Strong Q3 drives Bajaj Auto to new orbit

The stock of price of Bajaj Auto touched an all-time high on Friday, after the company posted strong third quarter results beating marketmen expectations. The stock,, after touching a high of ₹4,130 on the BSE, closed the day with a gain of 10.45 per cent at ₹4,094.10.

According a Chennai-based analyst, the sharp surge was also on account of short covering in the derivative segment, as ahead of results, some traders went short on the stock and the rally forced them to square-off their position.

The two-wheeler major on Thursday reported a 23 per cent jump in profit after tax at ₹1,556 crore for the quarter ended December 2020, on the back of higher volumes and exports. The company had posted a profit after tax of ₹1,262 crore in the corresponding quarter of the previous financial year, Bajaj Auto said in a statement.

Its sales from operations during October-December 2020 rose 17 per cent to ₹8,910 crore (₹7,640 crore). Analysts expect the company to sustain the growth given its brand value, smart strategy and pick up in economy.

According to ICICI Securities, Bajaj Auto continues to remain strong in exports market while improving its mix in the motorcycle segment via product and pricing lever. On 3Ws, demand recovery in FY22 is likely to happen on account of normalisation of public transportation. The management remains positive on exports and expects new export incentives to be similar to MEIS. The impact of commodity prices is likely to be visible starting Q4-FY21. However, it would be partially off-set by price hikes and mix improvement (higher 3W share), said JM Financial and added “given the successful track record of product intervention by BJAUT in the last few years, we remain positive on the stock.”

Bajaj Auto’s topline expanded by 17.4 per cent y-o-y, in a quarter which showed a strong bounce back post the lockdown hit period of six months. The sequential growth was even more robust at 24 per cent. Volumes in the quarter moved up by 9 per cent y-o-y after falling by 64 per cent y-o-y in Q1 and 10 per cent in Q2, while they grew by 24 per cent q-o-q, as the impact of panemic faded off.

Key risks

Management expects near-term margins to be under pressure due to rising commodity costs; however, it expects to manage the same via operating leverage, price increases and mix. "We believe BAL’s key medium-term risk remains to domestic 3-W business on account of rising adoption of e- rickshaws,” ICICISecurities cautioned.

Dolat Securities has changed its outlook to Reduce from Accumulate, as it believes that consensus estimates adequately factor all the near term positives such as improving profitability in the domestic 2W business, diversified revenue stream and strong cash reserves.

According to Motilal Oswal Financial, Bajaj Auto would benefit from: premiumisation trend and good growth opportunity in exports. While domestic 3W recovery might be delayed, it is vulnerable to a possible disruption from electrification, it added further.

Prabhudas Lilladher said while near-term outlook looks positive given healthy exports momentum both for 2W/3W and likely beneficiary of RoDTEP scheme, the same is reflected in valuations.