The following is the Stock Analyst Note on Bajaj Auto Ltd, published by Morningstar Analyst Manish Vaswani. Registered Morningstar users can view the full report (PDF) here, which includes our complete overview, thesis, valuation, risks and our bull and bear cases.
Bajaj Auto reported mixed third-quarter results compared with the same period last year, including higher volumes, revenue, and earnings but lower operating and net margin.
However, given the progress made so far during the first nine months of the year, we think the company will meet our fiscal 2013 EPS projection of INR 106.4. Additionally, we are maintaining our INR 1,823 fair value estimate.
The company's third-quarter revenue grew 9.7% year over year, owing to a 4.9% increase in unit volume to about 1,127,740 vehicles and a 4.6% improvement in average revenue per vehicle (ARPV).
After two quarters of volume decline in both segments compared to last year, we are pleased to see growth in both motorcycle and three-wheeler volumes during this period. Bajaj's highly profitable export division, which had been witnessing volume declines since June 2012, also seems to have turned a corner with December 2012 growth exceeding 5%.
Sales in Africa and Sri Lanka have rebounded and we expect export unit sales to continue to rise in the last quarter. In the domestic market as well, both motorcycle and three-wheeler sales have picked up owing to good response to the Discover 125 ST motorcycle as well as an increase in three-wheeler demand and permits.
We think the positive momentum will continue into the first half of fiscal 2014. Bajaj's third-quarter operating margin declined by 140 basis points to 18.3%, owing largely to a reduction of more than 100 basis points in other operating income and to a 35-basis-point increase in material costs.
The company's net income grew by 3% to about INR 8.19 billion, leading to earnings per share of INR 28.3 compared with INR 27.5 a year ago. However, net margin declined by 100 basis points year over year to 15.4% due to higher taxes during the period.
Going forward, we expect volume sales of motorcycle and three-wheeler segments to continue to rise, both in domestic and export markets. While unit sales for the first nine months of the year trail those of last year by 2.3%, we expect the growth in momentum to continue, leading to an overall 0.5% increase in unit sales for full-year fiscal 2013.
Additionally, we expect higher average revenue per vehicle in the last quarter of current fiscal due to favorable foreign currency exposure.
While operating margin for the fiscal 2013 first nine months was 70 basis points lower than last year, we expect increased ARPV to reduce erosion resulting in a full-year fiscal 2013 operating margin of 18.7%, a mere 10 basis points lower than fiscal 2012.
