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MOSL: BAJAJ AUTO (Neutral) | Annual Report: Exports cushion domestic weakness; Prudent cost management led to margin expansion

BAJAJ AUTO | Annual Report: Exports cushion domestic weakness; Prudent cost management led to margin expansion

(BJAUT IN, Mkt Cap USD16.2b, CMP INR4187, TP INR4211, 1% Upside, Neutral)

 

• BJAUT’s FY21 annual report highlights its resilient performance in a year impacted by the COVID-19 outbreak, led by continuous premiumization and focus on R&D.
• Its focus on exports and on Premium Motorcycles helped it to outperform the 2W industry in a tough year. Contribution of exports to net sales grew 480bp to 46.8% in FY21.
• While its share in the domestic Motorcycle market declined marginally (50bp) to 18%, largely led by market share loss of 770bp in the Sports segment due to cannibalization by Pulsar 125cc.
• It expects to further strengthen its position in the Premium segment, with upper-end Pulsars, KTMs, Dominars, Husqvarnas, and the soon to be launched Triumphs.
• Chetak is expected to be launched in additional cities in FY22, and would anchor BJAUT’s foray into the electric mobility space after seeing disruptions in FY21.
• In the domestic 3W segment, it lost ~670bp market share to 50.6%, due to the sharp impact of COVID-19 in its area of strength: urban 3Ws. It improved its market share in both Goods Carriers (+670bp to 33.7%) and the Diesel Passenger segment (+12.7pp to 41.7%), in turn gaining leadership in all segments of 3Ws.
• It has approved a new dividend policy that links payout to the level of cash/cash equivalents on its books, in turn increasing the payout up to 90% of PAT (v/s 50% payout under its old policy).
• Valuations at 20.7x/17.9x. FY22E/FY23E consolidated EPS largely capture in an expected recovery. We maintain our Neutral stance, with a TP of INR4,211/share (~18x Mar'23E consolidated EPS).