CMP 1953.00

Target Price 2187.00

ISIN: INE917I01010

MAY 15th

2014

BAJAJ AUTO LIMITED Result Update: Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Automobiles

BSE Code 532977

Face Value 10.00

52wk. High / Low (Rs.) 2193.85/1683.35

Volume (2wk. Avg.) 18000

Market Cap (Rs. in mn.) 565139.61

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 201495.10 217614.71 231759.66

EBITDA 48121.50 51957.68 55224.73

Net Profit 32433.20 34866.81 37174.29

EPS 112.08 120.49 128.47

P/E 17.42 16.21 15.20

Shareholding Pattern (%)

1 Year Comparative Graph

BAJAJ AUTO LTD S&P BSE SENSEX

SYNOPSIS

Bajaj Auto Ltd is ranked as the world's fourth largest

two and three wheeler manufacturer and the Bajaj brand is well-known across several countries in Latin

America, Africa, Middle East, South and South East Asia.

During Q4 FY14, net profit stood at Rs. 7639.3 min against Rs. 7657.7 mn in Q4 FY13.

Revenue for the quarter slightly increased by 3.91% to Rs. 49322.9 mn from Rs. 47464.8 mn, when compared

with the prior year period.

For Q4 FY14, Profit before interest, depreciation and tax is Rs. 11162.0 mn as against Rs. 10802.0 mn in the

corresponding period of the previous year.

During FY14, Bajaj Auto recorded its highest ever

revenue of Rs. 201495.1 mn and EBITDA margin was 21.5% and highest ever profits.

For year ended 31 March, 2014, PAT grew by 7% to Rs. 32419.5 mn from Rs. 30435.7 mn in FY13.

During FY14, exports, by value, grew by 22% to Rs. 81990 mn and now form nearly 42% of net sales.

Bajaj Auto has recommended a dividend of Rs. 50/- per

share on the face value of Rs. 10/- each for the year ended 31 March, 2014.

Cash and cash equivalents as on 31st March 2014 stood at Rs. 77590 mn as against Rs. 57060 mn as on 1st April

2013.

The Company market share for motorcycles improved

in Nigeria to 44%, Bangladesh to 53%, Srilanka to 82% and Uganda to 88%.

Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 7% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Bajaj Auto Ltd 1953.00 565139.61 112.08 17.42 5.88 500.00

Hero Motocorp Ltd 2431.00 485440.30 106.61 22.80 9.70 3000.00

TVS Motor Company ltd 118.45 56274.10 5.51 21.50 3.79 140.00

Eicher Motors Ltd 6365.55 172464.90 129.17 49.28 20.97 300.00

Recommendation & Analysis - ‘BUY’

During Q4 FY14, net profit just fell by 0.24% to Rs. 7639.3 min against Rs. 7657.7 mn in Q4 FY13. Revenue for the

quarter slightly increased by 3.91% to Rs. 49322.9 mn from Rs. 47464.8 mn, when compared with the prior year

period. For Q4 FY14, Profit before interest, depreciation and tax is Rs. 11162.0 mn as against Rs. 10802.0 mn in

the corresponding period of the previous year.

FY14 has been a difficult year for the automobile industry. In an environment of overall high inflation and slow

economic growth, Bajaj Auto recorded its highest ever revenue of Rs. 201495.1 mn. Net profit for the year was at

Rs. 30433.2 mn is the highest ever yearly profit. During FY14, EBITDA margin was 21.5% and highest ever

profits. Profit before tax grew by 9% to Rs. 46320.5 mn from Rs. 42662.3 mn in FY13 and Profit after tax grew by

7% to Rs. 32419.5 mn from Rs. 30435.7 mn in FY13.

