Bajaj Auto – Strong Results – Pulsar Performance

Bajaj reported 4QFY10 PAT of Rs5.3 bn, comfortably beating our PAT estimate of Rs4.5 bn. The upside was largely operational with EBITDA margins coming in at 22.9% for the quarter compared
to our estimate of 21.5%. The margin upside was driven by better-than-expected realizations and lower other expenditure. Net realizations increased 4% qoq, higher than our expectation of 2%, driven by higher mix of Pulsar brand sales and price increases.

Other expenditure declined 18% sequentially, which the company attributed to better cost control and lower advertisement spend. Labor expenses also declined 7% sequentially, driven by an actuarial gain related to gratuity. Lastly, the tax rate for the quarter came in at 28% compared to 33% we had modeled.

Brand strategy becoming more coherent and consolidating around 2 brands, Discover and Pulsar, which augurs well for future positioning and marks a distinct shift from BJAUT’s product-based strategy.

Bajaj Auto EPS Estimates FY 11 and FY 12:
Goldman Sachs estimates it to be – 159 and 183 with a target of 2530
Kotak Securities – 159 and 173 2330
HSBC – 153 and 171 with a target of 2400