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Bajaj Auto?s results were ahead of estimates primarily due to higher-than-expected other income. Net sales were up 50% YoY and 12% QoQ to Rs 4,180 crore..

Bajaj Auto?s (BAL) results were ahead of estimates primarily due to higher-than-expected other income. Net sales were up 50% YoY and 12% QoQ to Rs 4,180 crore (our estimate: Rs 4,040 crore) led by 46% YoY growth in volumes (8% QoQ) to 1,000,548 units and 3% YoY growth in average realisations to Rs 41,786/unit.

While domestic revenues were up 53% YoY to Rs 3,280 crore (led by 51% growth in volumes), exports were up 44% YoY to Rs 1,150 crore (37%growth in volumes).

Bajaj Auto has outperformed the domestic industry, posting 53% YoY growth in volumes, versus industry growth of 21%. The Pulsar and Discover brands together contributed about 86% of the company?s domestic motorcycle volumes. While Pulsar recorded its highest quarterly sales of 246,000 units, Discover sold about 392,000 units.

The three-wheeler segment witnessed highest ever volumes of 117,076 units in Q2FY11 (up 37% YoY) led by strong domestic and export demand. Average offtake from Pantnagar was 75,000 units a month. BAL started production from plant-II at Pantnagar, taking the facility?s capacity to 1.5 million units. Full capacity (1,25,000/month) would be reached by end-FY11.

Operating margins for the quarter were up 70 basis points QoQ to 20.7%. Absolute Ebitda rose 41% YoY (16% QoQ) to Rs 890 crore. Other income rose to Rs 83.7 crore (Rs 21.7 crore) led by higher income from surplus cash and cash equivalents (Rs 4,780 crore as of Sept 30). PAT rose 16% QoQ (up 69% YoY) to Rs 680 crore.

On the operational front, margins are likely to improve, led by sustained volume growth and softening commodity prices. Ramp up at Pantnagar would also boost profitability. We have upgraded our earnings estimates by 14% for FY11 and FY12 to Rs 90 per share and Rs 105 per share respectively. The stock is now trading at 14.5x FY12e revised earnings and 11.2x EV/Ebitda. Given the volume momentum across business segments, there is still some upside potential in the stock. Maintain Outperformer with a price target of Rs 1,680.

?IDFC Securities

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First published on: 25-10-2010 at 00:34 IST
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