Bajaj continue to be India’s No. 1 exporter of motorcycles and three-wheelers, having exported over 1.3 million

motorcycles and 261,000 three-wheelers, during the year 2013-14. The Company market share for motorcycles

improved in Nigeria to 44%, Bangladesh to 53%, Srilanka to 82% and Uganda to 88%. Exports, by value, grew by

22% to Rs. 81990 mn and now form nearly 42% of net sales. Boxer continues to be the No. 1 brand in Africa.

Both, Discover and Pulsar continue their strong presence in key markets like Columbia, Central America, Egypt,

Srilanka and Bangladesh. We expect Bajaj Auto exports remain strong. The company’s outperformance in

margins can be attributed to factors including transforming itself into an Indian multinational company with

international business contributing 42% of total revenue. Over the last five years, strategic initiatives taken to

enter into difficult markets, like Africa, is yielding rich dividends. Over FY2013-16E, we expect the company to

post a CAGR of 5% and 7% in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘BAJAJ

AUTO LTD’ with a target price of Rs.2187.00 for medium to long term investment.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q4 FY14,

Bajaj Auto is world’s fourth largest two- and three-

wheeler manufacturer, reported its financial results

for the quarter ended 31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 49322.90 47464.80 3.91

PAT 7639.30 7657.70 (0.24)

EPS 26.40 26.46 (0.24)

PBIDT 11162.00 10802.00 3.33

The company’s net profit just fell by 0.24% to Rs. 7639.30 million against Rs. 7657.70 million in the

corresponding quarter ending of previous year. Revenue for the quarter slightly increased by 3.91% to Rs.

49322.90 million from Rs. 47464.80 million, when compared with the prior year period. Reported earnings per

share of the company stood at Rs. 26.40 a share during the quarter, registering 0.24% decrease over previous

year period. Profit before interest, depreciation and tax is Rs. 11162.00 million as against Rs. 10802.00 million in

the corresponding period of the previous year.

Break up of Expenditure

Break up of

Expenditure

Rs. In Millions

Q4 FY14 Q4 FY13 %

Change

Cost of Material

Consumed 32056.40 32938.90 -3%

Employee Benefit

Expenses 1747.60 1666.30 5%

Depreciation 444.80 473.10 -6%

Other Expenses 4040.10 3580.50 13%

Purchase of Stock in

Trade 2892.00 2491.30 16%

Segment Revenue

Latets Updates

• Bajaj Auto Ltd has recommended a dividend of Rs. 50/- per share (500%) on the face value of Rs. 10/- each

for the year ended 31 March, 2014.

• Cash and cash equivalents as on 31st March 2014 stood at Rs. 77590 mn as against Rs. 57060 mn as on 1st

April 2013.

Motorcycles

During the year 2013-14, the Company sold a total of over 3.4 million motorcycles.

� Pulsar, in its 12th year, along with Avenger sold 649,000 units in the domestic market and maintained its

leadership with 44% market share.

� Re-defining the sports motorcycle segment, Pulsar 200 NS and Pulsar 220 sold 74,000 units in the

domestic market and another 81,000 units across the globe.

� The high-end high-priced KTM Duke sold 11,000 units in India & another 24,000 were exported.

Commercial Vehicle

Continue to be world’s largest three-wheeler manufacturer, having sold a total of 448,000 units.

� Continue to dominate the domestic market for alternate fuel passenger segment with share of 84%.

� Maintained dominance in the domestic market for small diesel three-wheeler passenger carriers with

share of 68%.

� Share in the domestic market for large diesel three-wheeler passenger carriers increased by 400bps to

16%.

International Business

Continue to be India’s No. 1 exporter of motorcycles and three-wheelers, having exported over 1.3 million

motorcycles and 261,000 three-wheelers in FY14.

� Geographical spread over 60 countries; enjoy the No.1 or No. 2 position in 17 countries.

� Market share for motorcycles improved in Nigeria to 44%, Bangladesh to 53%, Srilanka to 82% and

Uganda to 88%.

� Exports, by value, grew by 22% to Rs. 81990 mn and now form nearly 42% of net sales.

