Highlights for the quarter

A lower excise duty (benefiting from the new Pantnagar plant where only cess is charged and higher exports) and a better sales mix helped to arrest the net sales decline by 4.2% yoy to Rs21091mn (Rs22026.6mn); on an 11.7% yoy drop in volumes.

A steep rise in employee costs (due to performance rewards and renewal of Accurdi wage agreement) together with increases in materials, marketing and promotional costs resulted in a 332 bps drop in EBITDA margins at 13.1%. EBITDA for the quarter fell 23.7% yoy to Rs2753.6mn (Rs3606.9mn).

An 8.6% yoy rise in other income, negligible interest expenses and a marginal rise in depreciation charge restricted fall in reported net profits to 14.9% yoy at Rs 2264.7mn (Rs2660.1mn).

The tax advantage at its new Pantnagar plant has started reaping in. So far the company has begun assembly of Platina at the new plant and this resulted in a lower excise charge for the quarter at 10.7 % (139 bps yoy) as only cess is required to be paid.

The company had introduced Discover 135 DTSi in April and Pulsar 220 DTSFi in June. During Q1, the company decreased its focus on the declining 100cc segment of motorcycles ahead of its scheduled launch of a new bike in entry level segment in September 07.

Exports focus of the company grew in the wake of a domestic slowdown and it paid well as it contributed 12.4% of sales. Exports grew 52% yoy in volumes and 42% yoy in value terms during Q1.

Valuations

Going ahead the fortunes of Bajaj largely depends on the new platform which it plans to launch in September, as it boasts of driving away volumes from the traditional 100cc towards its new motorcycle. We expect the sales volumes to be sluggish in the current quarter and revive towards the end of Q2 and in H2 with the launch of new bike and consumer demand in festive months. At the CMP of Rs 2195, the stock is fairly valued together with its embedded value, we maintain a Hold with a price target of Rs 2350.