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Major Headwinds have passed and the Premiumization theme is playing out well. The last 2-3 years have seen a lot of developments (5 year insurance/ BS VI norms) on the regulatory front that led to price increases. The weak economic environment and slowdown across the auto industry meant volumes were down. Then Covid came, bringing along a new wave of demand for personal vehicles. The price increases of motorcycles, coupled with people’s preference for feature rich bikes, drove buyers towards more premium bikes vs. the commuter segment.

Export business doing better than ever, crucial when domestic markets are suffering. The company reported its highest ever export figures in April 2021, when the domestic markets were subdued due to covid related restrictions. The export business has helped the company minimize the damage in both 2W and 3W segments.

EV business, Triumph partnership-key drivers for the future. Bajaj Auto has already brought to market the Chetak electric scooter, and has set up a dedicated EV R&D laboratory for future products. The company’s associates KTM & Husqvarna also have EV scooters and bikes in the pipeline. The company has partnered with Triumph Motors, UK to develop a new engine and vehicle platform for mid-sized motorcycles. The partnership will leverage Triumph’s technical now how and Bajaj Auto’s cost efficient manufacturing prowess to develop motorcycles for India and the World.

KTM’s global business has added a new dimension to the already robust export business of Bajaj. KTM is the fastest growing motorcycle brand in the world currently. The company’s sales have grown at a CARG of 15.9% over 2009-2020. In India, since launching in 2013, the company’s sales have grown at a CAGR of 27% over FY13-20, making India the largest market for the company. The company is targeting sales of 4 lakh motorcycles by CY22E.

Fundamentally strong financial statements. Bajaj Auto sits on a robust balance sheet, with ample manufacturing assets, investments, no debt, a consistently rising net worth, has a negative cash conversion cycle, good return ratios and a rich margin profile along with a consistent dividend policy.

OUTLOOK & VALUATION

We expect FY24E Net Income at Rs. 7,782 cr at a Net margin of 19.9%. We believe contributions from KTM, Husqvarna and Triumph from FY23E will play a significant role in enhancing margins. We forecast FY24E EPS at Rs. 269 and assign a PE multiple of 20x, arriving at a price target of Rs. 5,378 which is an upside of 28% from yesterday’s closing price of Rs. 4,206. We re-instate coverage on Bajaj Auto with a BUY rating over an investment horizon of 24-30 months.

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