Bajaj Auto Ltd - OPM below estimate; Retain Accumulate - Emkay

EBITDA margin contracted by 50bps qoq to 16.8% (Emkay est: 17.2%; consensus est: 17.3%) due to commodity inflation, adverse product mix, and higher marketing spends. Margin is expected to improve in FY20 on INR depreciation benefits and better mix in domestic motorcycles.

- Management remains constructive about FY19 demand prospects in both domestic and export markets. We expect volumes to see a 16% CAGR over FY18-20, driven by 19% growth in exports and 14% growth in the domestic market.

- We marginally reduce our FY19/20E EPS estimates by 1% each to Rs148.3/Rs176.6, driven by lower margin assumption, which is partially offset by higher volumes and other income. Post the cut, EPS is expected to grow at 12% over FY18-20.

- We maintain our Accumulate rating, with a TP of Rs2,870 (earlier Rs3,250) based on 16x FY20E (18x earlier) core earnings and value of KTM investment at Rs99/share. We reduce the valuation multiple factoring in lower earnings growth over the next 2-3 years. Volume and earnings performance in FY21 is expected to be challenging due to the transition to BS6 emission norms.

Shares of BAJAJ AUTO LTD. was last trading in BSE at Rs.2505.55 as compared to the previous close of Rs. 2477.5. The total number of shares traded during the day was 66328 in over 2040 trades.

The stock hit an intraday high of Rs. 2529.95 and intraday low of 2446.5. The net turnover during the day was Rs. 165768827.

Source : Equity Bulls

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