Buy Bajaj Auto; target of Rs 3330: HDFC Securities

HDFC Securities' research report on Bajaj Auto

Financial highlights: Bajaj Auto continued to outperform the motorbike industry with volumes rising +14% YoY. Realisations were up +5% QoQ as the OEM benefitted from higher share of premium bikes, which contributed to 49% of the domestic sales (vs. 38% QoQ). Thus, revenues grew 9% YoY, flat QoQ to Rs 74bn. The EBITDA came in at Rs 11.6bn with margins at 15.7% (+10bp QoQ, -370bp YoY). The margins are stabilizing at these levels as the RM expense ratio has been constant at ~72.5% for the past three quarters. There was a one time write back of Rs 3,420mn (relating to reversal of NCCD duties that were paid earlier to the government). Bajaj expects to grow ahead of the domestic motorbike market in FY20 with new launches across segments. After aggressive growth in the entry portfolio in FY19, they will launch new products in the executive segment in FY20. Bajaj is well prepared to transition to BSVI as it supplies similar products for export markets as well as to KTM. The outlook for export markets though is mixed – while African/ ASEAN markets have bounced back, the Egyptian market is expected to be impacted by the license plate norms that have been introduced by the government (for three wheelers).

Outlook

Bajaj’s adj. 4QFY19 PAT at Rs 10.7bn (-1% YoY) was inline with our estimates. We expect Bajaj to grow ahead of the market in FY20 as well driven by new launches across its product range. Our revised TP is Rs 3,330 (based on its long term ten year average PE multiple of 17.5x on FY21E earnings). While the two wheeler industry growth has been benign, Bajaj has expanded market share by recalibrating its strategy. Further, the company has a diversified product portfolio with three wheelers and exports accounting for ~50% of volumes. Re-iterate BUY.