Bajaj Auto (BJAUT) Q1FY22 PAT was below our and consensus estimates on account of higher-than-expected contraction in EBITDA margins and lower average per unit realizations.
IDBI Capital expects domestic 2W/3W market to post recovery during H2FY22 while export market continues to show improvement for BJAUT. "The Company is anticipated to face margin pressure during Q2FY22, however based on strong operating leverage BJAUT is expected to mitigate cost pressure in the medium term. To factor in improved business outlook and raw material cost inflation, we revise our Sales and PAT estimates by 5.7%/1.3% and 2.6%/-2.9% for FY22E and FY23E respectively."
The Company is expected to report EPS of Rs 200 and Rs 226 for FY22 and FY23 respectively. At CMP, BJAUT stock is quoting at PER of 17.1xFY23E earnings. We retain our HOLD rating on the stock with a revised price target of Rs 4,071 (PE of 18xFY23E + KTM value of Rs 91), it added.
Key highlights and investment rationale
PAT below estimates: During Q1FY22, BJAUT's sales grew by 139.9% YoY to Rs 73.9 billion (our estimates Rs 75.4 billion), driven by 127% volume growth and a 5.6% increase in average realizations. EBITDA margins during the quarter contracted by 253bps YoY to 15.2% (our estimates 17%) on account of gross margin compression of 592bps. PAT increased by 101% YoY to Rs 10.6 billion against our estimates of Rs 11.4 billion.
Business Outlook and Earning Revision: We expect domestic 2W/3W market to post recovery during H2FY22 while export market continues to show improvement for BJAUT. To factor in improved business outlook across domestic and export market, we revise our Sales and PAT estimates by 29.1%/11.7% and 27.1%/13.1% for FY22E and FY23E respectively.
Retain Hold: At CMP, BJAUT stock is quoting at PER of 17.1xFY23E earnings. We understand, business environment for BJAUT to improve across its markets in coming quarters. We retain our Hold rating on the stock with a revised price target of Rs 4,071 (PE of 18xFY23E + KTM value of Rs 91).
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.
