Buy Bajaj Auto; target of Rs 3570: ICICI Direct Research Report

Buy Bajaj Auto; target of Rs 3570: ICICI Direct

ICICI Direct is bullish on Bajaj Auto recommended buy rating on the stock with a target price of Rs 3570 in its research report dated October 24, 2020.

ICICI Direct’s research report on [Bajaj Auto

Bajaj Auto (BAL) reported a steady Q2FY21 performance. Net revenue was at Rs 7,156 crore (down 7.2% YoY) with blended ASPs at Rs 67,935/unit (down 2.2% QoQ). Lower share of 3-W in total volumes (~8% in Q2FY21 vs. ~16% YoY) impacted ASPs. Volumes for the quarter were at 10.5 lakh units (down 10.2% YoY) units wherein 2-W volumes were at 9.6 lakh units (down 2% YoY), 3-W volumes were 88,872 units (down 53% YoY). Reported EBITDA margins came in at 17.7%, up 110 bps YoY, primarily due to lower other expenses (fell 190 bps YoY on percentage of sales basis). BAL undertook impact of MEIS export incentive withdrawal amounting to Rs 78 crore for H1FY21, in Q2FY21, without which EBITDA margins could have been 18.5%+. PAT in Q2FY21 was down 18.8% YoY to Rs 1,138 crore tracking lower other income & high effective tax rate in base quarter (Q2FY20).

Outlook

For BAL, we build 2.8%, 7.4%, 5.6% volume, sales, PAT CAGR in FY20-23E. Margins are seen improving to 18.4% by FY23E tracking improvement in operating leverage, cost actions. We value BAL at a revised target price of Rs 3,570 using SOTP method (core business at 18x FY22E & FY23E average EPS and 2x P/B on KTM investment) and upgrade the stock to BUY. In our view the stock offers adequate valuation comfort at CMP considering expected all-round uptick in coming times.