Broking firm, Motilal Oswal has a "neutral" rating on the stock of Bajaj Auto, with a price target of Rs 4,000 on the stock. "Bajaj Auto's operating performance was driven by a favorable mix, lower marketing spends, and operating leverage. It has both near (3W recovery) and long term (premiumization and exports) levers, which are fairly reflected in current valuations.
We upgrade our FY21E/FY22E EPS by 7%/5% to factor in mix, cost savings, and an upgrade in KTM's PAT. Maintain Neutral," the broking firm has said.
Management commentary as per report of Motilal Oswal Institutional Equities
- Outlook: Domestic 2W sales were back to last year's levels. Base effect will drive growth, but on a like-to-like basis it would be in low single digits. Domestic 3Ws would see a QoQ recovery, but decline 50% YoY. The growth momentum in exports would continue, with 12-15% growth in most markets. If Association of South East Nations (ASEAN) recovers, it would clock its best ever exports.
- 2W export volumes have recovered well with: a) South Asia (excluding Sri Lanka) and Africa back to pre-COVID levels, b) Latin America 80-90% levels, and c) ASEAN at 50% levels. 3W exports are seeing a gradual recovery with Latin America at 50-60%, ASEAN at 25%, and other markets at or above pre-COVID levels. Bajaj Auto has gained market share in all export markets.
- Raw material costs is estimated to increase by 3pp QoQ due to commodity cost inflation. It has raised prices by 1% each in domestic 2W/3W in 3QFY21 and by 1.25% in Jan'21 for domestic 2W. It also hiked export prices to cover capping of MEIS incentives and rise in RM cost. Price increases have to be calibrated as demand recovery is fragile, and might be required to be phased out.
- Electric Vehicles: Chetak e-scooter bookings remains closed since the end of Mar'20 due to supply chain issues. It expects to iron out these issues in the next 2-3 months and would look to expand its presence in the top 24 cities by FY22- end (from two cities at present). It is actively pursuing development of e3W and e-Qute, and plans to launch one in 2HFY22.
- Capital expenditure (capex) for FY22/FY23 would be higher than the normal run-rate as it would be investing Rs 6.5 billion for a new plant for high-end Bikes (commissioning in FY23). Capex for FY22/FY23 would be Es 5.5-6 billion per annum.