Bajaj Auto - Q4FY22 Result Update - Deferral of RM cost to impact margins in 1HFY23 - Accumulate

Ms. Mansi Lall - Research Associate at Prabhudas Lilladher.

Quick Pointers:

- RM cost deferred in 4Q; cost inflation of ~3.5-4% to impact margins in 1HFY23.

- 15-20% shortfall in semiconductor requirements to impact premium bikes volume.

Bajaj Auto's 4QFY22 EBITDA margin surprised positively at 17.1% (+190bps QoQ, PLe: 14.9%) driven by 1) deferral of raw material cost (RM cost at 71.9% of sales vs 74.7% QoQ), 2) positive impact of price increase, 3) improved USD realization in exports and 4) favorable sales mix. Deferred RM cost will cause an impact of 3.5-4% in 1QFY23, against which ~1.5% price hike taken in Apr22.

We remain positive on BJAUT's growth prospects as (1) domestic 2W volumes are expected to grow in near-term led by marriage season, opening up of colleges and offices (however genuine demand needs to be monitored post Jun-22), (2) exports demand will likely remain steady and (3) 3W volumes (+28% in FY22) to pick-up momentum post opening up of the economy and increasing CNG demand. Considering near-term risks like commodity cost inflation and chip shortage, we trim our margin estimates by 90/60bps for FY23/24. Maintain 'ACCUMULATE', with a revised TP of Rs 4,120 at 17x FY24E EPS (earlier 16x) on improving domestic outlook for 2Ws and 3Ws, along with increasing volumes of EVs.

3QFY22 performance: Volumes at 976k units declined by 17% YoY & QoQ. Revenue at Rs 79.7bn (-7/-12% YoY/QoQ) came in above our estimates of Rs 75bn driven by higher ASPs at Rs 81.6k (11/7%). This growth was led by higher share of exports (60% of total volumes vs 56% QoQ), improved USD realization and multiple price hikes over the year. EBITDA margin at 17.1% surprised positively (+190bps QoQ, -60bps YoY, Ple: 14.9%) driven by deferral of material cost (RM costs at 71.9% of sales vs 74.7% QoQ). BJAUT reported PAT of Rs 14.5bn which included incentives of Rs 3.15bn towards state's package incentive scheme. Adj PAT came in at Rs 12bn vs PLe: Rs 10bn.

Key takeaways: (1) Cost inflation pushed to 1HFY23: With deferral of RM cost in 4Q, management highlighted cost inflation of 3.5-4% in 1QFY23. Against this, a price hike of ~1.5% has already been taken in Apr-22. (2) Supply side challenges: The company highlighted 15-20% shortfall in requirement of semiconductors which will impact volumes for higher-end models, in domestic and export markets. (3) Domestic motorcycle segment: Though 2W volumes have remained subdued, marriage season is expected to add to retail demand. However, post Jul-22 demand needs to be monitored. Pulsar 250 twin and NS 125 have received strong reception. Bajaj's wholesale market share has remained flat YoY at 18%. (4) Exports: Exports have remained steady with record volume of 2.5mn in FY22. Market share for the company has grown by 2% across all markets. (5) 3W segment: The company is a leader in all segments (passenger and cargo) with a 70% retail share. Rising fuel cost is aiding demand for CNG-3W (77% market share).

Shares of Bajaj Auto Limited was last trading in BSE at Rs. 3727.05 as compared to the previous close of Rs. 3833.50. The total number of shares traded during the day was 12566 in over 1930 trades.

The stock hit an intraday high of Rs. 3838.00 and intraday low of 3712.35. The net turnover during the day was Rs. 47554415.00.

Source : Equity Bulls

Keywords

BajajAuto INE917I01010 Q4FY22 ResultUpdate PrabhudasLilladher