Bajaj Auto (BJAUT) delivered a healthy operating performance, with EBITDA margin of 17.1% (225bps above our estimate of 14.9%), on the back of an improved realization, better mix and favorable exchange rate. Revenue de-grew by 7% YoY and 12% QoQ to Rs79.7bn (4.5% above our estimate of Rs76.3bn), on the back of ASP growth (+11% YoY/+7% QoQ) to Rs81,650 despite decline in volume (-17% YoY/-17% QoQ) to 9,76,651 units. Its EBITDA margin contracted by 60bps YoY (+190bps QoQ) to 17.1% vs. our estimate of 14.9%, due to better control on Other expenses. BJAUT's reported PAT was Rs14.7bn (+ 10% YoY/+21% QoQ), while adj PAT stood at Rs12.2bn (-8% YoY/+1% QoQ) (excluding exceptional gain of Rs3.2bn towards incentive receivable from State Government of Maharashtra under Package Scheme of Incentive 2007 (PSI), for the period April 2015 to March 2021), vs. our estimate of Rs10.4bn. We expect exports to continue to witness a double-digit growth in coming years. We believe that the better product mix and rising exports contribution, coupled with a favorable exchange rate would support BJAUT's margins FY23 onwards, despite the commodity cost pressure. In view of the healthy exports, recovery in high-margin 3W business, improving return ratios and strong balance sheet, we reiterate our BUY rating on the stock, and maintain the 1-year Target Price of Rs4,250, valuing the stock at 17x FY24E earnings.
Focus on Export Market, Favorable Exchange Rate and 3W Revival augur Well
Though we expect the domestic 2W industry to face a near-term demand weakness, we believe BJAUT's premium products portfolio would outperform the industry. We expect production issue in 1QFY23 due to supply constraint, while industry would bounce back strongly by mid-FY23 with normalised production. Moreover, a healthy growth of the high margin 3W segment on a low base, strong exports coupled with favourable exchange rate would cushion volume performance and profitability. Recently, it has been gaining shares in many geographies in the African markets and Southeast Asian countries. Current higher level of crude at ~$100/barrel would further strengthen African economies resulting in higher demand ahead. The management expects a double-digit growth in exports over the next 2-3 years. Moreover, its improving products portfolio, with a higher contribution of premium products would aid margins going forward. We expect its EBITDA margin to expand to 16.7% in FY24E, from the 15.2% in FY22.
Outlook & Valuation
We expect BJAUT's domestic volume to witness a growth of 13% in FY23E on the back strong 35% growth in 3W. We estimate 10.3% CAGR in exports over FY22-FY24E despite near term challenges, on the back of an increasing traction in African markets and a revival in SE markets. We broadly maintain our EBITDA/PAT estimates for FY23E and FY24E. In view of the healthy exports with a strengthening global positioning, higher realization, better mix and strong cash flows, we reiterate our BUY rating on BJAUT and maintain the Target Price of Rs4,250, valuing the stock at an unrevised P/E multiple of 17x FY24E EPS, and adding Rs200/share for the stake in subsidiary, PMAG (holding company of KTM).
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. |
