LKP Research's research report on Bajaj Auto
BAL posted solid margin performance in Q4 despite the challenges in the exports business. Going forward, we believe export volumes have bottomed out as demand is improving now month on month (however availability of USD remains an uncertain area), while domestic 2W volumes should continue their strong run. We also expect a strong traction coming from new launches which would drive overall demand. >125cc segment has provided new identity to BAL. Solid performance of premium Pulsar models, KTM bikes and expected launch of Triumph this year should all provide the required fillip to both volumes and margins. On the exports front, markets like ASEAN and Latam markets should be able to somewhat offset weaknesss in Africa. With 2W Chetak expanding its coverage and fetching good response, we believe Chetak to add to the numbers substantially in H2 of FY24. The withdrawal of FAME subsidy remains a concern for the EV 2Ws, but we believe it to impact BAL little. 3W performance was robust in Q4, touching new highs, on CNG success. EV 3W launch should further aid the business. Favorable product mix and currency movement, neutral RM prices, price hikes planned and prudent cost management should assist margins in the ensuing quarters. With strong balance sheet, robust return ratios, hefty dividend yield of 3.3% in FY23 and zero financial leverage, we believe the stock looks attractive at 15.1x FY 25E earnings.
Outlook
We therefore maintain our BUY rating on the stock with a target price of Rs 4,696 (at 16.5x FY 25E earnings).
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