MOSL: BAJAJ AUTO (Buy)-Below estimate-adverse mix to continue impacting margins
Bajaj Auto: Below estimate; adverse mix to continue impacting margins
(BJAUT IN, Mkt Cap USD11.3b, CMP INR2689, TP INR3223, 20% Upside, Buy)
- Product mix, moderate spare sales impact realizations: Net sales increased 36% YoY (+9.5% QoQ) to INR74.2b (est. of INR77.8b), as volume grew 38% YoY (+17% QoQ). Realization declined 1.3% YoY (-6.6%) QoQ to INR60.5k/unit (est. of INR63.5k) due to an adverse product mix (higher share of CT100 at 50.5% and lower spare sales).
- EBITDA margin impacted by adverse product mix, RM inflation and high employee cost: Gross margin shrank 140bp YoY (-210bp QoQ) to 28.6% (est. of 30%), led by an adverse mix and RM inflation. Higher employee cost further impacted profitability. EBITDA grew ~37% YoY to INR12.8b (est. of INR15.2b), implying an EBITDA margin of 17.3% (flat YoY, -210bp QoQ; est. of 19.5%).
- Management commentary: (a) Targets total sales of 4.8m units in FY19 (+20%), driven by exports (~2m units), domestic 2Ws (~2.4m units) and domestic 3Ws (375-400k units). (b) Domestic 3W sales momentum to be healthy at ~30k/month, despite boost from permit behind us, led by growth in diesel and cargo segment. (c) Targets 45-50% market share (v/s 35% currently) in M1 segment and 20% share in domestic 2Ws by end-FY19. (d) Expects CT100 to grow faster than other products/segment, exerting pressure on margins. (e) New product in Commuter Deluxe segment by 4QFY19.
Bajaj Auto is an auto-manufacturing company which is based in India. Co. is engaged in the manufacturing, selling, and exporting of two- and three-wheeler vehicles and spare parts and accessories. Co.'s products include scooters, motorcycles, and mopeds, as well as autorickshaws, such as goods carriers, delivery vans, and passenger carriers. Co. also provides related spare parts and after sales service. Co. offers its products through a network of dealers and maintains a presence in over a dozen countries in Europe, Latin America, the U.S. and Asia.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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