Bajaj Auto rallies 6% on better-than-expected March quarter performance

Bajaj Auto sold 9,91,961 units of two-and-three-wheeler during the quarter
Shares of Bajaj Auto rallied as much as 6.4 per cent to Rs 2,722.80 apiece on the BSE on Thursday after the two-wheeler manufacturer's March quarter results came in better-than-expected. At 9:52 am, the scrip was quoting at Rs 2674, up 4.5 per cent, as against a 138 points, or 0.45 per cent, rise in the S&P BSE Sensex.

The auto-maker logged a flat 0.36 per cent year-on-yar (YoY) rise in net profit at Rs 1,310.3 crore for the quarter under review, relative to profit of Rs 1,305.59 crore reported in Q4FY19. Analysts at Edelweiss Securities, for instance, had expected a 9.5 per cent YoY decline in net profit at Rs 966.3 crore. 

On the revenue side, the company reported a 8.1 per cent YoY de-growth at Rs 6,815.85 crore due to lower sales volumes on account of the novel coronavirus-led lockdown. This was better than what was expected by Axis Capital which had factored-in a 13 per cent YoY decline.

Bajaj Auto sold 9,91,961 units of two-and-three-wheeler during the quarter, lower by 16.9 percent compared to 11,93,590 units sold in same quarter last year.

At operating level, company's earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 2.1 percent to Rs 1,252.8 crore and margin expanded 190 basis points year-on-year to 18.4 percent due to healthy exports in quarter ended March 2020.

Analysts at Nomura had pegged a dip in earnings before interest, tax, depreciation, and ammortisation (Ebitda) at 9 per cent YoY to Rs 1,116.5 crore while margins was expected to fall 120 basis points (bps) QoQ to 16.7 per cent on rising commodity cost, operating leverage impact, partly offset by favorable currency.

"Bajaj Auto’s strong operating performance was driven by mix and Fx, which supports ou/r view that the company has several levers to protect margins. Volume recovery for both India and exports is expected in 2HFY21, with risk of financing for India and oil prices/Fx devaluation for exports," wrote analysts at Motilal Oswal Financial Services in their post-result report.    

Those at Kotak Institutional Equities believe that the company's 2W segment is well-positioned (given lower ticket size) to gain from consumer preference for personal mobility given fear of contracting coronavirus while using public transport and ride-sharing services. As a result, we expect Bajaj Auto to benefit in both domestic as well as export geographies.

"The company has improved its EBITDA per vehicle to Rs11,042 in FY2020 from Rs10,345 in FY2019 (Rs12,629 in 4QFY20), despite sharp fall in volumes, which is quite commendable. Also, the
company has improved its EBITDA margin trajectory in 4QFY20 despite only 1 mn units of sales. We expect strong volume recovery going into FY2022E. Over the medium term, we believe Bajaj Auto will continue to gain market share from Chinese players in African markets as Chinese competition is quite fragmented with weaker balance sheet than Bajaj Auto," they wrote in their result review report. They maintain 'buy' with revised target price of Rs 3,000 from Rs 3,100. 



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