Bajaj Auto reported Q1FY10 results above our estimates. Average realization grew much ahead of our expectation, resulting in significant EBITDA margin expansion and earning surprises.
Despite 11.7 %YoY decline in volumes, Total operating income grew by 1.2%YoY to Rs 23,385 mn- ahead of estimates. This was primarily due to 15.6% YoY increase in average realization/ vehicle to Rs 41,248. EBITDA increased by 70.3% YoY to Rs 4,541 mn, led by sharp (11.4%) decline in RM cost.
The expansion in EBITDA margin driven by higher realization led by better product mix and lower RM cost burden. Despite 15 bps and 135 bps YoY increase in staff and other expense (as % of sales), EBITDA margin improved by 788 bps YoY to 19.4% due to 938 bps decline in raw material cost ( as % of sales).
The reported PAT grew by 67.7%YoY to Rs 2,935 mn owing to better operating performance. However, on adjustment of exceptional expenses, APat grew by 76.8 % YoY to 3,095 mn – ahead of our estimates.
Post Q1FY10 performance, we have upgraded our FY10 and FY11 earning estimates by 22% to Rs 86.2 and by 30.4% to Rs 101.6 respectively to factor in higher realization and better profitability. In addition, we have revised our target multiple from 12x to 13.5x 1 year forward PER, which is 10% to HH and changed rating from reduce to Accumulate with target price of Rs 1371.
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