Bajaj Auto - Q4FY21 Result Update - ICICI Securities

Margin resilience driven by exports

Bajaj Auto's (BAL) Q4FY21 margins were a beat on consensus expectations at 17.7% (down 65bps YoY). BAL's margin resilience was driven by i) rise in export mix (up 340bps YoY at 46.4%) and ii) increased share of Pulsar-125cc has led to superior domestic motorcycle mix (share up 13.7% to 26.3%). Management's focus on building on electric vehicles starting with Chetak is a long term positive. They believe existing incumbents are well placed in terms of technology/distribution and brand to handle the potential entry of PE-backed start-up companies in 2Ws. We believe BAL's key drivers of profitability remain a) exports demand in commodity markets (e.g. Africa, LatAm), b) exports incentives/FX benefits, c) premiumisation in domestic market. The stock remains attractive at <15x PE /5.4% FCF yield on FY23E basis. We maintain BUY.

- Key highlights of the quarter: BAL has reported 26.1% YoY growth in revenue as ASP rose 6.9% to ~Rs73.5k/unit supported by product mix, price hikes (~2%). EBITDA margin contracted ~65bps YoY despite tight control on employee costs (down 145bps YoY) and other expenses (down 131bps YoY). Gross margin contracted 341bps due to higher RM costs as commodity basket prices edge higher (~4% inflation in Q4). BAL has reported PAT of ~Rs13.3bn (up 2% YoY) and declared dividend of Rs140/share.

- Key takeaways from earnings call: Management indicated: a) Second highest exports (~Rs40bn); BAL sold highest ever Pulsar motorcycles with 125cc variant leading the growth (128k units in 4Q), with ~77% sales from geographies where BAL enjoys leadership position; b) BAL's strategy on electrification is focused on market expansion via product and not by discounting which as per them would make the business model unsustainable; c) domestic CV demand is gradually picking up with traffic levels reaching ~85% of pre-covid levels and management expects this segment to aid margins in FY22E/23E; BAL has 85%/48%/34% market share in small passenger segment, large passenger and cargo segments, respectively; d) BAL witnessed RM cost rise of 6-7% QoQ due to higher base metal prices; the company has taken 3.5-4% price since Jan'21; e) Q1FY22/FY22 is expected to surpass Q4/FY21 in terms of exports on the back of strong underlying demand in key markets.

- Maintain BUY: BAL continues to play by its strength in exports market while improving margins through levers of product mix and pricing. Any announcement of export focussed schemes (e.g. RoDTEP, PLI) could be positive triggers for the stock. On 3Ws, demand recovery in FY22 is likely to be delayed as normalisation of public transportation gets hindered by intermittent lockdowns. We revise our earnings estimates upwards by ~5%/8.6% for FY22E/23E, respectively, and value BAL at an unchanged multiple of 18x FY23E EPS and maintain our BUY rating with a revised target price of Rs4,756 (earlier: Rs4,419).

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

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