IGI Logo

Healthy performance; seen tapering off going forward

About the stock: Bajaj Auto (BAL) is second largest motorcycle manufacturer and largest 3-W OEM domestically (FY22 market share at 18.2%, 61.5% respectively).

*Exports comprised ~58% of FY22 volumes; 2-W:3-W mix at ~89:11 (overall)

*Strong b/s with ~| 23,160 crore cash on books (FY22), history of ~20% return ratios & one of the highest dividend yields among Nifty stocks

Q4FY22 Results: BAL reported a healthy performance in Q4FY22.

*Net revenues for the quarter were at | 7,975 crore, down 11.6% QoQ  EBITDA in Q4FY22 was at ₹ 1,366 crore; margins: 17.1% (up 190 bps QoQ)

*Reported PAT was up 21% QoQ to | 1,469 crore, supported by exceptional gains amounting to ₹ 315 crore (prior period incentive receivable)

What should investors do? BAL’s stock price has grown ~5.3% CAGR (from ₹ 2,865 levels in April, 2017) over five years outperforming the Nifty Auto index.

*We maintain HOLD rating on the stock primarily tracking management’s conservative stance on EV transition amid prominence in export markets

Target Price and Valuation: Rolling over our valuations, we value BAL at | 3,950 on SOTP basis (18x PE on FY24E Core EPS, stake in PMAG; previous target: ₹ 3,370).

Key triggers for future price performance:

*Aggressive push, capex spends and adoption of new technology landscape

*Ramping up of electric 2-W production; electric 3-W launch in June 2022

*We expect volume, net sales CAGR of ~8.5%, ~7.7% over FY23-24E (2-W CAGR ~8.5%, 3-W CAGR ~8.8%) aided by steady state export demand

*Margins to be in the current range of ~15-16% over FY23-24E

*Increasing share of margin accretive spare parts revenue, with change in strategy, which is more retailer focus now vs. distributor focus in the past

Alternate Stock Idea: In our auto OEM coverage we like M&M.

*Focused on prudent capital allocation, UV differentiation & EV proactiveness

*BUY with target price of | 1,045

Q4FY22 Results:

*Net sales came in at | 7,975 crore. Blended ASPs for the quarter were at | 79,129/unit, up 6.2% QoQ. Total volumes for the quarter were at 9.8 lakh units, down 17.3% QoQ with exports share in volumes pegged at 60%

*Reported EBITDA in Q4FY22 was at | 1,366 crore, with EBITDA margins coming in at 17.1% (up 191 bps QoQ). The real surprise came in the form of gross margin expansion, which rose ~280 bps QoQ

*Consequent reported PAT was up 21% QoQ to | 1,469 crore, which included one-time exceptional gain of ₹ 315 crore (prior period incentive receivable)

Q4FY22 Earnings Conference Call highlights

*BAL witnessed robust annual margin & profit with exports being strong and steady in all quarters. Further market share increased ~2% in FY22 across all regions such as Africa, Latin America, Europe & Asia

*Management commentary on exports remained strong. BAL has large order book for Dominar for North American, European & Asian region

*BAL is focusing on selling premium model to customers to improve realisation with example of Pulsar NS 125, which is ~22% costlier than regular variant and comprise ~5% of 125 CC segment sales

*Domestic 3-W share increased to ~70% at the retail level, highest ever for BAL with CNG segment market share pegged at ~77%

*On EV front BAL expanded chetaks network to 12 cities from eight cities in Q3FY22. Further launch of E-3-W will be in June 2022 with launch planned in few cities only i.e. cautiously. Overall management foresees next 18 months as capability building across electric segment in 2-W/3-W; low speed/high speed as well as fixed battery/battery swapping technology

*Raw material costs are expected to increase in Q1FY23 to the tune of ~3% with price hike amounting to ~1% taken starting April 2022

*Export outlook remains strong with double digit growth in FY23 with fiveyear target at doubling export business (FY20-25)

*Exports to Sri Lanka remained limited at <1%. Exports to Nepal for the quarter was at ~5,000 units (2-W & 3-W combined)

*Spare part penetration has reached to ~18% in FY22 vs. ~14% over the past two years with target to reach ~20%, going forward

*Africa, Latin America, RoW account for ~50-55%, ~20%, ~25% of export sales respectively. Malaysia & Philippines still to recover to pre-Covid levels whereas other regions have surpassed their pre-Covid sales

*Spare part sales for Q4FY22 were at ₹ 980 crore with domestic & export mix at 80:20. Export revenue for Q4FY22 were at $500 million (~₹ 4,000 crore)

*E-2W production was impacted due to limited chip supply

To Read Complete Report & Disclaimer Click Here

For More ICICI Direct Disclaimer http://icicidirect.com/disclaimer.html
SEBI Registration number is INZ000183631

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