Egypt two-wheeler import ban likely to hit Bajaj Auto hard
Egypt's Cabinet has proposed to impose a 12-month ban on imports of two-and three-wheelers, a move that could spell a big setback for Bajaj Auto.
By Ashutosh R Shyam & Ketan Thakkar
MUMBAI: Egypt's Cabinet has proposed to impose a 12-month ban on imports of two- and three-wheelers, a move that could spell a big setback for Bajaj Auto's exports.
The ban is not final yet, but if implemented could impact Bajaj the most, as its exports to the African nation formed about 6% of Ebitda in the third quarter of 2013-14, analysts said.
The Egypt Cabinet authorised its ministry of finance to go ahead with the ban on February 12, a move primarily designed to give a leg-up to its fledgling automobile industry. It's the export earnings that helped Bajaj Auto cushion the blow on earnings growth in 2013-14, when domestic volumes declined.
Analysts were quick to weigh in on the move. As the prospect of a probable export ban looms, Morgan Stanley moved its stock rating to "equal-weight" from "overweight" and revised the price target to 1,983 from 2,124 a share. Morgan Stanley's Binay Singh and Yashesh Mukhi, in a note to investors titled 'Export Visibility Decreasing; Move to EW', said: "Our Overweight rating on Bajaj rested on exports outgrowing domestic and weak currency benefit offsetting domestic inflationary pressure. The potential import ban in Egypt puts this at risk. Upside to our price target is just 4%, risk-reward at current level is not attractive".
Egypt constitutes a vital export market for Bajaj Auto, since it contributed 31% of the total three-wheeler exports and 3% of the two-wheeler exports in 2012-13. Analysts think it could lead to a downward revision of FY15 earnings per share (EPS) by as much as 7%. In an e-mail response to ET's queries, Rajiv Bajaj, managing director of Bajaj Auto, said: "Since we are given to believe that a final decision will be taken by the appropriate Egyptian authorities only next week, we cannot offer any comment on this matter today."
The shares of Bajaj Auto lost 3.23% to 1,839 on the BSE on Friday. According to Bloomberg, consensus EPS estimate for FY15 stands at 135.48, a share that implies growth of 14.82% year-on-year.
The earnings growth of 15% for FY15 now would be at risk, given that the Street was factoring in an export volume growth of 15%.