LKP Research's research report on Bajaj Auto
Bajaj Auto Limited (BAL) reported impressive and better then expected results in Q4 FY22 led by 3Ws and exports. Topline fall at 8% yoy and 12% qoq was lower than expected despite volumes dipping by about 17% yoy in the quarter offset by ASP growth at 10% on price hikes taken and better product & geography mix. This was a sequential fall of 12%. Sequentially the volume fall was 17% as well. During the quarter, domestic motorcycles de-grew by 30% yoy, while 3Ws were up by 8% yoy. Exports motorcycles de-grew by 7% yoy, while 3Ws fell by 11%. EBITDA dropped by 10% yoy to ₹13.7 bn, while margins moved upto 17.7%, a growth of 210 bps qoq, while remaining flat yoy. Margins moved up sequentially as RM costs to sales eased a bit (74.2% as % of sales) and some arresting of employee costs was also seen. All other cost items below operating levels remaining more or less range bound, bottomline came in 13% down yoy and 5% down qoq at ₹11.53 bn as tax rate was up at 27%. During FY22, revenues grew by 18.4%, led by 8% volume growth and 10% ASP hike. EBITDA margins were down at 15.9% on severe cost pressure stemming from RM costs. Adjusted Bottomline was at ₹47 bn, up by 3.3%.
Improving product and geographic mix, favorable currency movement and price hikes should assist margins in the ensuing years. With strong balance sheet, robust return ratios, strong dividend payout (₹140/ share announced yesterday), hefty dividend yield of 3.6% in FY22 and zero financial leverage, we believe the stock looks attractive at 15x FY 24E earnings. We maintain our BUY rating on the stock with a higher target price of ₹4,395 (at 17x FY 24E earnings) on improving volume and margins expectations.
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