Stock in Action 17 Feb 2023

Stock in Action

Bajaj Auto: Significant softening of commodity-linked raw material cost coupled with rich product mix helped Bajaj Auto to arrest the impact of decline in volumes. In fact, the company registered significant expansion in the operating margin. The company registered a 16.8% YoY decline in its volumes, primarily due to the macroeconomic challenges that export markets are facing. Higher realisation coupled with a significant decline in raw material prices helped EBITDA margin, which expanded by 390 bps on a YoY basis. It also indicated that economic hardship post the pandemic and the significant price rise, due to safety norms and pass-through of raw material costs, have dampened demand sentiments. The management expects demand momentum to sustain in the 3W segment, with the opening up of the broader economy and free movement of people across the country. It also highlighted that the order book continues to be very strong. In the EV segment, the company has commissioned a new state-of-the-art plant this June, which will help Bajaj Auto to capitalise on the opportunities that EVs offer. Positive on Bajaj Auto given the strong domestic demand, easing of semiconductor chip shortage, and a reasonable valuation.

Campus Activewear Ltd: Campus Activewear Ltd witnessed margins recover from the September 2022 quarter lows, and reaching the 20% mark. Campus Activewear with its sweet price positioning, would be the preferred choice for the value-conscious Indian consumer. Revenue during 3QFY23 grew by 7% YoY. Its volume growth moderated to 6 percent, with the company selling 7 million pairs in Q3FY23. EBITDA margins recovered by about 700 bps from the lows witnessed in Q2FY23 and were closer to the all-time high margin trajectory of 20% witnessed in FY22. On a YoY basis, EBITDA margins were about 200 bps lower, owing to the utilisation of high-cost raw material inventory as well as normalisation of advertising and sales promotion of expenses. The company is likely to continue to gain market share. It is enhancing its distribution reach in the relatively under-penetrated markets of western and south India. Its EBITDA margins in Q3 improved sharply from the lows witnessed in Q2FY23, reaching about the 20% mark, which is the peak annualised margins reported by the company in FY22. Positive on Campus Activewear given the long-term growth prospects of the sports and athleisure footwear industry.