LKP Research has given Buy recommendation for Bajaj Auto with a target price of Rs. 4395 in its research report issued on Apr 28, 2022
LKP Research’s research report on Bajaj Auto
Bajaj Auto Limited (BAL) reported impressive and better then expected results in Q4 FY22 led by 3Ws and exports. Topline fall at 8% yoy and 12% qoq was lower than expected despite volumes dipping by about 17% yoy in the quarter offset by ASP growth at 10% on price hikes taken and better product & geography mix. This was a sequential fall of 12%. Sequentially the volume fall was 17% as well. During the quarter, domestic motorcycles de-grew by 30% yoy, while 3Ws were up by 8% yoy. Exports motorcycles de-grew by 7% yoy, while 3Ws fell by 11%. EBITDA dropped by 10% yoy to ₹13.7 bn, while margins moved upto 17.7%, a growth of 210 bps qoq, while remaining flat yoy. Margins moved up sequentially as RM costs to sales eased a bit (74.2% as % of sales) and some arresting of employee costs was also seen. All other cost items below operating levels remaining more or less range bound, bottomline came in 13% down yoy and 5% down qoq at ₹11.53 bn as tax rate was up at 27%. During FY22, revenues grew by 18.4%, led by 8% volume growth and 10% ASP hike. EBITDA margins were down at 15.9% on severe cost pressure stemming from RM costs. Adjusted Bottomline was at ₹47 bn, up by 3.3%.
Improving product and geographic mix, favorable currency movement and price hikes should assist margins in the ensuing years. With strong balance sheet, robust return ratios, strong dividend payout (₹140/ share announced yesterday), hefty dividend yield of 3.6% in FY22 and zero financial leverage, we believe the stock looks attractive at 15x FY 24E earnings. We maintain our BUY rating on the stock with a higher target price of ₹4,395 (at 17x FY 24E earnings) on improving volume and margins expectations.