EUR 120.00 For Business Accounts Only

MOSL: BAJAJ AUTO (Neutral)-Below our estimate; higher RM cost keeps margin under pressure

BAJAJ AUTO: Below our estimate; higher RM cost keeps margin under pressure

(BJAUT IN, Mkt Cap USD15b, CMP INR3853, TP INR4250, 10% Upside, Neutral)

 

Near term outlook muted for domestic 2Ws; Chetak to soon get FAME-2 approval

• BJAUT’s 1QFY22 performance was impacted by high RM and employee cost. While core business recovery is ahead of the market, its ramp-up in EVs would be a key monitorable as the inflection point for EVs comes closer. Higher dividend yield will provide a floor to valuations.
• We marginally lower our FY22E/FY23E EPS by 3% each to account for cost inflation and higher employee cost. We maintain our Neutral rating with a TP of INR4,250/share.

 Commodity inflation diluted by price hike and favorable forex

• Revenue/EBITDA/PAT grew 140%/174%/101% YoY (-14%/-26.5%/-20% QoQ) in 1QFY22.
• Realizations grew 5.6% YoY (flat QoQ) to INR73.4k (est. INR72.8k), led by a price hike of 1.5% QoQ, favorable forex (1%), and mix.
• Gross margin declined by 110bp QoQ (-590bp YoY) to 27% (est. 27.4%) due to cost inflation of 3.7%, but diluted by a price hike and favorable forex.
• EBITDA margin declined by 250bp QoQ (+190bp YoY) to 15.2% (est. 17.1%), impacted by operating deleverage (160bp) and higher than expected staff cost. Higher other income and lower tax supported standalone PAT to ~INR10.6b (est. INR11.2b), a growth of 101% (-20% QoQ). BJAUT’s share of PAT from associates (KTM) stood at INR1.1b (v/s -INR1.32b/INR2.2b in 1Q/4QFY21)