For Q1FY09, Bajaj Auto (BAL) clocked net sales of Rs2,311 crore, which was in line with our expectation. Total volumes moved up 8.5% y-o-y while average realizations per vehicle improved marginally by 1% primarily due to the change in sales mix and better performance by the 125cc-plus segment.
During Q1FY09, the company witnessed a 184bp decline in EBITDA margins owing to the high input costs, which moved up 317 bps y-o-y. However, it managed to prune its other expenses by 137 bps y-o-y.
Going forward, we model 7% and 9% volume growth for BAL in FY2009 and FY2010, respectively. Two-wheeler sales continue to be adversely impacted by the stringent financing norms, which have resulted in volumes declining sharply.
We maintain that outlook for the domestic two-wheeler industry continues to be muted due to the non-availability of finance, rising urban penetration and changing lifestyle shift towards the four-wheeler segment.
However, the positive y-o-y growth reported in Q1FY09 indicates at a recovery in FY2009, though near term volume figures need to be watched closely owing to further tightening of finance available and rise in interest rates.
We estimate the company to clock EPS of Rs59 in FY2009 and Rs66.9 in FY2010. At the current price, the stock is trading at 8.4x FY2009E and 7.4x FY2010E EPS. We remain NEUTRAL on the stock.