Bajaj Auto - Exports to aid margins; preferred 2W pick - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Bajaj Auto's 4QFY21 PAT at INR 13.3bn (+2/-14% YoY/QoQ) was aided by higher realisations, though lower other income (-53% YoY) partially offset that impact. The management is confident that margins will improve from 4Q levels of 17.7% on an improving product mix (expected pick up in 3Ws) and better INR realisations as well as a healthy export outlook. The OEM has raised its dividend payout to 90% and the dividend yield has risen to 3.6%. We reiterate Bajaj Auto as our preferred pick in the 2W sector due to its diversified product mix (exports are ~50% of the mix) and superior margin profile. We maintain BUY with a target price of INR 4,360 (20x FY23E EPS). We raise our estimates by ~5% for FY22/23 to factor in the better-than-expected margin outlook.

4QFY21 financials: Total volumes were up 18% YoY/-10% QoQ. Average realisations at ~INR 73k grew 7/8% YoY/QoQ due to a richer model mix, higher exports (54% vs 52/53% YoY/QoQ) and price hikes. Revenue grew 26% YoY, -4% QoQ. EBITDA margin at 17.7% contracted by 65/170bps due to commodity cost pressures (RM ratio at 72% vs 68/71% YoY/QoQ). Reported PAT came in at INR 13.32bn (+2/-14% YoY/QoQ) and was partially impacted by a 53% YoY decline in other income.

Key takeaways: (1) Positive outlook on margins: Commodity input costs have risen by ~4-5%, against which the company has taken price hikes of~4% in phases (4QFY21 and 1QFY22). Along with price hikes, management believes that the margin trajectory would witness an uptrend, driven by a recovery in CV volumes and INR depreciation. (2) Export growth to be healthy: The management expects to surpass its previous export high of c. 2.2mn units as Bajaj remains the top-2 OEMs in most of the overseas markets it operates in. The share of premium bikes has also risen from 13% to 16% in exports. (3) Domestic segment recovery in 2H: Management believes demand will revive from Jul-21 onwards as COVID subsides and the pace of vaccinations increases. (4) CVs: 3W sales have gone back to 85% of pre- COVID levels in mid-Mar21; however, it is now affected by lockdowns. (5) EVs: Management is working on EVs across premium and entry segments through its various tie-ups. It will launch products as the market expands over the next 3-5 years.

Shares of BAJAJ AUTO LTD. was last trading in BSE at Rs.3841 as compared to the previous close of Rs. 3834.25. The total number of shares traded during the day was 50055 in over 4928 trades.

The stock hit an intraday high of Rs. 3964.25 and intraday low of 3800. The net turnover during the day was Rs. 193732316.

Source : Equity Bulls

Keywords