Bajaj Auto Limited

BAL reported below expected 1QFY19 results. Lower domestic average selling price impacted revenues, EBITDA and PAT for the quarter. Company reported robust volume growth and market share gain in 1QFY19. Company’s decision to go for aggressive pricing to gain market share will impact its financial performance going ahead.

Key Highlights

Revenues for the quarter grew by 36% YoY, supported by 38% increase in sales volume. Average selling price in the quarter declined by 1.3% YoY and was lower than expected. EBITDA in the quarter grew by 36.6% YoY and EBITDA margin improved by 10bps, but was well below estimates. PAT for the quarter at Rs11.2bn grew by 21% YoY but came in 8% below estimates.

Valuation and Outlook

BAL has stated that gaining market share will be the key focus in the domestic motorcycle segment. Pricing action has translated into significant growth for the company (in past few months) in the entry level segment and the same will likely continue in view of management’s decision to stick to this strategy. In view of management’s strategy of gaining market share at the expense of margin, we revise our estimates lower. We downgrade the stock to REDCUE (from BUY earlier) with revised price target of Rs2,808 (earlier Rs3,303)

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