Bajaj Auto's share price added over 2 percent in the early trade on January 22, a day after the two-wheeler manufacturer clocked its highest-ever standalone profit of Rs 1,556.3 crore in the December quarter, rising 23.4 percent compared to the year-ago period, driven by volume growth and operating performance.
Its revenue increased by 16.6 percent year-on-year to Rs 8,910 crore, which was also the highest for a quarter. Volumes grew by 9 percent YoY, driven by a 26 percent growth in motorcycle exports and an 8 percent increase in domestic volumes but the three-wheeler segment declined 36 percent year-on-year.
Also Read - Bajaj Auto Q3 beats estimates, profit grows 23.4% to Rs 1,556 crore
Bajaj came out with a strong set of numbers in Q3, thanks to its strength in the exports markets and domestic two-wheeler (2W) recovery. The company reported its strongest ever volumes, revenues and PAT in the quarter. As the economy opens up, things will improve further.
With intrinsic demand getting back almost to the pre-COVID level production/ supply constraints have reduced. 2W demand in the domestic markets is expected to continue its uptrend, with strong rural demand driven by good monsoons and pent-up demand.
With exports improvement expected to continue and high margin models to sell well in domestic markets, margins are expected to improve. We maintain our "buy" rating on the stock with an improved target price of Rs 4,142 (at 20x FY 23E earnings).
Bajaj Auto's 3QFY21 revenues were in-line while there was ~ 6.6%/6% beat at EBITDA/adj. PAT. This was led by continued tight cost control. EBITDA margins expanded 150bp YoY at 19.4 percent (PLe 18 percent) helped by better gross margins at 29.2 percent (PLe 28.5 percent) due to favourable mix. While the near-term outlook looks positive given 1) healthy exports momentum both for 2W and 3W and 2) likely beneficiary of RoDTEP scheme, the same is reflected in valuations.
We raise FY22/23 EPS by 4 percent/8.6 percent to factor in for a sharp increase in KTM profits and better export outlook. We retain hold with revised target price of Rs 3,489 (v/s Rs 3,215, 17x Mar-23 EPS). BJAUT trades at 20x/18x FY22/23 EPS (v/s 18x 5yr LPA).
We maintain our positive stance on Bajaj Auto because of improving profitability in its domestic 2W business, diversified revenue stream (45-50 percent sales come from exports and strong cash reserves.
Recovery in high-end bike volumes and continued export growth momentum would drive decent earnings growth (15 percent over FY21-23E). However, we believe that consensus estimates adequately factors in 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 a target price of Rs 3,852 (17x FY23E core EPS + cash + KTM stake).
East India Securities
We maintain "accumulate" rating with a target price of Rs 4,094 (17x FY23e EPS of Rs 227 + the value of KTM at Rs 244/share). Increasing multiple from 16x to 17x and rollover from Sept ’22 to FY23e led to the increase in the target price.
1) Faster rebound in exports, 2) Bajaj’s dominant position in the premium, 3) success of the 125cc, 4) demand from students’ community to emerge, and 5) refreshers/upgrades should sustain demand momentum in the coming quarters, justifying premium multiple.
At 0919 hours, Bajaj Auto was quoting at Rs 3,800.85, up Rs 97.55, or 2.63 percent, on the BSE.
The share touched its 52-week high of Rs 3,807.75 on January 21, 2021 and the 52-week low of Rs 1,793.10 on March 24, 2020. Tt is trading 0.18 percent below its 52-week high and 111.97 percent above its 52-week low.