Bajaj Auto rating: Retain ‘buy’ with revised fair value of Rs 3,000

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May 23, 2020 1:15 AM

Bajaj Auto reported Q4FY20 Ebitda of Rs 1,250 crore (+2% y-o-y), which was 15% above our estimates, led by better gross margin and improvement in product mix.

 The near term will remain challenging for domestic and export markets; however, the company will maintain operating margins in these challenging times as well, a positive.The near term will remain challenging for domestic and export markets; however, the company will maintain operating margins in these challenging times as well, a positive.

Bajaj Auto reported Q4FY20 Ebitda of Rs 1,250 crore (+2% y-o-y), which was 15% above our estimates, led by better gross margin and improvement in product mix. The near term will remain challenging for domestic and export markets; however, the company will maintain operating margins in these challenging times as well, a positive.

We expect demand to recover in FY22E, the stock is inexpensive in our view. Maintain ‘buy’ with revised fair value of Rs 3,000 (from Rs 3,100).Revenues fell by 8% y-o-y led by a 17% y-o-y fall in volumes and 10% y-o-y improvement in net ASPs due to cost push and improvement in product mix. Net realisations improved by 8% sequentially (4% above our estimates) led by higher mix of export motorcycle and lower mix of economy motorcycle.

Ebitda margin came in at 18.4%, 180 bps above our estimates. Net profit was Rs 1,310 crore (+15% y-o-y), 25% above our estimates . We cut our FY21-22E EPS estimates by 5-7% due to an 11-14% cut in volume assumptions owing to the extension of lockdown in India and export markets, partly offset by a 70-100 bps rise in our Ebitda margin assumptions. We believe the 2W segment is well-positioned to gain from consumer preference for personal mobility. So, we expect Bajaj Auto to benefit in both domestic as well as export geographies.

It has improved its Ebitda per vehicle to Rs 11,042 in FY20 from Rs 10,345 in FY19 despite a sharp fall in volumes, which is quite commendable. Also, it has improved its Ebitda margin trajectory in Q4FY20 despite only 1 million unit sales. We expect strong volume recovery going into FY22E. Over the medium term, we believe Bajaj Auto will continue to gain market share from Chinese players in African markets. Maintain ‘buy’. FV revised to Rs 3,000 based on 15XMarch 2022E core EPS + Rs 142 per share for KTM stake + Rs 625 per share value of cash and cash equivalents.

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