Nigeria’s central bank plans to abandon the dollar peg by 20 June, currently set at 199 naira/USD, and to allow the naira to trade freely. The peg was set in February 2015, after the sharp drop in oil prices hit the domestic economy. Currently, the black market exchange rate hovers at 350-370 naira/USD, hence the currency is expected to depreciate sharply once it trades freely.
Bajaj Auto (BJAUT) exported 450k 2Ws (38k pm) and 60k 3Ws (5k pm) to Nigeria in FY16 (based on our estimate). This amounted to 9% (Rs 19.5 billion) of FY16 revenues, as per our estimates. However, since 4QFY16, due to dollar availability issues in Nigeria, 2W and 3W monthly volumes to the country have already dropped to 15-20k and 2k-3k, respectively.
Thus, on a y-o-y basis, the Nigeria share of revenues is likely to drop to 5% in FY17F if the current slowdown sustains. However, on q-o-q basis, the impact might not be significant as 4QFY16 numbers already reflect the slowdown in Nigeria (4-5% as per our estimates).
Overall, we expect BJAUT’s export volumes to drop 5% in FY17F and to recover to 13% growth in FY18F. The above event may delay recovery in exports to some extent. However, on the domestic front, we expect the company to do much better with 20% volume growth in FY17F on new launches. Overall, we factor in 9% volume growth in FY17F and maintain our neutral rating.