Buy Bajaj Auto, expect margin improvement on second half of FY19: Equity99

Sumit Bilgaiyan

Bajaj Auto is the world’s third largest manufacturer of motorcycles and the largest manufacturer of three-wheelers. First seven months of FY19 became golden period for company. During this period its motorcycles sales grew by 28 percent and commercial vehicles sales grew by 50 percent. Total sales grew by 31 percent. Company has achieved highest ever monthly motorcycle sales during October. Its motorcycle sales grew by 33 percent during October.

Due to higher raw material price we have seen some pressure on margin front during first half of FY19, but we are expecting margin improvement during second half of FY19. During Q2FY19, its sales and EBITDA grew by 21.21 percent YoY and 3.45 percent YoY, respectively, while PAT increased by 5.28 percent to Rs 1,256.57 crore.

During first half of FY19, its sales and EBITDA grew by 23.75 percent YoY and 17.32 percent YoY, respectively, while PAT increased by 13.20 percent to Rs 2,298.35 crore. At the CMP, the stock trades at a P/E of 17.1x. We are recommending a buy in staggered manner for medium to long term.