INSTITUTIONAL EQUITY RESEARCH Bajaj Auto (BJAUT IN)

INSTITUTIONAL EQUITY RESEARCH

Bajaj Auto (BJAUT IN)

High performance with plenty in reserve

INDIA | AUTOMOBILES | Quarterly Update

22 January 2021

Top takeaways from Q3FY21 Revenue at Rs 89.1bn was up 17% YoY primarily due to higher volumes (up 9%) and higher

realizations (up 8%), in line with our estimates. EBITDA at Rs 17.3bn was up 27% YoY as cost savings impact and better mix (higher exports)

was compounded with operating deleverage EBITDA margins improved to 19.4% (vs. our estimate of 17.8%) PBT at Rs 20.3bn was up 22% YoY. PAT was up 23% YoY.

Key highlights: Domestic 2W model mix improvement was accompanied by highest ever exports. However, domestic 3W market remains subdued. Company reported record revenues, EBITDA and PAT for the quarter.

Conference call takeaways Export business accelerated during the quarter and Bajaj got more than fair share of

recovery owing to its leadership position; gained share in each and every market. South Asia (except SL) and Africa markets back to pre-covid levels; LATAM ? 80-90%, ASEAN

(Phillippines) ? 50-60% of pre-covid levels. Container shortage impacted overall export volumes, resulted in 15% spillage each month Pulsar 125 expanded overall segment, aided in significant market share gains; core market

share of Pulsar 150 is protected Company is building 250cc segment through Dominar, KTM and Husqvarna 3W sales at 40% of pre-covid levels, service at 90% level Company took price hikes of 1% in December and 1-1.25% in January. Commodity prices especially base metal prices would put pressure on gross margins in Q4 to

the tune of 300 bps. Inventory levels are below normal Within models, sales of higher variants has gone up, viz. electric start, disc brakes

Outlook and valuation: Bajaj reported a stellar quarter on the back of strong recovery in export markets. We believe the company is poised to benefit from 1) improved segment/variant mix in part due to impending pick up in domestic 3W post vaccine introduction, 2) PLI scheme, 3) further pickup in exports as LATAM and ASEAN markets return to normal and container issues get resolved, 4) current lean inventory, stable oil prices at higher levels would aid volumes in domestic and export markets respectively and 5) strong KTM performance is a positive as well. That said, higher RMC are expected to be headwinds to margins in near to medium term. We give effect of current quarter performance and roll forward valuations to FY23. Following the factors mentioned above we upgrade the stock to buy with target price of Rs 4,120 at 16x FY23 Core EPS plus value of cash and investment in KTM.

Buy (Upgrade)

CMP Rs 3727 TARGET Rs 4120 (11%)

SEBI CATEGORY: LARGE CAP

COMPANY DATA O/S SHARES (MN) : MARKET CAP (RSBN) : MARKET CAP (USDBN) : 52 - WK HI/LO (RS) : LIQUIDITY 3M (USDMN) : PAR VALUE (RS) :

289 1062 11.5 3692 / 1788 37.9

10

SHARE HOLDING PATTERN, %

Sep 20

PROMOTERS :

53.7

FII / NRI :

13.6

FI / MF :

10.4

NON PRO :

12.2

PUBLIC & OTHERS :

10.2

Jun 20 53.7 13.7 9.1 13.2 10.3

Mar 20 53.7 13.9 8.8 13.2 10.5

KEY FINANCIALS

Rs mn

FY20

Net Sales

291,115

EBIDTA

50,962

Net Profit

51,000

EPS, Rs

176.2

PER, x

21.1

EV/EBIDTA, x

21.1

PBV, x

5.4

ROE, %

25.6

FY21E 266,218 49,083 47,470

164.0 22.7 21.7 4.7 20.7

FY22E 322,631 61,520 57,623

199.1 18.7 17.2 4.0 21.6

CHANGE IN ESTIMATES

__Revised Est. __

Rs mn

FY21E FY22E

Revenue 274,935 331,871

EBITDA 49,083 61,520

Core PAT 47,470 57,623

EPS (Rs)

164

199

__% Revision__ FY21E FY22E 1.6% 7.1% 11.0% 14.3% 7.6% 10.0% 7.6% 10.0%

Saksham Kaushal, Research Analyst Amar Kant Gaur, Research Analyst

(Rs mn) Total revenues Raw material Staff costs Other expenses Total expenditure EBIDTA EBITDA Margins Interest Depreciation Other income PBT Tax Adjusted net profit

Q3FY21 89,099 63,082 3,172 5,548 71,803 17,296 19.4% 10 650 3,692 20,328 4,765 15,563

Q3FY20 76,397 53,422 3,482 5,820 62,725 13,672 17.9% 5 617 3,662 16,713 4,097 12,616

YoY % 16.6 18.1 (8.9) (4.7) 14.5 26.5

150.0 117.0

5.4 0.8 21.6 16.3 23.4

Q2FY21 71,559 50,581 3,246 5,069 58,896 12,663 17.7% 27 643 2,858 14,851 3,469 11,383

QoQ % vs est. Comments

24.5

0.3 Higher volumes and higher realizations owing to improved mix

24.7

(0.8)

(2.3)

(6.0)

9.4

(8.8)

21.9

(1.7)

36.6

9.6

170.0 160.0 Improved segment and variant mix, operating leverage

(61.5) (61.5)

1.1

0.1

29.2

23.0

36.9

12.3

37.4

12.7

36.7

12.1

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. ("PHILLIPCAP") is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Financials

Income Statement

Y/E Mar, Rs mn Net sales Growth, % Other income Total income Raw material expenses Employee expenses Other Operating expenses EBITDA (Core) Growth, % Margin, % Depreciation EBIT Growth, % Margin, % Interest paid Other Non-Operating Income Non-recurring Items Pre-tax profit Tax provided Profit after tax Growth, % Net Profit (adjusted) Unadj. shares (m) Wtd avg shares (m)

