Buy Bajaj Auto Ltd For Target Rs.4,530 - Emkay Global
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EBITDA misses on cost pressures; demand outlook positive
* Adjusted EBITDA was marginally lower by 1% yoy to Rs12.6bn, which was 6% below our estimates, owing to a delay in the pass-through of commodity inflation. Reported EBITDA included one-time benefits of Rs1.4bn relating to export incentives for earlier quarters. Revenue grew by 22% yoy to Rs87.6bn, in line with estimates.
* We expect volume growth to be robust at 15% in FY22E, driven by strong exports. Led by a pickup in domestic 2W/3W volumes, we expect BJAUT to sustain an 11% CAGR over FY22-24E. On EVs, BJAUT is planning capacity of 0.5mn units for 2Ws and working on new models in 2Ws/3Ws.
* BJAUT is incorporating a captive NBFC to provide a sales push for its models, including EVs. This entity will complement the efforts of other financiers, including Bajaj Finance. Once the entity is incorporated and regulatory approvals are received, the initial capital infusion is expected to be small.
* We cut FY22/FY23/FY24 EPS estimates by 8%/3%/3% to Rs174.6/Rs220.3/Rs249.7 due to cost pressures. We build in a strong revenue/earnings CAGR of 15%/20% over FY22- 24E, with average FCF generation of Rs37bn. Retain Buy with a TP of Rs4,530, based on 18x Dec’23E Core EPS (earlier Sep’23E), value of investments at Rs200/share and cash reserves of Rs716/share.
* EBITDA below estimates: Revenue grew by 22% yoy to Rs87.6bn (est.: Rs87.9bn). Volume grew by 9% to 1.1mn units and realization rose 13% to Rs76,565/unit. Reported EBITDA grew 11% yoy to Rs14bn. Adjusting for one-time gains of Rs1.4bn (relating to export incentives for previous quarters), EBITDA stood at Rs12.6bn, which was 6% below our estimates. Adjusted EBITDA margin stood at 14.6%. Consequently, adjusted PAT would be Rs11.7bn, marginally below our estimate of Rs12bn. Cash reserves stood at Rs175bn in Q2FY22 (after dividend payment of Rs41bn), vs. Rs191bn in Q1FY22.
* Increasing EV focus: Assembly capacity for E-2Ws stands at 60,000 units, and BJAUT is planning a new assembly line with 0.5mn capacity. In addition, new capacity is likely to be set up for E-3Ws. The availability of Chetak scooters will be expanded from 8 cities currently to 30 cities by Mar’22. BJAUT is expected to launch a new E-3W by May’22.
* Retain Buy with a TP of Rs4,530, based on 18x Dec’23E Core EPS (earlier Sep’23E), value of investments at Rs200/share (earlier Rs140/share) and cash reserves of Rs716/share. Key downside risks are lower-than-expected demand in key geographies, increase in competitive intensity and adverse currency/commodity prices.
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