Decent quarter given headwinds in export markets
Bajaj Auto reported Q1FY17 Ebitda of R11.8 bn (+3.2% y-o-y), which was in line with our estimates. We see it as a decent performance, especially given steep decline in export volumes (down 22% y-o-y) in the quarter. Going ahead, we expect double-digit volume growth in the domestic market in FY2017e but export volumes will likely remain challenging due to dollar availability and macroeconomic issues in key markets. We fine-tune our estimates and maintain ADD rating with unchanged TP of R2,750 on rollover to June 2018e.
Q1FY17 results in line with our estimates
Bajaj Auto has reported Q1FY17 Ebitda of R11.8 bn (+3.2% y-o-y), which was in line with our estimates. Revenues increased by 2.7% y-o-y to R57.5 bn (in line with our estimate) as decline in volumes (down 2% y-o-y) was offset by 5% y-o-y increase in ASPs due to a better product mix (higher share of premium bikes in both domestic and export markets). Ebitda margin came in at 20.5% (KIE 20.7%); gross margin deteriorated by 130 bps q-o-q, which was offset by lower-than-expected other expenses. We believe that sequential decline in gross margin was led by (i) lower currency realisation (USD to INR) on exports; 67.1 in Q1FY17 as compared to 67.5 q-o-q and (ii) lower volume mix of Pulsar and Avenger, which are high-margin models. Other expenses were flattish y-o-y while employee costs were up 10% y-o-y. The company reported net profit of R9.8 bn (+2.2% y-o-y), which was 3.5% above our estimates due to lower-than-expected tax rate. Tax rate for the quarter was 28.4% versus our estimate of 32%. Cash & cash equivalents were R107 bn as of June 2016 as compared to R90.8 bn as of March 2016, which indicates strong free cash flow generation in the quarter.
New launches to drive market share gain in India; export volumes to remain subdued in FY2017
Bajaj has improved its market share in the domestic motorcycle market by 200 bps over the past few quarters led by improving share in the economy segment (launch of CT100). The company has managed to maintain its market share in the premium segment with the launch of new Avenger. We expect the market share to improve to 19% in FY2017e (17.8% in FY2016) led by the full-year impact of recent launches. However, we reckon that the export segment will continue to face challenges in FY2017 due to lack of dollar availability and macroeconomic issues in key markets such as Nigeria, Egypt, Sri Lanka, etc. Thus, we have cut our FY2017-19e export volume estimates by 7-10% and now we expect 9% y-o-y decline in export volumes in FY2017e.
Lower EPS estimates on cut in export volumes; maintain add with target price of R2,750
We have cut our FY2017-19e EPS estimates by 3-4% due to lower export volume assumptions and marginal cut in Ebitda margin estimates. We maintain add rating with unchanged target price of R2,750 due to rollover to June 2018e. Our target price is based on 16X June 2018e EPS and we assign R160/share to the company’s stake in KTM.