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Outlook – Exports mixed, domestic improving   

Valuation and View

BJAUT’s 2QFY23 results were in line as revenue/EBITDA/Adj. PAT grew 16.4%/25.5%/20% YoY. ASPs continue to grow for third consecutive quarter by healthy 3.4% QoQ at record Rs88.6k/unit led by + fx and higher other operating income. Gross margins contraction by 120bp QoQ at 26.6% (est 28.4%) surprised negatively led by weaker product mix. However, it should expand QoQ as RM headwinds are behind with major RM basket have seen decline QoQ. Overall demand outlook remain mix as 1) domestic 2W volumes expected to improve QoQ led by restocking ahead of festive on improved ECU supply, 2) exports near,term volumes to see recovery in dispatches but retails to be weak led by currency headwinds in key African markets, 3) 3W volumes expected to recover in near term but to normalize post restocking. However going ahead, INR depreciation, healthy exports mix to keep margins at an elevated levels.

Bajaj Auto is upping the game in domestic EV 2W space and expect to further increase Chetak’s run,rate in 3Q (v/s ~10k/6.2k/3.3k units in 2QFY23/1QFY23/4QFY22) led by 1) increased distribution for Chetak and 2) new product launches in B2B segments (by leveraging Yulu). Rigorous trials for EV 3Ws are also under way while commercial launch is sometime away. We cut FY23 EPS by ~3% to factor in for lower exports volumes and weaker mix while maintain FY24 EPS. We build in revenue/EBITDA/Adj. PAT CAGR of 12.5%/19%/16% over FY2224E. We maintain BUY with TP of Rs4,223 (v/s Rs4,215 earlier) at 17x Mar’24 EPS. Significant rampup in EV 2Ws/3Ws remain key rerating triggers ahead. We like TVSL/EIM over BJAUT/HMCL among 2Ws space.

Result Highlights, Margin expanded ~100bp QoQ driven by op leverage

* Revenues grew ~16% YoY/27.5% QoQ at Rs102b (in line v/s our/street est) led by ~0.6% YoY/23.3% QoQ growth in volumes coupled with ~16% YoY/3% QoQ growth in ASPs at Rs88.6k/unit (record high).

* Exports revenue de,grew ~11% QoQ at ~Rs38b in 2QFY23. Spare revenues were in the range of Rs1010.5b (v/s Rs10.35b in 1QFY23).

* Gross margins contracted ~120bp QoQ (+30bp YoY) at 26.6% (est at 28.4%). However, this was offset by op leverage benefits (~210bp QoQ) resulting in EBITDA growth of ~26% YoY/36% QoQ at Rs17.6b (in line with our est, cons at Rs16.5b). Consequently, margins expanded 120bp YoY/ 100bp QoQ at 17.2% (est at 18.2%, cons at 16.8%).

* Adj. PAT too came in line at Rs15.3b (+20% YoY/+30% QoQ, cons at Rs14.3b) wherein interest cost came in higher at Rs109m (est at Rs35m, 1Q at Rs43m).

* KTM's 1HFY23 consolidated profit came in at ~Rs1.98b (v/s Rs3.76b in 1HFY22).

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