Broker's call: Bajaj Auto (Buy)

Target: ₹4,277

CMP: ₹3,844.2

Bajaj Auto came out with decent set of numbers in Q1 despite the intense Wave 2 of the Covid-19 pandemic. This was due to its strength in the exports markets and domestic 3W recovery.

Going forward, we believe there will be a short term pressure on volumes and margins on uncertainty of Covid. However, hoping the pandemic remains under control in Q2, we expect a strong bounce back like last year. Therefore, in that scenario, 2W demand in the domestic markets is expected to continue its uptrend with strong rural demand driven by the current good monsoons, pent up demand and new model platforms.

On the low base of FY21, FY22 has kick started well with a very high growth in Q1, which may not sustain given the recovery in H2 of FY21. But still we will witness a robust double digit growth in most of the segments this fiscal.

With the pandemic getting less severe in export markets except ASEAN, we expect further strengthening of exports numbers, with Pulsar, Dominar and KTM bikes excelling. Bajaj also announced capex of ₹6.5 bn to manufacture KTM Husky bike and Triumph (whenever it starts) at their Chakan plant, which shows the intent to further expand their market and ambit of portfolio. Also the company is forming an EV subsidiary to reap the benefit of the expected EV wave. Sequential 3W uptick which is happening, though a bit late, would support margins.

We have trimmed the estimates a bit on the impact of Wave #2 and margin disappointment in Q1.

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