Hold Bajaj Corp; target of Rs 543: Edelweiss

Edelweiss' research report on Bajaj Corp

Bajaj Corp’s Q3FY18 revenue (up 11.3% YoY) and EBITDA (up 10.8% YoY) came in line, while PAT (down 4.6%) came below estimates owing to lower other income. Overall volumes grew 5.2% YoY on soft base of -6.5%. The 8.2% YoY jump in domestic volumes was encouraging; however, CSD (2.7% value decline) and international (44% value decline) businesses spoiled the show. Though Nomarks continued to remain soft with volumes dipping 7% YoY, the company’s revamped distribution strategy has started bearing fruits. Bajaj Corp’s GM jumped 349bps YoY owing to stocking up of LLP at lower cost and favourable mix change. Recovery of wholesale channel, new launches / relaunches and success of Nomarks’ new strategy remain key monitorables. Maintain ‘HOLD’.

Outlook
Volume growth has started to improve led by lower base, better monsoon, rural channel improving. We will keep a close watch on the proposed strategy for Nomarks and new launches / re-launches. Rolling forward to FY20, we estimate tad ~7% EPS CAGR over FY17-20 owing to EBITDA margins pressure and high tax rates. At CMP, the stock is trading at 28x FY20E EPS. We maintain ‘HOLD/SU’ with target price of INR543. For all recommendations report, click here

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