Published on 12/06/2019 9:35:58 AM | Source: Emkay Global Financial Services Ltd

Sell Bajaj Auto Ltd For The Target Rs.2500 - Emkay Global

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Volume growth to taper; maintain Sell

* Revenue grew 9% yoy to Rs73.9bn (Emkay est.: Rs72.3bn) on 14% growth in volumes but a 5% drop in realization. After a robust 20% growth seen in FY19, we expect revenue growth to taper to 13% over FY19-21E.

* EBITDA margin contracted 390bps yoy to 15.7% (our est.: 16.3%) on aggressive pricing/marketing and adverse mix. We expect 15.7% margin in FY21E vs. 16.5% in FY19, on partial absorption of cost inflation, adverse mix, and continuing marketing efforts.

* We expect volume growth to taper to 6% CAGR over the next two years due to a high base and price increases resulting from regulatory changes. The product mix should remain unfavorable, with a lower share of 3Ws and premium motorcycles.

* We build in revenue/earnings growth of 13%/10% over FY19-21E, with average ROE of 21%. The stock trades at a P/E of 18x/16x on FY20/21E EPS. Maintain Sell with a TP of Rs2,500 based on 13x FY21E core EPS and the value of KTM investment at Rs124/share.


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