Buy Bajaj Auto; target of Rs 9853: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bajaj Auto

BJAUT standalone revenue in Q3FY25 grew at a modest pace of 5.7% YoY, driven by strong double-digit growth in spares revenue. Volume grew by 2% YoY growth while realization expanded by 3.7% YoY, aided by judicious pricing strategies in its portfolio. Gross profit increased by 4.9% YoY with a margin expansion of 24bps YoY to 28.7%, as large part of its commodity basket remained stable. EBITDA grew by 6.2% YoY while margin expanded by 10bps YoY to 20.2%, aided by stable input cost and favorable dollar appreciation. PAT grew at a moderate rate of 3.3% over Q3FY24. BJAUT 5th consecutive quarter of 20+ EBITDA margin despite increasing penetration of EVs in its overall portfolio which is partially offset by PLI benefits. Additionally, strong growth in international market has offset subdued demand momentum in the domestic market. Strong near-term demand visibility in exports market particularly in LATAM and recovering African market volumes shall aid realization and volume expansion respectively. The scale-up of EV business along with PLI benefits in near-term shall aid in better profitability.

Outlook

We cut our estimate by ~1-4% over the forecasted period to factor in the mix impact from revival in African volume. We assume its revenue/EBITDA/EPS to grow at a CAGR of 12.9%/15.2%/14.6% over FY24-FY27E. We maintain our “BUY” rating with a target price of Rs9,824 (previous Rs 10,116), valuing the company at 25x on its Dec-26E EPS.