Hold Bajaj Auto; target of Rs 2840: ICICI Direct

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ICICI Direct's research report on Bajaj Auto

Bajaj Auto (BAL) reported strong results in Q4FY20. Net revenues came in at Rs 6,816 crore (down 7.8% YoY), tracking higher-than-expected blended ASPs, which were at Rs 68,711/unit (up 10.9% YoY). Total volumes were down 16.9% YoY to 9.9 lakh units (2-W volumes 8.5 lakh units, down 14.8% YoY; 3-W volumes 1.4 lakh units, down 27.8% YoY). Total exports were at 5.1 lakh units, up 6.8% YoY. Reported EBITDA margins were at 18.4% (up 48 bps QoQ), with a QoQ improvement driven by 150 bps gross margin expansion. Consequent reported PAT was flattish YoY at Rs 1,310 crore, aided by higher-than-expected other income (Rs 533 crore vs. Rs 432 crore YoY).

Outlook

For BAL, sales, PAT are expected to grow at 2.1%, -4.1% CAGR, respectively, in FY20P-22E. We slightly raise our target multiple (implied P/E at 17.5x FY22E EPS) on the back of enhanced B/S strength, excellent cash position & healthier return ratios, courtesy better than expected margins. We have a HOLD rating on BAL with SOTP-based target price of Rs 2,840.

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