Accumulate Bajaj Auto; target of Rs 3631: Arihant Capital

Arihant Capital 's research report on Bajaj Auto

Bajaj Auto (BJAUT) reported strong set of numbers in subdued environment as Net sales stood at Rs 74.5bn (+9% YoY / -0.7% QoQ). Realizations were at Rs 62.5k (-4.5% YoY and +4.8% QoQ) on superior product mix led by strong export sales. Gross margins at 28.4% (-300bps YoY/ +20bps QoQ) were impacted by continued pricing disruption in entry level motorcycles (CT100 and platina). The exports volumes continued to grow stronger led by Africa, Indonesia (+13% YoY) which boosted the realizations on QoQ basis. The adjusted EBITDA margin stood at 16.5% (-380bps YoY/+31bps QoQ) and were impacted by higher staff costs (+17% YoY) and other expenses (+16% YoY) on increased advertisement expenses. Adjustd PAT stood at Rs 9.6bn (-10.8% YoY; -12.6% QoQ). On the concall, management remained confident of continued market share gains in the entry level motorcycles through aggressive pricing and superior product positioning through addition of advanced features. For FY19, sales stood at Rs 305bn (+24% YoY) led by 30% volume growth and 6% decline in realizations. EBITDA stood at Rs 52.7bn (+24% YoY). Adjusted EBITDA margin stood at 17.3% impacted by aggressive pricing strategy in the entry segment motorcycle segment. Adjusted PAT stood at 43bn (+30.6% YoY).

Outlook

Over the medium term, we believe, BJAUT’s market share gains shall continue led by new product launches. At CMP of Rs 3045, stock trades at 15.7x FY21E estimates. We estimate revenue/EBITDA/PAT CAGR of 10%/11%/14% over FY19-21E. We recommend an ACCUMULATE rating on the stock and value it at 18x FY21E and Rs 129 for KTM stock valuation and arrive at a target price of Rs 3,631 with a potential upside of 19%.