� Boxer continues to be the No. 1 brand in Africa.

� Both, Discover and Pulsar continue their strong presence in key markets like Columbia, Central America,

Egypt, Srilanka and Bangladesh.

COMPANY PROFILE

Bajaj Auto was founded in 1926. Bajaj Auto is world’s fourth largest two- and three-wheeler manufacturer. Bajaj

Auto is into manufacturing motorcycles, scooters and three wheelers. In India, Bajaj Auto has a distribution

network of 791 dealers and over 1,600 authorized services centers. It has total 3750 rural outlets in rural areas.

In FY2014, Bajaj Auto sold over 3.4 million motorcycles in India and abroad. The manufacturing units are located

in the Industrial estates of Waluj (Aurangabad) and Chakan (Pune) in Maharashtra and Pantnagar in

Uttarakhand.

The company has opened 11 retail stores for bikes across the country, exclusive for high-end and performance

bikes. Bajaj Auto has opened these stores under the name “Bajaj Probiking” in areas like Pune, Nashik,

Ahmedabad, Chennai, Hyderabad, Kolkata, Navi Mumbai, Chandigarh, New Delhi, Faridabad and Manglore. Bajaj

Auto is largest exporter of three-wheelers. It has a distribution network in 57 countries with a dominant

presence in Sri Lanka, Colombia, Bangladesh, Mexico, Central America, Peru and Egypt. It has technical tie up

with Kawasaki Heavy Industries of Japan to manufacture latest models in the two wheeler space. Bajaj Auto has

launched brands like Boxer, Caliber, Wind125, Pulsar and many more. It has also launched India's first real

cruiser bike, Kawasaki Bajaj Eliminator.

Products

• Avenger

• Pulsar

• Discover

• Platina

• Ninja

• KTM

• Pulsar 200 NS • KTM 200 • BM-150 and BM-100

• Ninja 250R • Ninja 650R • Discover 125 ST

Subsidiary Companies

• Bajaj Auto International Holdings BV (BAIH BV)

• PT Bajaj Indonesia (PT BAI)

Global Presence

The Company exports to 60 countries; enjoy the No.1 or No. 2 position in 17 countries of these. The company

increasing markets share every year in Africa, Latin America and South Asia. It is a market leader in motorcycles

in Colombia, Central America, Sri Lanka, Bangladesh, Philippines, Nigeria, Uganda and Kenya.

Bajaj Auto Ltd has a distribution network in 50 countries with a dominant presence in

• Sri Lanka

• Colombia

• Bangladesh

• Mexico

• Central America

• Peru

• Egypt

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31st, 2013 -2016E

BAJAJ AUTO LTD. FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 2893.70 2893.70 2893.70 2893.70

Reserves and Surplus 76125.80 93186.50 110426.00 128094.16

1. Sub Total - Net worth 79019.50 96080.20 113319.70 130987.86

Non Current Liabilities

Long Term Borrowing 712.70 577.40 508.11 457.30

Deferred Tax Liabilities 1151.00 1431.80 1660.89 1876.80

Other Long term Liabilities 1220.60 874.30 716.93 652.40

Long Term Provisions 1346.10 1209.90 1282.49 1333.79

2. Sub Total - Non Current Liabilities 4430.40 4093.40 4168.42 4320.30

Current Liabilities

Trade Payables 19796.10 21114.00 22169.70 22834.79

Other Current Liabilities 5461.60 7661.40 9193.68 10204.98

Short Term Provisions 16078.60 18527.00 19823.89 20616.85

3. Sub Total - Current Liabilities 41336.30 47302.40 51187.27 53656.62

Total Liabilities (1+2+3) 124786.20 147476.00 168675.39 188964.78

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 20979.80 21501.00 22791.06 23930.61

