An excellent set of margin performance led by a combination of a) higher exports (52.6% in Q3FY21 vs. 46.8% in Q4FY20), b) increased sales of premium products, c) stringent cost reduction measures d) operating leverage benefits. Despite rise in input costs (+87bps YoY to 70.8% of revenues), the margin of 19.4% (rise of 152bps YoY) is at 12 quarters high. But the concern remains on sharp rise of base metal prices & expectation of rollback of A&P spends to normal levels, which could hurt margins at least by 300bps QoQ. Rebound in high margin exports, sales of premium models and baby steps increase in the model prices will offset some of the margin pressures. 2Ws export demand is back to 90% of pre-covid levels and double-digit growth momentum to sustain. While, domestic 2Ws are back to normal levels and high growth is expected in Q4 on account of low base, further supported by higher sales in 125cc & premium products. We maintain our accumulate rating. Exports rebounded faster, double digit volume growth to sustain  Bajaj’s total export volumes on a YoY basis have been growing in double digit since Sept ‘20 and we expect to sustain this momentum in coming quarters on account of revival in South Asian, African and Latin American markets (reaching near to the pre-covid levels).  The company’s leadership position in almost all the International markets, higher recall value in the customers mind and its deep market knowledge should support in growing volumes.  It will increase share in existing markets and identified a few new markets specially for 3Ws. Oil & commodity dependent countries should rebound due to upturn in crude & metal price. Domestic 2Ws back to normal, premium portfolio strategy remain the core focus  Double digit growth in Q4 and 15-20% YoY growth in FY22 is anticipated for the industry on the back of low base. Opening up of educational institutions will increase demand momentum further.  Bajaj’s plans to garner higher sales from very successful 125cc and high growth premium portfolio should support in gaining share in domestic market. It plans to launch one refresher/upgrade every quarter in FY22, which should bring in more footfalls in the showrooms.  Premium to be a significant part of its portfolio in domestic as well as export markets. The company is in a very good position to get a substantial share in the premium market in the next few years due to combination of KTM+Husqvarna+Triumph+Bajaj models. Clear sharp headwinds in the margins  Sharp uptick in base metal prices and expectation of ‘other expenses’ to come back to normal levels could affect EBITDA margins at least by 300bps QoQ in Q4FY21.  Higher exports, high-end sales of motorcycles, along with operating leverage, cost reduction exercise and passing on unrecovered costs in baby steps could offset some of the impact. Premium valuation justified  We maintain ‘Accumulate’ rating with a target price of 4,094 (17x FY23e EPS of Rs 227 + the value of KTM at Rs 244/share). Increasing multiple from 16x to 17x and rollover from Sept ’22 to FY23e led to increase in target price.  1) Faster rebound in exports, 2) Bajaj’s dominant position in the premium, 3) success of the 125cc, 4) demand from students’ community to emerge, & 5) refreshers/upgrades should sustain demand momentum in the coming quarters justify premium multiple.

Skipper Ltd revenue grew by 53.4% YoY to Rs4.6bn YoY in Q3FY21 (better than our estimate of Rs4.15bn in Q3FY21). Gross margins contracted by 83bps to 36.9% in Q3FY21 largely led by increase in raw material prices of steel and zinc. Further, EBITDA margin reported contraction of 199bps YoY to 9.6% in Q3FY21 (vs our estimate of 11%) majorly led by sharp increase in ocean freight expenses. EBITDA grew by 27% YoY to Rs441mn in Q3FY21 (almost in line with our estimate of Rs457mn for Q3FY21). PBT reported a growth of 175% YoY to Rs171mn in Q3FY21. PAT reported growth of 147% YoY to Rs115mn in Q3FY21 (almost in line with our estimate of Rs104mn for Q3FY21). Revenue beats estimates, operating margin was under pressure • The company reported revenue growth of 53% YoY to Rs4.6bn led by revenue growth in all three business segments. Engineering product, polymer product & Infra segment reported revenue growth of 55%, 63% & 30% YoY respectively in Q3FY21. • However, higher raw material led by increase in steel & zinc prices during the quarter led to gross margin contraction of 83bps to 36.9% in Q3FY21. • Also, the company reported other expenses growth of 80% YoY in the quarter largely due to increase in ocean freight rates which impacted the operating margins. • Higher raw material cost and unprecedented increase in other expenses collectively led to operating margins decline by 199bps to 9.6% in Q3FY21. • However, we expect operating margins to increase going ahead owing to better execution on both domestic and international T&D in the engineering segment & strong polymer segment performance. Domestic T&D activities showing signs of recovery, International T&D share to improve • The domestic T&D activities are showing signs of pickup after witnessing two years of lull. • The company has bidding pipeline of Rs40.5bn as on 31st Dec 2020. New domestic tenders worth Rs12.5bn and international tenders worth Rs28bn are under different phase of bidding for new transmission lines. • Total T&D order book stood at 14.1bn as on 31st Dec 2020. Management has a clear focus on strengthening the international T&D order book and aims to grow exports at 50% of revenue in next 2 years. • We believe order inflows and project execution in both domestic and international T&D market to gain pace from Q4FY21. Valuation • We value the stock on 12x on FY23E EPS basis owing to improved demand outlook and strong growth in polymer segment, to arrive at a target price of Rs 88 per share (an upside of about 28% from the current levels). • Hence, we assign BUY rating on the stock.

Given the sound management and strong growth prospects, we recommend “Subscribe”.

Subdued US hinders overall growth…

New capex likely to aid performance…

PAT grew 18.1% YoY/16.6% QoQ, driven by advance growth of 15.6% YoY growth. NIMs were 4.1%, lower by 19 bps QoQ driven by the liquidity drag.

Textiles segment drives overall performance

Weak order book increases dependency on new order wins

Higher resilience in margin offers a positive outlook

DF/Non-US/API drive earnings