Hold Bajaj Auto; target of Rs 4420: Emkay Global Financial

Emkay Global Financial recommended hold rating on Bajaj Auto with a target price of Rs 4420 in its research report dated April 26, 2023.

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April 26, 2023 / 16:19 IST

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Emkay Global Financial's research report on Bajaj Auto

Bajaj Auto (BJAUT) reported better-than-expected performance, with an improved product mix leading to a significant rise in ASPs and, consequently, healthy margins. For Q4FY23, BJAUT’s revenue grew by 12% YoY (-4% QoQ) to Rs89bn (Emkay est.: Rs83.8bn; Consensus est.: Rs85.7bn), above estimates mainly due to strong beat in realizations. Volumes declined by 12% YoY (-13% QoQ) to 0.86mn units, while ASP grew by 27% YoY to Rs103,810/unit (9% QoQ). Product mix improved notably with higher 3W and >125cc motorcycle share as well as lower 2W exports (to African markets). EBITDA grew by 26% YoY to Rs17.2bn (Emkay est.: Rs16bn; Consensus est.: Rs15.7bn), above estimates, owing to better-than-expected revenue and gross margin expansion. EBITDA margin grew by 220bps YoY to 19.3%, led by gross margin expansion of 210bps to 30.2%. Other income declined by 10% to Rs2.6bn. Depreciation grew by 447% to Rs157mn. PAT grew by 17% to Rs14.3bn (Emkay est.: Rs13.8bn; Consensus est.: Rs13.5bn), above estimates due to higher operating profit. BJAUT announced Rs140/share as dividend (71% payout for FY23).

Outlook

Despite expectations of increased activity in the E2W/E-3W segment, poor execution in the domestic ICE-2W segment over the past decade limits confidence. Triumph’s launch, though positive, would not swing the needle much for BJAUT. Nevertheless, risk-reward at current valuations of 19.1x/16.4x its FY24E/FY25E PER, with a dividend yield of 4.7%/5.5%, appears balanced. We maintain our HOLD rating on BJAUT (refer to our recent update; Valuations attractive amid growth revival).

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