/Inc in Other reserves Dividend Cash Flow from Financing

-146 -1418 -17420 -18985

-120 3038 -19162 -16244

147 32984 -23121 10011

735 2250 -27080 -24095

931 2250 -31039 -27859

Incr/(Decr) in Balance Sheet Cash Cash at the Start of the Year Cash at the End of the Year

Source: Company, KRChoksey Research

Exhibit 5 FY17: Ratio Analysis

INR Mn Growth (%) Total Sales EBITDA APAT Profitability (%) EBITDA Margin Adj. Net Profit Margin ROIC ROE Per Share Data (Rs.) AEPS Reported CEPS BVPS Valuations (x) PER (x) PEG (x) P/BV (x) EV/EBITDA (x) EV/Net Sales (x) Dividend Yield (%) Turnover days Debtor Days Payable Days Gearing Ratio D/E

Source: Company, KRChoksey Research

ANALYST

Ankit Merchant, ankit.merchant@, 91-22-6696 533

918 5009 5927

2743 5927 8670

-5657 8670 3014

11394 3014 14407

-439 14407 13968

FY15

FY16

FY17A

FY18E

FY19E

7.2

5.0

-4.1

12.7

14.3

-1.0

16.2

-7.5

6.8

10.8

-6.8

25.1

7.8

4.9

10.3

19.0

21.1

20.3

19.2

18.7

14.0

16.7

18.7

17.4

16.8

24.3

24.4

18.8

16.4

16.7

28.5

31.3

26.4

22.9

23.3

104.6 106.9 383.4

130.8 135.3 450.8

141.0 142.8 617.1

147.8 153.2 671.3

163.0 169.7 727.1

19.3

18.4

20.0

19.0

17.3

-2.8

0.7

2.6

3.9

1.7

5.3

5.3

4.6

4.2

3.9

14.1

14.5

18.5

17.3

15.6

2.8

3.1

3.8

3.4

3.0

2.5

2.3

2.4

2.8

3.2

13.1

11.8

14.3

15.4

15.5

113.1

90.1

76.9

75.8

76.7

0.0

0.0

0.0

0.0

0.0

KRChoksey Research

is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

91-22-6696 5555 / 91-22-6691 9569



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