Bajaj Auto - Stellar Margin Performance, Valuation Caps Upside: Dolat Capital

Dolat Capital Report

Bajaj Auto Ltd.’s Q3 FY21 Ebitda was 8% ahead of our expectations on the back of better than expected gross profit and lower other expenses. Ebitda grew 27% YoY to Rs 17.29 billion with margin of 19.4% (+152bps YoY) owing to better mix (higher share of Pulsar 125 and ultra-premium segment and strong export volume) and cost control measures.

Management appears enthused by market share gains in export and the domestic 125cc segment with ramp-up of Pulsar sales. However, they are cautious on the margin front due to rising input prices. In Q3, the company took a price hike of 1% and further 1.5% in January (mainly in the entry level segment) to offset commodity inflation. It expects RM cost to increase by 300 bps QoQ in Q4 and rise in other expenses due to the increase in advertisement cost.

We maintain our positive stance on Bajaj Auto given

1. improving profitability in its domestic 2W business

2. diversified revenue stream (45-50% sales comes from export and

3. strong cash reserves.

Recovery in high-end bike volumes and continued exports growth momentum would drive decent earnings growth (15% over FY21-23E).

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