Buy Bajaj Corp; target of Rs 520: JM Financial

JM Financial's research report on Bajaj Corp

Bajaj Corp’s 3QFY18 report was disappointing as volume growth recovery turned out to be well-below our expectations. While the headline numbers were impacted by lower international turnover, domestic business volume growth of 8% was also quite subdued given a highly favourable base (BAD volumes declined 4%, overall volumes down 6.5% in 3Q LY). Reported operating performance for the quarter was partially aided by prior period income (CGST refund pertaining to earlier excise-exempt zones). Excluding this, EBITDA growth was just 2-3% due to the impact of sharp increase in SG&A (+23.7%). The company attributed the disappointment in performance to weakness in the wholesale and CSD channels. Domestic performance of skin-care (Nomarks) has improved significantly, though, and is expected to sustain.

Outlook
We expect the stock to face some pressure in the near-term given the weak results. Given sharp stock-price run-up in recent months (+24% in 3M), signs of a sustained recovery in volume growth trajectory would be a pre-requisite for stock to further perform, despite reasonable valuation (currently trading at 40% discount to the sector), in our view. For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Bajaj Corp-16012018