Buy Bajaj Auto; target of Rs 4350: Emkay Global Financial

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Emkay Global Financial's report on Bajaj Auto

BJAUT’s Q4 EBITDA declined 10% yoy to Rs13.7bn (est.: Rs11.4bn), but came in above estimates on better sales mix within motorcycles, deferral of material cost increases, one time actuarial gains in staff costs and government incentives. Revenue fell by 7% to Rs79.7bn (est.: Rs76.4bn), above estimates due to better mix and government incentives. We continue to expect a turnaround in the domestic 2W industry in FY23, with 11% growth. Our channel checks indicate that Q1FY23 volumes will see support from festive/marriage season demand as well as a recovery in student demand. We expect an 11% CAGR in total volumes over FY22-24E, driven by a recovery in domestic 2W/3W volumes (13%/26% CAGR). BJAUT is focusing on EVs, with multiple launches in 2Ws/3Ws planned for domestic/overseas markets, R&D collaborations with KTM/Huqsvarna and new capacities under the PLI scheme.

Outlook

Our FY23E/24E EPS estimates are broadly unchanged at Rs195.5/229.6, and we introduce FY25E EPS of Rs253.9. Maintain Buy with a TP of Rs4,350 (Rs4,250 earlier), based on 17x Jun’24E Core EPS (17x Mar’24E EPS earlier), value of investments at Rs224/share and cash reserves of Rs725/share.

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