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In-line EBITDA; expecting gradual revival in exports in coming months

Bajaj Auto’s (BJAUT) Q1FY24 EBITDA margin at 19%, down 30bps QoQ, was in line with consensus estimate at 19.1%. The slight QoQ dip in margin was due to typical seasonal skew for commuter motorcycles on the back of it being the marriage season. Revenue improved 16% QoQ to INR 103bn driven by 31% QoQ volume growth in 2Ws on domestic front cushioning the weak but improving exports performance. 2W export volumes improved +12% QoQ to ~346k as currency availability interventions enabled the uptick in shipments to Africa and Latin America. We are factoring in 21%/14% growth in domestic volumes and 12%/15% for exports in FY24E/FY25E, resulting in revenue CAGR of 24% over FY23-25E. Maintain ADD on BJAUT with an unchanged DCF-based target price of INR 5,185 (core business INR 4,273 implying ~17x FY25E core EPS and cash/other investments INR 912).

Key takeaways from the conference call and our views:

* BJAUT’s global motorcycle retail volumes grew 5% QoQ vs industry growth of 2%. BJAUT plans to deliver similar performance in Q2FY24 as in Q1FY24, with growth driven by potential export recovery, incremental volumes from Triumph bikes and scale up in EVs. Exports volume improved 12% QoQ in Q1, although not uniformly spread across target markets. Recovery over Q4FY23 was driven by Africa (with Nigeria retails at +41% QoQ), South Asia and Middle East markets. This was offset by significantly lower ASEAN volumes in Q1FY24 compared to Q4FY23. Inventory is now at ~30% levels of the same YoY. We have built in 12%/15% growth for export volumes for FY24E/FY25E with 2W exports likely to reach ~2.1m in FY25E.

* Domestic motorcycle retail demand is expected to grow at 4-6% YoY over the next few months. Pulsar brand crossed the milestone of 420k units in volume generating revenue of ~INR 33bn, including exports. BJAUT gained 2% market share in 125cc+ segment, which accounts for ~70% volume in Q1FY24 vs ~60% share in FY23 and it has more products set to launch over the next few months. Speed 400 has ~17k bookings, and production is being ramped up in a phased manner. BJAUT plans to hit a rate of 5k per month in Q2FY24, mostly in Sep’23 and plans to commence exports in Oct’23. The plant capacity in Chakan 2 is about 25,000 units per month, and is fungible between KTM and Triumph.

* On EV front, volumes of Chetak doubled QoQ and its retail network has extended to 90 cities now. It also launched electric 3W across both cargo (in Pune) and passenger segments (in Agra), and expects to scale up the business Sep’23 onwards in a phased manner.

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