Hold Bajaj Auto; target of Rs 3108: Prabhudas Lilladher

Prabhudas Lilladher recommended Hold rating on Bajaj Auto with a target price of Rs 3108 in its research report dated October 22, 2020.

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October 23, 2020 / 14:25 IST

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Prabhudas Lilladher's research report on Bajaj Auto

BJAUT’s 2QFY21 revenues/EBITDA were in-line while adj. PAT slightly missed estimates at Rs11.4bn (PLe Rs12bn), led by lower other income. EBITDA margins expanded 110bp YoY at 17.7% (in-line) led by cost optimization initiatives. For 2HFY21, sustainability of these margins is unlikely due to a) sharp increase in key RM prices (by 10-15%) and b) we expect marketing spend to be back as BJAUT has lost ~130bp retail level market share to 11.3% in 2QFY21 (despite several product interventions). We believe 2W recovery both in domestic and exports markets have been better (to an extent 90-95%), BJAUT’s 3W portfolio to remain under pressure (~25-30% recovery in domestic 3W led by cargo).

Outlook

We upgrade FY21/22/23 EPS by 5%/1%/3% to factor in for cost efficiencies and maintain ‘Hold’ on the stock with revised price target of Rs3,108 (earlier Rs3,014) at 17x (in-line with 10 year LPA Sep’22 EPS, unchanged). BJAUT trades at 16.6x/15.9x FY22/23 EPS.

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