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Decent quarter; Outlook improved on exports

Bajaj Auto is the world’s sixth-largest manufacturer of motorcycles and the second-largest in India. It is also the world’s largest three-wheeler manufacturer. The company is based in Pune, Mumbai with plants in Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttarakhand. Bajaj Auto is India’s largest exporter of motorcycles and three-wheelers.

* Q4FY21 revenue rose 26.1% YoY primarily driven by volume growth for two-wheelers (+23% YoY) and higher exports (+24% YoY).

* As a result, EBITDA grew 21.5% YoY, despite margin contracting 70bps YoY to 17.7% on higher input costs. PAT also rose 14.6% YoY.

* Overall exports are set to grow further from current levels in the coming months. Company witnessed improved demand not only for its premium range of motorcycles, but also for EV scooters.

* With improved outlook, we upgrade our rating on the stock to BUY with a revised TP of Rs. 4,450 based on 19x FY23E adj. EPS.

Higher exports aid topline

Q4FY21 revenue from operations surged 26.1% YoY to Rs. 8,596cr with total volumes growing 17.8% YoY to 1,170k units. In the Domestic market, 2W volumes grew 21.0% YoY to 488k units, while those of the commercial vehicles declined 38.2% YoY to 46k. Overall market share in the domestic motorcycle market remained steady at 27.6%. CV volumes remained impacted (-12% YoY to 122k units) owing to inadequate demand. Company managed to expand its market share for 3 Wheelers market to 46.9% and cargo segment to 33.7%.

Margins impacted by higher input costs

EBITDA margin contracted 70bps YoY to 17.7%, primarily on higher input costs. Nevertheless, EBITDA rose 21.5% YoY to Rs. 1,522cr, aided by topline growth. As a result, reported PAT also rose 14.6% YoY to Rs. 1,551cr. In the coming months company expects volumes and pricing to improve further, which should offset the input cost pressure, thereby aiding margin expansion.

Key concall highlights

* Estimating a swift recovery in demand, management remains upbeat on export volumes and expects FY22 to be the best year for exports.

* Bottlenecked by supply-side constraints for components from abroad suppliers, company has temporarily suspended new bookings for its EV variant of Chetak scooters. Management expects to resume further bookings from Q2FY22 to cater to the high demand.

* Domestic Pulsar sales tripled to over 128k units during Q4FY21, as against ~51k units in Q4FY20, with total overall sales of over 1.25mn units.

* KTM & Husqvarna combined overall sales improved to highest ever levels with over 143k units sold during the quarter.

Valuation

Significant demand for its EV scooters, growing export volumes, better pricing and ongoing capacity building measures bode well for the company. Focus on development of 125cc EV 3-Wheelers using proven battery technologies opens up new avenues in a high growth market Company’s overall sales for the month of April have risen 5.0% sequentially to 388k units and is expected to improve further from hereon. With improved outlook, we upgrade our rating on the stock to BUY with a revised TP of Rs. 4,450 using 19x FY23 adj. EPS.

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