Hold Bajaj Auto; target of Rs 3865: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bajaj Auto

Bajaj Auto’s 2QFY23 performance came ahead of our estimates, led by better-than-expected realization (at Rs 88.6k, +16/3% YoY/QoQ); which in turn led to better margins at 17.2% (+100bps QoQ, Ple:16.5%). This was driven by improved mix in exports and favorable currency realization. Domestic volumes doubled QoQ owing to festive season demand and restoration of supply chain. Management expects single-digit growth from this festive season. In export markets, company took inventory correction measures, which led to lower exports (~40% of volumes vs 62% sequentially). There remains concerns on the export side of the business given (1) currency devaluation against USD in developing markets (eg: USD/Naira; 50%+ exports volumes from Africa), (2) poor availability of USD for trade, (3) retail price increase and (4) higher interest rates. Also, overall 3W demand still remains weak along with ban in Egypt. Sustainability of domestic 2W demand recovery in questionable with entry-level demand being still under pressure and Bajaj’s market share loss (~300bps since FY20).

Outlook

We increase our FY23/24 estimates marginally to factor in better-than-expected 2Q performance. Maintain HOLD with a target price of Rs 3,865 (at 16x Sep-24E EPS).

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Bajaj Auto - 171022 - prabhu