During 4QFY18, Bajaj Auto reported EBITDA margin of 19.4% due to positive operating leverage accruing from 33% volume growth (despite a 160bps YoY drop in gross margin). With the upswing witnessed in oil price and ramp-up in newly added markets, export volume witnessed second successive quarter of 25%+ YoY growth.
However, domestic 2W segment growth of 20.3% YoY in 4QFY18 was lower than the industry’s 24.8%. The company is confident of regaining market share in FY19 with CT100 and the new Pulsar (with twin discs) acting as the primary growth drivers. BJAUT has taken a price hike of 1-1.5% during March’18 and May’18, to offset the impact of commodity price rise. Domestic 3Ws witnessed strong growth of c.145% YoY with key states opening up new permits.
The demand pipeline looks promising with states such as Telangana, Karnataka and Delhi expected to follow suit. Specifically, the diesel segment where the company holds a 34% market share looks primed for growth. We estimate 20% CAGR in BJAUT earnings over FY18-20E led by 11% volume CAGR.
Maintain BUY with a target price of `3,450. Rupee appreciation and inability to expand domestic market share in motorcycle segment are key risks. Net revenues at `6,770 crore, 6% above our estimate. While volumes grew 33%YoY, avg realisation grew 4% YoY due to better mix. EBITDA for the quarter stood at `1,320 crore, 10% above expectation. EBITDA margin for the quarter stood at 19.4%. Gross margin declined 160 bps YoY that was offset by positive operating leverage. Adj. net profit for the quarter stood at `1,080 crore, 9% above expectation.
During the 4QFY18 conference call, management indicated that demand during marriage season has been strong with the motorcycle segment growing 24% YoY in April 2018.
