ADD on Bajaj Auto - Margin beat - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Bajaj's 2QFY21 results were above estimates as EBITDA margin came in at 17.7% (+110bp YoY). The demand is reviving across overseas geographies (80-90% of pre-COVID levels) and domestic markets, with festive sales equivalent to that of last year. The high margin domestic 3W segment will witness a gradual pick-up in sales as cities gradually normalise. We raise our FY21/22 estimates by 8/2% to factor in a healthy 2Q performance and set a revised target price of Rs 3,270 at 18x Sep-22E EPS (at a 5% premium to the 10-year historic average trading multiple). The key risks are slower-than-expected recovery on the downside and firming up of oil prices on the upside.

2QFY21 financials: Volumes declined 10% YoY to ~1mn units (vs. 440K QoQ). However, realisations grew 3% YoY (-2% QoQ) due to BSVI transition. Revenue at Rs 71.5bn came in line with estimates (-7% YoY). EBITDA margin at 17.7% surprised positively and expanded 100/440bps YoY/QoQ. Other expenses declined 23% YoY due to delayed festive season, lower marketing spends, and operating cost controls. PAT at Rs 11.3bn increased more than 2x QoQ (-19% YoY).

Key takeaways: Domestic segment: Management's strategy of launching a downsized Pulsar 125 (ahead of the BSVI rollout) is now bearing fruit as the OEM recorded healthy sales of this variant. In the ongoing festive season, 2W sales have been equivalent to last year. While 3W domestic demand has bottomed, the pick-up is expected to be gradual. Export markets: Internationally, the company is gaining market share and has achieved its highest exports in Sep-20. Demand has recovered to 80-90% of pre-COVID levels for 2Ws and 75-80% for 3Ws. However, frontier markets such as Nigeria have witnessed social unrest recently. While the situation is expected to normalise, we will monitor the demand trends in this key market. Any further rise in oil prices will lead to a faster recovery in the African region.

Shares of BAJAJ AUTO LTD. was last trading in BSE at Rs.2997.2 as compared to the previous close of Rs. 3016.35. The total number of shares traded during the day was 48079 in over 5332 trades.

The stock hit an intraday high of Rs. 3037.95 and intraday low of 2977. The net turnover during the day was Rs. 144708171.

Source : Equity Bulls

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