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MOSL: BAJAJ AUTO (Buy)-Margin miss driven by adverse FX-expect volume growth of 8-10% in FY20

Bajaj Auto: Margin miss driven by adverse FX; expect volume growth of 8-10% in FY20

(BJAUT IN, Mkt Cap USD10.2b, CMP INR2499, TP INR3045, 22% Upside, Buy)

 

• Product mix, FX hurt realization: Revenue increased 16% YoY (-7.5% QoQ) to INR74b (our estimate: ~INR75.5b), led by 26% YoY volume growth. Realization declined 7.8% YoY (-1.7% QoQ) to INR58.8k/unit (our estimate: INR59.9k/unit), led by the unfavorable product mix and the FX impact (-50bp QoQ).
• EBITDA margin impacted by multiple factors: Gross margin shrank 460bp YoY (-60bp QoQ) to 27% (in-line). EBITDA declined 7.5% YoY to INR11.7b (our estimate: INR12.1b), translating into an EBITDA margin of 15.6% (our estimate: 16%; -400bp YoY, -150bp QoQ). The sequential contraction in the margin was led by the impact from low 3W sales (-40bp), RM (-40bp) and FX (-50bp). However, higher other income, lower depreciation and lower tax led to a 16% YoY increase in PAT to INR11b (our estimate: INR10.6b). For 9MFY19, revenue/EBITDA/PAT grew 24.1%/9.1%/11.9% YoY.
• Management commentary: (a) Domestic motorcycle industry to grow by 8-10% in FY20. 3QFY19 retails increased ~8%. (b) BJAUT’s dealer inventory at ~6 weeks. (c) Targets 2W market share of 24% (from 20% currently). (d) Took price increase of INR700/unit for CT100. (e) Higher sales of Platina helping BJAUT to attain EBITDA breakeven in Economy segment. (f) Expects domestic 3W sales of ~100k (+10% QoQ, -18% YoY) in 4QFY19. (g) Motorcycle exports to emerging markets to grow 8-10% in FY20. (h) USD/INR realization at 68.9 (v/s 69.4 in 2QFY19). FX hedging for FY20 underway; should realize 71/USD if the spot rate remains stable. (i) ‘Urbanite’ electric 2W will be launched in 6-9 months.