n Adjusted margin declined 70 basis points q-o-q to 18.9% on higher RM (raw material) cost pressures: RM cost rose 70 bp y-o-y to 70.1% on higher material cost pressures. Employee cost increased by 40 bp y-o-y on negative operating leverage.
n Profit after tax was below estimate at R7.4 bn (flat y-o-y) vs our estimate of R8.1 bn, driven by lower-than-expected Ebitda and increase in depreciation charges.
n Domestic volumes have declined by 11.4% y-o-y with motorcycle volumes declining by 14.1% y-o-y, while 3Ws (three-wheelers) have recovered strongly with 23.4% volume growth.
n Exports have recovered with growth of 21.9%. Motorcycle exports grew by 33% y-o-y, while 3Ws exports declined by 22% y-o-y impacted by the Egypt crisis.
n Domestic motorcycle market share declined further by 230bp q-o-q to 17.7% as the Discover portfolio continues to remain weak.
n Realisations improved by 6% y-o-y (led primarily by favourable currency), to R53,139/unit.
Valuation and view: We downgrade FY15e/FY16e EPS by 5.5%/3.2% led by a cut in Ebitda margin on higher RM cost pressures coupled with higher depreciation charge. Demand recovery along with stability in competitive intensity would be the key driver for stocks performance. Bajaj Auto trades at 16.8x/14.3x FY15e/FY16e EPS, respectively. Maintain Buy with a target price of R2,333.