8 July 2020
Annual Report Update
| Sector:
Automobiles
Bajaj Auto
Neutral
BSE SENSEX
36,329
S&P CNX
10,706
CMP: INR2,853
TP: INR2,895 (+1%)
Financial strength to help navigate uncertain times
Premiumisation trend to continue
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Bajaj Auto’s (BJAUT) FY20 annual report highlights the potential impact of COVID-19
on demand with weakness continuing at least till 1HFY21. The company expects the
Super-sports segment to grow in FY21.
Also, BJAUT expects the premiumization trend to continue in the long run. The
company is well positioned with its portfolio of
Husqvarna, KTM, Dominar, Pulsar
and the planned
Triumph
launch.
Its competitive positioning in both domestic motorcycles and 3Ws was broadly
stable in FY20, however, it lost share in 3W exports from India. Overall, share of
exports from Africa increased 6pp to 53%; however, the company witnessed a
similar decline in share from South Asia and the Middle East (ME).
In FY20, BJAUT started granting employee stock options (ESOPs). Interestingly,
BJAUT’s ESOP Trust would be buying stocks from the open market for giving shares
on exercise of ESOPs.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
BJAUT IN
289
823.9 / 11.2
3315 / 1793
-4/4/8
1792
46.3
Outlook: 1HFY21 to be affected by Covid-19
Financials & Valuations (INR b)
FY20 FY21E FY22E
Y/E March
Sales
299
263 296
EBITDA
51.0 45.0 51.0
EBITDA Margin (%) 17.0 17.1 17.2
Adj. PAT
54.2 47.7 51.8
EPS (INR)
187
165 179
EPS Gr. (%)
13.3 -11.9
8.6
BV/Sh. (INR)
689
753 819
Ratios
RoE (%)
26.0 22.9 22.8
RoCE (%)
23.8 20.9 20.8
Payout (%)
77.0 54.6 57.0
Valuations
P/E (x)
15.2 17.3 15.9
P/BV (x)
4.1
3.8
3.5
Div. Yield (%)
4.2
2.6
3.0
FCF Yield (%)
4.3
5.4
6.0
With partial easing of the lockdown, BJAUT’s plants at Chakan, Waluj and
Pantnagar have opened, but are far from working at full pace. It expects
demand to remain affected for at least the first two, if not three, quarters of
FY21.
FY21 – supposed to be the year of BS-VI transition – has been rocked by the
COVID-19 pandemic and its impact on demand. The company sees a distinct
possibility of domestic demand remaining constrained, especially in the 100-
200cc segment.
However, the Super-sports segment (>250cc) may see growth due to
reasonably large number of relatively well-off people. BJAUT plans to launch
products in this segment in FY21.
It expects marketing to play a critical role in reviving motorcycle demand in
the COVID-19 and immediate post-COVID world. The key, according to BJAUT,
is how the story of desire is communicated to the segmented markets and
how manufacturers can buttress this story with exciting products, prices and
financial offers.
Extract from the annual report, “We
cannot say how Bajaj Auto will fare in this
unknown world. But we do know that Bajaj Auto has serious financial muscle
to fashion its path to growth.”
Premiumization to continue, BJAUT to have wide portfolio in this segment
Despite the weak FY20, the company expects the ‘Sports’ and ‘Super-sports’
segments to grow in the long run, driven by affluent customers under 40 years
in urban markets.
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal - Research analyst
(Vipul.Agrawal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.