IGI Logo

Strong operating performance; exports recovery remains key

In 3QFY23, Bajaj Auto adj. EBITDA margin stood at 19.1% (+390bps YoY, +180bps QoQ), 140bps higher than JMFe driven by lower RM costs, favorable mix, better USD/INR realization. Domestic 2W volumes were led by premium segment (BJAUT gained c.2% market share QoQ in 125cc motorcycles). The management expects 2W entry segment demand scenario to remain mixed. In e-2W segment, the company is gradually ramping up production while focusing on R&D to bring down the cost. Outlook for domestic 3W volume remains strong led by higher CNG demand. Launch of its first e-3W is expected towards the end of 4Q as the product is currently undergoing extensive trials. We expect steady domestic demand (led by premium segments) to offset macro headwinds in export markets which may continue for next 2quarters. Margins in the medium-term are likely to draw support from a) favorable mix and b) better export realization. Given the successful track record of product intervention by BJAUT in the last few years and comfortable valuation, we remain positive on the stock. We estimate revenue / EPS CAGR of c.11%/c.19% over FY22-25E. Maintain BUY with Mar’24 TP of INR 4,400 (17x PE). Delayed volum recovery in domestic market and continued weakness in export markets are the key risks.

* Margin beats estimate: In 3QFY23, BJAUT reported adjusted net sales of INR 93.2bn (+3% YoY, -9%QoQ), c.4% above JMFe. Double-digit growth in domestic revenue was partially offset by decline in exports. Realisation increased 24% YoY (+7% QoQ). Adjusted EBITDA margin stood at 19.1% (+390bps YoY, +180bps QoQ), c.140bps higher than JMFe. Sequential improvement in margin (180bps) was led by a) favourable mix, b) better export realization (due to INR depreciation) and c) price hikes. Adj. EBITDA stood at INR 17.8bn (+30% YoY, +1% QoQ). Adj. PAT for 3QFY23 stood at INR 14.9bn (+23% YoY, -2.5%QoQ), 9% above JMFe.

* Domestic market & outlook: The company indicated that rural demand scenario continue to remain mix and it estimates low-to-mid single-digit growth for the Industry going ahead. During 3Q, BJAUT’s domestic 2W volume was led by premium products (125cc+). The strategy of upgrading customers to 125cc segment is working well and the company gained 2ppt QoQ retail market share in the 125cc segment during 3Q. ECU supplies have largely normalised and the company indicated of strong product launch pipeline going forward (led by EVs). Domestic 3W volume is recovering sequentially from a low base and the outlook remains strong driven by higher demand for CNG 3Ws. BJAUT’s market share in CNG 3Ws currently stands at c.86% driven by rise in industry CNG penetration to 65% during 3QFY23.

* Export market & outlook: Export business continued to witness macro headwinds during 3Q. Retail sales fell double-digit in key international markets owing to 1) sharp devaluation in currency leading to increase in prices and 2) limited availability of USD. Retails in South Asia, Africa and Latin America were down by 30% YoY. While the dealer inventory is near-zero in some of these markets, the company is unable to dispatch stock owing to limited availability of forex. The company expects the volumes to remain muted during 4Q. Expected recovery during 1Q will be led by Latin America. Demand in Nigeria is expected to remain volatile in the near-term owing to government elections.

* Margin outlook: c.180bps EBITDA margin expansion during 3Q was led by softening RM

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer