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MOSL: BAJAJ AUTO (Neutral)-Beat on margins, but lower other income drives in-line PAT

Bajaj Auto: Beat on margins, but lower other income drives in-line PAT

(BJAUT IN, Mkt Cap USD12.7b, CMP INR3144, TP INR3400, 8% Upside, Neutral)

 

Best of volumes/margins in 3Q, expect moderation due to BS6 shift

• BJAUT’s strong operating performance in the quarter was driven by mix, RM and FX. However, BS6-led volume weakness (op. leverage) and RM are likely to exert pressure on margins over the next 2-3 quarters.
• We marginally upgrade our EPS estimate but maintain our Neutral rating with a target price of ~INR3,373 (~16x Dec’21E consol. EPS). 

Margins driven by mix, RM and FX

• Revenue/EBITDA/PAT grew 3%/13%/14.5% YoY to INR76.4b/INR13.7b/INR12.6b in 3QFY20. For 9MFY20, revenue was up 1% YoY, EBITDA declined 3% YoY, while PAT increased 2.5% YoY.
• Realizations increased ~8% YoY (-3% QoQ) to ~INR63.5k (our estimate: INR64.4k). The sequential decline is a reflection of the higher share of economy motor cycles and lower 3Ws, as well as higher consumer marketing schemes (netted-off from revenue).
• Gross margin improved ~60bp QoQ (+260bp YoY), driven largely by mix, commodity prices and favorable FX. As a result, EBITDA margin expanded 160bp YoY (+130bp QoQ) to 17.9% (our estimate: 16.6%).
• Lower other income (due to change in accounting) restricted PAT growth to 14.5% YoY (~INR12.6b v/s our estimate of ~INR12.4b).