Bajaj Auto Rating: (Buy) FY20 volume rise pegged at 8-10%

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Published: February 9, 2019 4:40:34 AM

Q3 was a mixed bag for the company with a miss on margins; ‘Buy’ maintained

Bajaj Auto Rating, Ebitda, Ebitda margin, sales of Platina, BJAUTThe sequential contraction in the margin was led by the impact from low 3W sales (-40bp), RM (-40bp) and FX

Q3 Revenue increased 16% y-o-y

(-7.5% q-o-q) to Rs 74 bn (our estimate: Rs 75.5 bn), led by 26% y-o-y volume growth. Realisation declined 7.8% y-o-y (-1.7% q-o-q) to Rs 58.8k/unit (our estimate: Rs 59.9k/unit), led by the unfavourable product mix and the FX impact (-50bp q-o-q).

Ebitda margin impacted by multiple factors

Gross margin shrank 460bp y-o-y (-60bp q-o-q) to 27% (in line). Ebitda declined 7.5% y-o-y to Rs 11.7 bn (our estimate: Rs 12.1 bn), translating into an Ebitda margin of 15.6% (our estimate: 16%; -400bp y-o-y, -150bp q-o-q). The sequential contraction in the margin was led by the impact from low 3W sales (-40bp), RM (-40bp) and FX
(-50bp). However, higher other income, lower depreciation and lower tax led to a 16% y-o-y increase in PAT to Rs 11 bn (our estimate: Rs 10.6 bn). For 9MFY19, revenue/Ebitda/PAT grew 24.1%/ 9.1%/ 11.9% y-o-y.

Management commentary

(a) Domestic motorcycle industry to grow 8-10% in FY20. Q3FY19 retails increased 8%; (b) BJAUT’s dealer inventory at 6 weeks; (c) targets 2W market share of 24% (from 20% currently); (d) took price increase of Rs 700/unit for CT100; (e) higher sales of Platina helping BJAUT to attain Ebitda breakeven in Economy segment; (f) expects domestic 3W sales of 100k (+10% q-o-q, -18% y-o-y) in Q4FY19; (g) motorcycle exports to emerging markets to grow 8-10% in FY20; (h) USD/INR realisation at 68.9 (v/s 69.4 in Q2FY19).

FX hedging for FY20 underway; should realise 71/USD if the spot rate remains stable; (i) ‘Urbanite’ electric 2W will be launched in 6-9 months.

Valuation view

Bajaj Auto trades at 14.1x/13.1x FY20/21e EPS. Maintain Buy with a
target price of Rs 3,045 (16x Mar’21e consol. EPS).


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