Sharekhan expects Bajaj Auto to benefit from the expected recovery from urban markets, where Sharekhan believes Bajaj Auto will be a major beneficiary in the two-wheeler (2W) space, given its dominant position in the premium bike segment. Demand for three-wheelers (3Ws) is also expected to improve going forward, as COVID-19 vaccination rolls throughout the country. This will help Bajaj Auto to improve its margin aided by richer product mix and operating efficiencies. Bajaj Auto share price closed at Rs 4106 down Rs 60 or 1.4% in yesterday's trading session.
 
Bajaj Auto will also benefit from new launches in the premium segment, which it has lined up in the premium segment over the next 12-18 months. Management continues to focus on new launches and expects to launch at least one model (either new or upgraded model) every quarter. Bajaj Auto has positioned itself strongly in export markets with focus on Nigeria, Bangladesh, Philippines, and Colombia, which accounts for 50% of its 2W export revenue. 

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Bajaj Auto has improved its brand equity in these markets, which will help to improve its market share. In Q3FY2021, Bajaj Auto reported better-than-expected improvement in operating profit margin (OPM), which led to robust PAT growth of 23.4% yoy at Rs 1556 cr in Q3FY21. Improvement in EBITDA margin was driven by richer product mix, operating leverage, and cost reductions. During Q3 FY21, more than 85% of export revenue was generated from geographies where Bajaj Auto is either No. 1 or No. 2 player. Export growth is organic and will continue to be a long-term driver for Bajaj Auto.
 
Bajaj Auto aims to outpace the industry in international operations, driven by increased distribution reach. Bajaj Auto export volumes are recovering and have reached preCOVID levels in most markets. Bajaj Auto expects positive growth in these markets in Q4 FY21. Demand in the domestic motorcycle industry is also improving with positive sales growth from August 2020. Domestic 3W sales are expected to improve with the opening of schools, colleges, other educational institutions, and corporates.
 
Moreover, Bajaj Auto is aiming to protect its margins as rising input costs are offset by price hikes, better product mix, and cost-control measures. Bajaj Auto expects EBITDA margin to remain above 18% in the medium term. Sharekhan expects Bajaj Auto’s earnings to grow by 14.1% in FY2022E and 15.3% in FY23E, driven by a mix of volume growth and margin expansion. Sharekhan remains positive on Bajaj Auto and retains Buy rating on the stock. Sharekhan maintains a positive stance on Bajaj Auto with a Buy rating and revised price target of Rs 4589.