Buy Bajaj Auto; target of Rs 8818: KR Choksey

KR Choksey's research report on Bajaj Auto

For Q3FY24, BJAUT’s total volumes grew by 22.1% YoY/ 14.0% QoQ to 12,00,997 units. Volumes for 9MFY24 grew by 7.0% YoY to 32,82,357 units. Revenue grew by 30.5% YoY/ 12.2% QoQ to INR 1,21,653 Mn and was in line with our estimate. The strong revenue performance was led by strong performance in domestic markets due to festive sales. Average realization improved by 7.6% YoY but moderated by 1.4% QoQ. For 9MFY24, revenue grew by 21.0% YoY to INR 3,33,155 Mn. The average realization grew by 13.8% YoY. EBITDA for the quarter was at INR 24,149 Mn, a growth of 37.4% YoY/ 13.4% QoQ and was in line with our estimate. EBITDA margin improved by 99 bps YoY/ 20 bps QoQ to 19.9%, driven by better YoY realizations, dynamic cost management and operating leverage which more than offset the drag from competitive investments on growing scale on electric scooters. For 9MFY24, EBITDA grew by 35.1% YoY to INR 64,773 Mn while EBITDA margin expanded by 203 bps YoY to 19.4%. PBT before share of associates grew by 37.1% YoY/ 11.1% QoQ to INR 26,662 Mn for the quarter, and by 32.2% YoY to INR 72,506 Mn for 9MFY24. PAT for the quarter was at INR 20,326 Mn, a growth of 38.0% YoY and was in line with our estimate. PAT is not comparable on a QoQ basis as the share of associates is only recorded by BJAUT in Q2 and Q4 and not in Q1 and Q3. For 9MFY24, PAT improved by 30.8% YoY to INR 56,968 Mn.

Outlook

We expect Revenue/ EBITDA/ Adj. PAT to grow at CAGR 15.4%/ 20.7%/ 18.1%, respectively over FY23-FY26E. The stock is currently trading at 27.1x/ 23.8x/ 21.5x our Adj. EPS estimate for FY24E/ FY25E/ FY26E, respectively. The share price has rallied by 23.8% since our last report. We assign a P/E multiple of 25.0x on FY26E EPS of INR 352.7 and arrive at a target price of INR 8,818/share (INR 7,093/share previously); implying an upside potential of 16.1% from the CMP. Accordingly, we maintain our “BUY” recommendation on the shares of Bajaj Auto.