b) Non- Current Investments 37191.50 62599.30 78249.13 91551.48

c) Long Term loans and advances 4623.90 7199.20 8999.00 10608.93

d) Other non-current assets 10.20 10.20 10.81 11.35

1. Sub Total - Non Current Assets 62805.40 91309.70 110050.00 126102.37

Current Assets

Current Investment 27113.30 22897.00 24561.07 26034.73

Inventories 6362.80 6397.20 6781.03 7120.08

Trade receivables 7675.80 7962.10 8360.21 8861.82

Cash and Bank Balances 5588.50 4954.80 5351.18 5618.74

Short-terms loans & advances 13117.20 9784.50 8316.83 8815.83

Other current assets 2123.20 4170.70 5255.08 6411.20

2. Sub Total - Current Assets 61980.80 56166.30 58625.40 62862.41

Total Assets (1+2) 124786.20 147476.00 168675.39 188964.78

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 199972.50 201495.10 217614.71 231759.66

Other Income 7954.90 7064.10 7346.66 7714.00

Total Income 207927.40 208559.20 224961.37 239473.66

Expenditure -163620.00 -160437.70 -173003.69 -184248.93

Operating Profit 44307.40 48121.50 51957.68 55224.73

Interest -5.40 -4.90 -4.51 -4.24

Gross profit 44302.00 48116.60 51953.17 55220.49

Depreciation -1639.70 -1796.10 -1957.75 -2114.37

Profit Before Tax 42662.30 46320.50 49995.42 53106.12

Tax -12226.60 -13901.00 -15128.61 -15931.84

Profit After Tax 30435.70 32419.50 34866.81 37174.29

Extraordinary Items 0.00 13.70 0.00 0.00

Net Profit 30435.70 32433.20 34866.81 37174.29

Equity capital 2893.70 2893.70 2893.70 2893.70

Reserves 76125.80 93186.50 110426.00 128094.16

Face value 10.00 10.00 10.00 10.00

EPS 105.18 112.08 120.49 128.47

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 51748.90 51312.40 49322.90 50802.59

Other income 1241.60 2218.40 1848.10 1995.95

Total Income 52990.50 53530.80 51171.00 52798.54

Expenditure -40429.30 -39960.60 -40009.00 -41048.49

Operating profit 12561.20 13570.20 11162.00 11750.04

Interest -0.40 -1.90 -1.70 -1.43

Gross profit 12560.80 13568.30 11160.30 11748.62

Depreciation -442.90 -459.50 -444.80 -471.49

Profit Before Tax 12117.90 13108.80 10715.50 11277.13

Tax -3746.30 -4063.30 -3089.90 -3371.86

Profit After Tax 8371.60 9045.50 7625.60 7905.27

Extraordinary Items 0.00 0.00 13.70 0.00

Net Profit 8371.60 9045.50 7639.30 7905.27

Equity capital 2893.70 2893.70 2893.70 2893.70

Face value 10.00 10.00 10.00 10.00

EPS 28.93 31.26 26.40 27.32

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 105.18 112.08 120.49 128.47

EBITDA Margin (%) 22.16% 23.88% 23.88% 23.83%

PBT Margin (%) 21.33% 22.99% 22.97% 22.91%

PAT Margin (%) 15.22% 16.09% 16.02% 16.04%

P/E Ratio (x) 18.57 17.42 16.21 15.20

ROE (%) 38.52% 33.74% 30.77% 28.38%

ROCE (%) 57.63% 51.64% 47.37% 43.62%

EV/EBITDA (x) 12.64 11.65 10.78 10.14

Book Value (Rs.) 273.07 332.03 391.61 452.67

P/BV 7.15 5.88 4.99 4.31

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1953.00, the stock P/E ratio is at 16.21 x FY15E and 15.20 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.120.49 and

Rs.128.47 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 7% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 10.78 x for FY15E and 10.14 x for FY16E.

� Price to Book Value of the stock is expected to be at 4.99 x and 4.31 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.2187.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India represents one of the world’s largest car markets. Easy availability of finance and rising income levels are

encouraging the middle class population to choose from the vast range of passenger vehicles.

