Comments
Axis Securities
Bajaj Auto (Buy)
Target: ₹3,300
CMP: ₹2,913.85
The Government on September 1 capped the benefits under the Merchandise Export from India Scheme at Rs 2 crore per exporter on exports made between September 1 and December 31, 2020, without changing the coverage of the scheme and the applicable rates.
Bajaj Auto derives approximately 40-42 per cent of its net sales from exports. The company enjoys around 2 per cent of exports incentives under the MEIS. In our opinion, the changes would result in a direct loss of about ₹80 crore to the company for the period.
Bajaj Auto will pass on the increased costs but it will be in a calibrated manner depending on the company’s strategy as well as their competitive positioning in different export markets.
Prima facie, it looks like a negative development for the company in the short term, but given Bajaj Auto's strong profitability, competitive positioning in the exports market, strong demand outlook going ahead as international economies open up, we believe Bajaj Auto is in a good position to pass on the costs and tide over the short term impact.
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