IGI Logo

In 1QFY24, Bajaj Auto EBITDA margin stood at 19% (+270bps YoY, -30bps QoQ). Sequential decline in margin was owing to unfavorable mix. Domestic 2W demand is being led by premium segment (125cc+) and the company expects c.4-6% industry growth in the nearterm. Recently launched Triumph 400 has been received well with 17k+ open bookings. Deliveries have commenced and the company plans to ramp-up volume to 5k units/month by Sept’23. In e-2W segment, the company is gradually ramping up production and distribution network. Outlook for domestic 3W volume remains strong led by higher CNG demand. BJAUT also launched its first e-3W in select cities on pilot basis. We expect steady domestic demand (led by premium segments) to offset macro headwinds in export markets which may continue in the near-term. Margins in the medium-term are likely to draw support from a) softening RM cost, b) better export realization and higher operating leverage. Given the successful track record of product intervention by BJAUT in the last few years, we remain positive on the stock. We estimate revenue / EPS CAGR of c.14%/c.18% over FY23-26E. Maintain BUY with Jun’24 TP of INR 5,250 (18x PE). Delayed recovery in export markets remains key risk to our estimates. 

* 1QFY24 - Healthy operating performance: BJAUT reported adjusted net sales of INR 103bn (+29% YoY, +16%QoQ), c.2% below JMFe due to unfavourable mix. Double-digit growth in domestic revenue was partially offset by decline in exports. Realisation declined 3% QoQ (+17% YoY). EBITDA margin stood at 19.0% (+270bps YoY, -30bps QoQ), c.60bps below JMFe. Sequential decline in margin was due to unfavourable mix partially offset by 1% price hike and better export realisation. EBITDA stood at INR 19.5bn (+51% YoY, +14% QoQ). Adj. PAT for 1QFY24 stood at INR 16.6bn (+41% YoY, +16%QoQ).

* Domestic market & outlook: During 1QFY24, 2W industry retails grew by 2% YoY. BJAUT’s retail during the same period grew by 19% YoY on low base. The company indicated that domestic 2W industry growth is being led by premium segments (125cc+). BJAUT gained 2ppt market share in 125cc+ motorcycles during 1Q and share of 125cc+ motorcycles increased to c.70% of its domestic sales (c.60% during FY23). Domestic 2W industry is expected to grow by c.4-6% in the near-term. In case of domestic 3Ws, volumes have recovered back to pre-Covid levels. And, BJAUT’s market share currently stands at c.80% driven by rise in CNG penetration and support from retail financing.

* Export market & outlook: Export volumes improved c.12% QoQ (down 34% YoY). Sales recovery has been mixed with markets like Nigeria and ASEAN continuing to witness macro headwinds. LATAM remained steady while other markets in Africa witnessing some recovery. Phillipines market is also expected to recover going ahead. BJAUT is setting-up an assembly plant in Brazil and recently launched Dominar 400 has been received well by garnering 15% market share in its segment. Dealer inventory (c.25 days) has normalized in most key markets. Overall, the management expects export volumes to gradually recover during the course of the year.  

* Update on Triumph: Recently launched Triumph 400 has been received well with 17k+ open bookings. Deliveries for Triumph started during the last week of July. And, the company plans to ramp-up its volume to 5k units by Sept’23. The company also plans to expand Triumph dealer network from 17 stores currently to 50 stores during 2Q/3Q.

* Margin outlook: c.30bps QoQ EBITDA margin decline during 1Q was due to unfavourable mix (higher share of commuter motorcycles) partially offset by 1% price hike (related to OBD2 norms) and higher operating leverage. BJAUT indicated that given the correction in commodity costs, it does not plan to take further price hikes in the near-term.

* Update on e-2W/3W: BJAUT sold c.20k units of Chetak during 1QFY24 on improving supplies. Reduction in Fame-II subsidies impacted sales during Jun’23. Management expects e-2W industry growth to moderate in the near-term due to subsidy reduction. BJAUT, however, plans to expand distribution to Top-120 towns (140 touchpoints) by the end of 2Q (from current c.100 cities). BJAUT also launched its first passenger e-3W in Agra and cargo e-3W in Pune. Initial dispatches will be slow and there will be gradual ramp-up post customer feedback. The company has 3-pronged strategy – 1) focus on dependability of the product (rather than the speed of launch), 2) build R&D capabilities and supply chain network and 3) expand product portfolio and reach across markets. 

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