The Indian auto industry has been recording tremendous growth over the years and has emerged as a major

contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of the

country’s GDP and employs about 19 million people both directly and indirectly.

In addition, with Government’s backing and a special focus on exports of small cars, multi-utility vehicles (MUVs),

two and three wheelers and auto components, the automotive sector’s contribution to the GDP is expected to

double reaching a turnover worth US$ 145 billion in 2016, according to the Automotive Mission Plan (AMP)

2006–2016.

Key Statistics

The auto industry produced a total 1.81 million vehicles, including passenger vehicles, commercial vehicles,

three wheelers and two wheelers in February 2014 as against 1.73 million in February 2013, registering a

growth of 4.41 per cent over the same month last year. The increase continues to be on account of growth in two

wheelers production. Moreover, the overall domestic sales during April–February 2014 grew marginally by 2.68

per cent over the same period last year.

The passenger vehicles production in India is expected to reach 10 million units by 2020–21. The industry is

estimated to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012–2021. In addition, the

industry is projected to touch US$ 30 billion by 2020–21, according to Automotive Component Manufacturers’

Association (ACMA).

The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period

April 2000 to January 2014 was recorded at US$ 9,344 million, an increase of 4 per cent to the total FDI inflows

in terms of US$, according to Department of Industrial Policy and Promotion (DIPP), Government of India.

The overall automobile exports grew by 6.39 per cent during April–February 2014. Passenger vehicles, three

wheelers and two wheelers registered growth at 6.44 per cent, 16.40 per cent and 5.41 per cent respectively,

compared to the same period last year.

Major Developments & Investments

• German auto maker Volkswagen is planning to expand production capacity and introduce a slew of new

models. The group is looking at investing Rs 1,500 crore (US$ 248.55 million) over the next five years to

set up a diesel engine manufacturing facility.

• Amtek Auto signed an agreement to buy Germany's Kuepper Group of companies for about Rs 16.78

billion (US$ 277.97 million) in December 2013, which was its second big European acquisition in 2013.

• Jaguar Land Rover (JLR) will scale up its production capacity to hit 700,000 units by FY 2017 riding on its

joint ventures (JV) in China and Brazil, as per analysts. JLR's capacity for 2014 is pegged at 450,000 units.

• Infosys has signed a multi-year contract with Volvo Cars to provide application development services to

the latter's global operations.

• JCB announced plans to relocate production of compaction equipment to factories in the UK and to Pune,

India, and close the Gatersleben site in Germany.

• Piaggio Vehicles Pvt Ltd, scooter and light commercial vehicle manufacturer, is planning to assemble its

super bikes locally, which it sells under the brand Aprilia.

India is expected to emerge as a centre for producing compact superbikes. Several global and Indian bike makers

plan to utilise India's mass production base of 16 million two wheelers to roll out sports bikes in the 250cc

capacity.

Government Initiatives

The Interim Budget 2014-15 added some incentives to the auto industry. To give relief to the automobile

industry, the excise duty has been reduced till June 30, 2014 as follows:

• For small cars, motorcycle, scooters – the duty has been reduced from 12 per cent to 8 per cent.

• For commercial vehicles and SUVs – the duty has been reduced from 30 per cent to 24 per cent.

• For large and mid-segment cars – the duty has been reduced from 27/24 per cent to 24/20 per cent.

The other incentives from Union Budget 2013–14 are as follows:

• The period of concession available for specified part of electric and hybrid vehicles till April 2013 has

been extended up to March 31, 2015.

• An exemption from BCD will be provided to lithium ion automotive battery for manufacture of lithium

ion battery packs for supply to manufacturers of hybrid and electric vehicles.

The Government of India allows 100 per cent FDI in the automotive industry through automatic route.

Road Ahead

The vision of AMP 2006–2016 expects India, “to emerge as the destination of choice in the world for design and

manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for

more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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