Buy Bajaj Auto; target of Rs 3450: JM Financial

JM Financial's research report on Bajaj Auto

During 2QFY18, Bajaj Auto (BJAUT) reported robust EBITDA margin of 19.7%, +250bps QoQ, primarily aided by operating leverage and product mix. Exports are now on a strong growth trajectory aided by a) ramp-up in new markets and b) stabilization of key African markets such as Nigeria. BJAUT has increased its export guidance to 1.7mn vehicles from 1.6mn earlier on improved demand visibility. The Company has guided for 15% CAGR in exports over the next 3 years largely on expansion in new markets. Domestic motorcycle volumes are now on a recovery phase with recent refreshes and the company has indicated they would outperform the industry in 2HFY18 with steady market share gain. Domestic 3 wheelers are witnessing strong traction in key states such as Maharashtra, Delhi and Bangalore and the company is facing temporary capacity constraints to meet the robust momentum in domestic and export markets.

Outlook
We estimate 17% CAGR in BJAUT earnings over FY17-20E led by 12% volume CAGR; maintain BUY with a revised target price of INR 3,450. Weakness in export markets, INR appreciation and inability to expand domestic market share in motorcycle segment are key risks.

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