BAJAJ AUTO LTD - Q2 FY18

BAJAJ AUTO LTD reported strong September quarter with phenomenal sequential growth but mild decline in yearly numbers. Revenue or Income From Operations rose 2% YOY and stood at Rs. 65664 Mn compared to Rs. 64323 Mn in the current September quarter FY18. Profit After Tax was lower by 1% YOY at Rs. 11936 Mn against Rs. 12007 Mn corresponding quarter previous year. EBDITA declined 3% YOY at Rs. 15947 Mn against Rs. 16371 Mn in the same period previous year as operating costs jumped 3% and other income declined 13% YOY in the current Q2 FY18. Though Bajaj Auto yearly September numbers look somber, quarterly performance is strong and zestful with double digit growth in every parameter. Revenue growth was reported with 12% rise QOQ and EBDITA growing 1.2 times vis-a vis the previous June quarter. Net Profit galloped 43% sequentially even as operating costs climbed 7% QOQ. Operating costs stood at Rs. 52690 Mn in the current Q2 FY18 against Rs. 51379 Mn same period previous year. As a result margins were stronger sequentially witnessing de-growth on yearly basis. EBDITA Margin was reported at 24.28% in the current quarter vis-à-vis 25.45% same period previous year. Controlled depreciation & taxation expenditure & negligent interest costs have lead to strong Net Profit Margins in September quarter at 18.18% against 18.67% corresponding quarter previous year. On sequential basis EBDITA & Net Profit Margin expanded 274 & 388 basis points in the current quarter. One basis point is equivalent to 0.01%.  Bajaj Auto has one of the best operating margins in the auto industry.

BAJAJ AUTO LTD is world’s fourth largest two wheeler & three wheeler manufacturer in the world. The company manufactures motorcycles & commercial vehicles both for domestic and international markets. On the volume front motorcycles grew 2% and commercial vehicles jumped 14% YOY. Total volume growth was about 4% on yearly basis with motorcycles contributing 86% & commercial vehicles 14% YOY. Motorcycle segment performed better with respect to exports vis-à-vis domestic market growing 1% & 5% respectively. Commercial Vehicles reported highest ever quarterly sale in domestic market with 84938 units in Q2 FY18. Commercial Vehicles grew 14% in the domestic market and 13% in international market. Total volumes or units for the current quarter stood at 918721 and 152789 units for motorcycles & Commercial Vehicles respectively. The October and November volume data has also been encouraging with YOY growth of 7% & 21% respectively. During the quarter, BAJAJ Auto witnessed highest ever monthly sale of 428752 units which includes highest ever sale of pulsars of 112075 units in September 2017.

BAJAJ Auto signifies technologically superior product profile catering to both urban & rural markets with its popular brands Pulsar, Dominar, Avenger, Discover, Platina & CT 100. The company has consolidated its position internationally and improved its market share for motorcycles in domestic market from 25% to 32% sequentially. We recommend BUY for the stock with target price of Rs. 3820 for medium & long term.

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