IGI Logo

In line; aggression in EV visible

Bajaj Auto (BJAUT) reported in line Q3FY22 EBITDA at INR13.7bn. While the pace of commodity cost is subsiding, domestic demand outlook remains weak. Q4FY22 exports are also likely to see YoY decline due to high base and a spill over effect. On the positive side, BJAUT indicated that on the EV front 1) it is expanding capacity, 2) aiming to expand on an all India basis as supply of parts continues to improve QoQ and 3) there will be more models under Chetak to fully leverage the brand.

Overall, we lower our FY23 EPS by 7%, factoring in weak demand. Maintain ‘BUY’ with a TP of INR4,161 (earlier INR4,337) as we roll over June-23E earnings.

In line quarter; near term outlook is mixed bag

Net revenue at INR90.2bn was in line with estimates. While QoQ commodity pressure led to a 30bps QoQ dip in gross margins to 25.3% (our expectation: flat margins), it was compensated by better control over staff cost and other expenses. As a result, EBIDTA at INR13.7bn was in line and margins flat at 15.2% QoQ. Nearterm demand outlook remains subdued for both domestic as well as export markets. Having said that, commodity cost pressure is easing and with time, management expects to recoup some of the lost margins.

Strong execution benefits from multiple tailwinds

Premiumisation continues to be the overarching strategy. This is reflected in 95% of its entry segment bikes being equipped with electric start. Moreover, 25% of the Pulsar 125 sold belongs to its most expensive variant. We expect BJAUT to widen its product bouquet with offerings in the 125cc and 250cc segments, and continue to leverage the KTM, Triumph and Husqvarna stables. Separately, an improving outlook for three wheelers and exports along with currency tailwinds will help counter commodity inflation and softening domestic two wheeler demand. Additionally, with a normalising EV supply chain, a sharp ramp up in EV volumes could be a key trigger to watch out for.

Outlook and valuation: EV option value; retain ‘BUY’

We like BJAUT’s strong execution, instilling confidence in its ability to expand its offerings. The new dividend policy will improve return ratios and offers 4–5% dividend yield. Maintain ‘BUY/SO’, valuing the stock at 22x June-23E core EPS of INR146 plus cash/share of INR776 and KTM at INR165. The stock is trading at FY23E/24E PER of 18.9x/16.4x.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer
SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer