Maintain ‘buy’ on Bajaj Auto, target Rs 2,750: Religare

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Published: May 28, 2016 7:40:31 AM

Bajaj Auto’s Q4FY16 numbers were largely in line with estimates. Soft commodity prices aided EBITDA margin gains of 356bps y-o-y to 21.3% (RCMLe 21.1%).

Bajaj Auto’s Q4FY16 numbers were largely in line with estimates. Soft commodity prices aided EBITDA margin gains of 356bps y-o-y to 21.3% (RCMLe 21.1%). Adj. PAT increased 25% y-o-y to R7.8 billion (RCMLe: R8.2 billion). Management expects the Avenger variants and new product V-15 to translate into market share gains in FY17. Export headwinds too are easing and should be further offset by domestic launches. With strong volume growth expected in the next two years, we reiterate ‘buy’ with a March 2017 target price of Rs 2,750.

Bajaj Auto’s revenues were in line with our estimates at Rs 54.1 billion, up 14% y-o-y. While domestic realisations increased 1.5% y-o-y, the average export realisation was up 3% y-o-y and 9% q-o-q largely due to a better mix.
Bajaj Auto reported EBITDA margins of 21.3%, an increase of 356bps y-o-y. On a q-o-q basis, margins increased only 23bps q-o-q as higher other expenses offset a 110bps q-o-q improvement in gross margins. Adj. PAT improved 25% y-o-y to R7.8 billion on better margins. The tax rate for the quarter has increased to 33% vs. 32.6% in Q4FY15. Bajaj Auto has guided for a 32% tax rate for FY17.

Management expects the volume run-rate for Avenger to improve from 25,000 units per month to 30,000 in coming quarters. V15 is also expected to touch 30,000 units per month and the company is in a position to increase capacity given fungibility between products.

We maintain our estimates and March 2017 TP of R2,750 based on 16x one-year forward P/E.

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