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Outlook – Exports steady, domestic mixed

Valuation and View

BJAUT’s 4QFY22 beat at EBITDA/PAT by ~22.5%/18.8% to our estimates were optically higher as it managed to defer RM inflation to 1QFY23. Moreover, there were one‐offs to the tune of Rs600m (Rs300m each for staff cost revaluation and MH state incentives). Considering, anticipated RM inflation impact of 3‐4% (v/s price hikes of ~2‐2.5%), normalized staff cost and 15‐20% volume impact especially for domestic 2Ws segment due to short supply, margins to revert to normalized levels in 1QFY23. However, healthy mix management especially in exports, higher spare sales and price hikes to help partially offset above margin headwinds.

We believe BJAUT’s dominant position in 2W exports (~57% volumes mix in 2W), strong recovery in domestic 3Ws wherein it has market leadership (~70% market share) and higher focus on spares should help offset weakness in domestic 2W demand. We raise FY23/24 EPS by 3% each to factor in for higher spare sales and ASPs and build in revenue/EBITDA/ PAT CAGR of ~13%/17%/14% over FY22‐24E. We maintain BUY with revised TP of Rs4,361 (18x Mar’24 EPS). BJAUT is working towards new product launches in EVs for both 3W (expected in July)/2W and channel expansion, hence any success towards these fronts can be an additional growth trigger.    

Result Highlights – Margins expansion to reverse led by cost deferrals

* Revenues declined ~12% QoQ/8% YoY at Rs79.4b (in line with ours/cons est) as ~17% QoQ/16% YoY decline in volume was offset by ~6.5% QoQ/10.7% YoY growth in ASPs at Rs81.3k/vehicle (record high, est at Rs78.8k/vehicle).

* Despite RM inflation, gross margins expanded ~260bp QoQ at 27.8% (est at 25.6%) led by mix, +Fx, deferral of RM cost increase to 1QFY23. BJAUT expects RM inflation of 3.5‐4% in 1QFY23.

* Consequently, EBITDA came in at Rs13.4b (‐3% QoQ, est at Rs10.9b/ cons at Rs11.3b) with margins at 16.8% (+160bp QoQ, est at 14.2%/ cons at 14.6%). Adjusted for one‐offs like employee cost (Rs300m) and MH state incentives (Rs305m), adj. EBITDA came in at 16.4%.

* BJAUT reported exceptional gain of Rs3.15b accrued as incentive receivable from the MH state govt retrospectively from April'15 to Mar'21. Healthy EBITDA drive adj PAT beat at Rs11.9b (‐1.3% QoQ, est at Rs10b/ cons at Rs10.5b).

* The board has recommended dividend of Rs140/shr (flat YoY). As of FY22, company's cash and cash equivalents stood at Rs190.9b (v/s Rs176.9b in FY21).

* BJAUT’s FY22 Revenue/EBITDA/Adj. PAT grew ~20%/7%/10% YoY respectively.

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