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Suzlon Energy + Bajaj Auto Review

October 23, 2007

Suzlon’s EBITDA margin rose to its long term guidance of 16% (7.2% in 1QFY08) led by a 76%YoY growth in volumes led by resolving of law & order issues in the domestic market, improved deliveries in the international market and sell-down of inventory (140MW of the total 683MW). On the back of record deliveries of 683MW and resultant operating leverage, led to 68% YoY growth in PAT at Rs3.9bn, much ahead of the Street estimate of Rs2.5bn. The company also has a strong order book position.

Suzlon’s exceptionally strong 2Q08 marks an inflexion point in execution and margins, after four successive quarters of disappointment. Suzlon is expected to report an EPS of Rs 45.19 and Rs 68.95 for FY08 and FY09 respectively. Merill Lynch rates the stock a BUY with a Target Price of Rs 2,150. JP Morgan’s Target is Rs 1,960.

Bajaj Auto:
Bajaj Auto’s Q2FY08 performance has been higher than expectations, because average price realizations were higher by 11.8% yoy and 4.2% qoq mainly due to a relatively stronger growth in the executive and premium segment motorcycles. Though net sales declined by 3.0% yoy to Rs23.62bn on the back of a 13.0%yoy decline in total volumes, EBIDTA margin (adjusted) for the quarter stood at 15.5% (higher 50bps yoy, 190bps qoq). Net profit before extraordinary and special items (export incentive of Rs140m pertaining to Q1FY08) remained flat yoy at Rs3.3bn.

Bajaj Auto is expected to report an EPS of Rs 125.50 and Rs 155.30 for FY08 and FY09 respectively. On the basis of Sum of Parts Valuation, HSBC rates the stock as neutral with a price target of Rs 2,650.

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