FY20 291,115

-2 8,071 299,186 -210,083 -13,892 -24,249 50,962

2.3 17.5 -2,464 48,498

2.8 16.7 -32 17,336

0 65,802 -14,802 51,000

17.7 51,000

289 289

FY21e 266,218

-9 8,717 274,935 -193,879 -13,059 -18,914 49,083 (3.7) 18.4 -2,588 46,496 (4.1) 17.5

0 14,735

0 61,231 -13,761 47,470

(6.9) 47,470

289 289

FY22e 322,631

21 9,240 331,871 -232,038 -14,103 -24,211 61,520 25.3 19.1 -2,717 58,803 26.5 18.2

0 16,503

0 75,306 -17,684 57,623

21.4 57,623

289 289

FY23e 366,000

13 9,794 375,794 -259,742 -15,514 -26,632 73,908 20.1 20.2 -2,853 71,055 20.8 19.4

0 17,494

0 88,549 -20,796 67,753

17.6 67,753

289 289

Balance Sheet

Y/E Mar, Rs mn Cash & bank Debtors Inventory Loans & advances Other current assets Total current assets Investments Gross fixed assets Less: Depreciation Add: Capital WIP Net fixed assets Non-current assets Total assets

Current liabilities Provisions Total current liabilities Non-current liabilities Total liabilities Paid-up capital Reserves & surplus Shareholders' equity Total equity & liabilities

FY20 3,083 17,251 10,635

837 6,367 38,172 169,658 52,702 -36,250

602 17,053 22,850 247,733

FY21e 13,456 15,853

9,939 837

6,367 46,451 189,658 54,964 -38,838

602 16,728 22,850 275,687

FY22e 21,709 19,136 11,930

837 6,367 59,979 219,658 57,453 -41,555

602 16,500 22,850 318,986

FY23e 36,980 21,668 13,434

837 6,367 79,286 249,658 60,066 -44,408

602 16,260 22,850 368,054

40,795 2,385

43,180 5,298

48,478 2,894

196,361 199,255 247,733

38,700 2,385

41,084 5,298

46,383 2,894

226,410 229,304 275,687

44,692 2,385

47,076 5,298

52,375 2,894

263,718 266,612 318,986

49,215 2,385

51,600 5,298

56,898 2,894

308,262 311,156 368,054

Source: Company, PhillipCapital India Research Estimates

BAJAJ AUTO QUARTERLY UPDATE

Cash Flow

Y/E Mar, Rs mn Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash flow from operating activities Capital expenditure Chg in investments Other investing activities Cash flow from investing activities Dividend (incl. tax) Other financing activities Cash flow from financing activities Net chg in cash

FY20 FY21e FY22e FY23e

65,802 61,231 75,306 88,549

2,464 2,588 2,717 2,853

1,456

0 717 487

-14,802 -13,761 -17,684 -20,796

32

57

57

57

54,951 50,114 61,114 71,150

-2,828 -2,262 -2,489 -2,613

-30,000 -20,000 -30,000 -30,000

0

0

0

0

-32,828 -22,262 -32,489 -32,613

-34,728 -17,364 -20,258 -23,152

-32

-57

0

0

-34,760 -17,421 -20,258 -23,152

-12,636 10,430 8,367 15,385

Valuation Ratios

Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Fixed capital/Sales (x) Receivable days Inventory days Payable days Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/Equity (%) Net debt/Equity (%) Valuation PER (x) PEG (x) - y-o-y growth Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x)

FY20

176.2 17.7

688.5 176.2 184.7 139.2 120.0

19.6 25.6 23.5

23.7 1.1

16.6 0.2

21.6 13.3 47.0 (7.2)

0.9 0.7 1,534.7 1.5 0.0 (1.5)

21.1 1.2 5.4 3.2 3.7

21.1 22.2

FY21e FY22e FY23e

164.0 (6.9) 792.3 164.0 173.0 122.1

0.0

199.1 21.4

921.3 199.1 208.5 154.0

0.0

234.1 17.6

1,075.2 234.1 244.0 185.2 60.0

18.1 19.4 19.7 20.7 21.6 21.8 21.4 22.5 22.8

28.0 36.4 45.5

1.0

1.1

1.1

15.8 19.4 22.3

0.2

0.2

0.2

21.7 21.6 21.6

13.6 13.5 13.4

48.3 48.5 48.9

(7.8) (7.3) (6.9)

1.2

1.3

1.6

0.9

1.1

1.3

3.9

0.0

0.0

0.0

(5.9) (8.1) (11.9)

22.7 18.7 15.9

(3.3)

0.9

0.9

4.7

4.0

3.5

0.0

0.0

1.6

4.0

3.3

2.8

21.7 17.2 14.1

22.9 18.0 14.7

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

Stock Price, Price Target and Rating History

4000

BAJAJ AUTO QUARTERLY UPDATE

3500

B (TP 3900)

N (TP 2994)

N (TP 2980) N (TP 3400)

N (TP 2900)N (TP 3080)

3000

B (TP 35N50()TP 2850) N (TP 2700) B (TP 2550)

n (TP 2502)

N (TP 2383)

2500

2000

1500

1000 D-17 F-18 M-18M-18 J-18 A-18 S-18 N-18 D-18 F-19 M-19M-19 J-19 A-19 O-19 N-19 J-20 F-20 A-N20(TP 238J3-2) 0 A-20 S-20 N-20

Rating Methodology

We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks

Rating

Criteria

BUY

>= +10%

NEUTRAL -10% > to < +10%

SELL

= +15%

Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL

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