Reduce Bajaj Auto; target of Rs 3852: Dolat Capital Market
Dolat Capital Market recommended reduce rating on Bajaj Auto with a target price of Rs 3852 in its research report dated January 21, 2021.
January 27, 2021 / 03:04 PM IST
Dolat Capital Market's research report on Bajaj Auto
Bajaj Auto’s Q3FY21 EBITDA was 8% ahead of our expectations on the back of better than expected gross profit and lower other expenses. EBITDA grew 27% YoY to Rs 17.29bn with margin of 19.4% (+152bps YoY) owing to better mix (higher share of Pulsar 125 and ultra-premium segment and strong export volume) and cost control measures. Management appears enthused by market share gains in export and the domestic 125cc segment with ramp-up of Pulsar sales. However, they are cautious on the margin front due to rising input prices. In Q3, the company took a price hike of 1% and further 1.5% in January (mainly in the entry level segment) to offset commodity inflation. Management expects RM cost to increase by 300bps QoQ in 4Q and rise in other expenses due to the increase in advertisement cost. We maintain our positive stance on Bajaj Auto given 1) improving profitability in its domestic 2W business, 2) diversified revenue stream (45-50% sales comes from export and 3) strong cash reserves. Recovery in high end bike volumes and continued exports growth momentum would drive decent earnings growth (15% over FY21-23E).
However, we believe that consensus estimates adequately factor all the near term positives. Current valuations at a P/E of 20/18x on FY22/FY23E leave limited scope for re-rating. We change our rating from Accumulate to Reduce with target price Rs 3,852 (17x FY23E core EPS + cash + KTM stake).
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