Reduce Bajaj Auto; target of Rs 4575: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bajaj Auto

We marginally increase our FY24/25 EPS estimates by 2-3% to factor beat in margins and management commentary. Bajaj Auto (BJAUT) 1Q revenue (Rs. 103bn) was largely in-line, while EBITDA margin (19.0%) was higher than PLe (18%) but in-line with street estimates (19%). EBITDA margins saw slight decline QoQ on de-inventorisation, inferior mix and better vehicle mix, offset by higher operating leverage. However, strong cost control of employee expenses and other operating expense, shielded from a steeper decline. Export volumes recovered QoQ and BJAUT is expecting gradual improvement, given macro challenges in those markets. The company will also face increasing pressure from inferior mix as the export portfolio from African regions begins to increase (higher mix of low margin products) plus increase in EV volumes and margins are likely to remain at current levels. 2Q volumes in domestic market could be soft due to high base.

Outlook

We expect BJAUT’s domestic premium segment volumes to grow (similar to the industry) helped by premiumisation trends besides fast ramp-up of EVs could make us turn constructive on the stock. BJAUT is currently trading at 17.4x FY25, on the higher side versus history. Maintain ‘REDUCE’ with a TP of Rs 4,575 (Rs 4,450 earlier) at 16x Mar-25E EPS.