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Outlook – Domestic improving, exports mixed

Valuation and View

BJAUT’s 1QFY23 results were in line across parameters as revenues/EBITDA/Adj. PAT grew 8.4%/16%/11% YoY. ASPs continue to grow for second consecutive quarter by healthy 5.4% QoQ at Rs85.7k/unit led by better mix, + fx and price hikes. Gross RM inflation impact was ~3% in 1QFY23 (net impact of ~1% as price hike was ~2%) which is expected to be ~1.5% in 2QFY23. Overall demand outlook remained mix as 1) domestic 2W volumes expected to improve QoQ led by restocking ahead of festive on improved ECU supply, 2) exports near-term volume to be weak led by currency headwinds in key African markets, 3) 3W volumes expected to recover in near term but to normalize post restocking. However, healthy product mix, higher spare sales, INR depreciation and price hikes to help partially offset margin headwinds such as lower exports and 3W sales.

Bajaj Auto is upping the game in domestic EV 2W space and expect to double Chetak’s run-rate in 2Q (v/s 6.2k units in 1Q) led by 1) increased distribution for Chetak and 2) new product launches in B2B segments (by leveraging Yulu). To factor in for INR depreciation, higher ASPs and easing of RM inflation, we raise FY23/24 EPS estimate by 6.4%/2.5% and build in revenue/EBITDA/Adj. PAT CAGR of 13%/19%/16% over FY22-24E. We maintain BUY with revised TP of Rs4,546 (18x Mar’24 EPS). Significant ramp-up in EV 2Ws/3Ws remain key re-rating triggers ahead. We like TVSL/EIM over BJAUT/HMCL among 2Ws space.

Result Highlights –INR dep, price hike and mix benefitted overall ASP

 * Revenue grew 0.8% QoQ/8.4% YoY at Rs80.1b (inline v/s our est) led by ~4% QoQ/7% YoY decline in volumes offset by ~5% QoQ/17% YoY growth in ASPs at Rs85.7k (record high, led by better mix, +fx and price hikes).

* Spares revenue grew ~40% YoY/6% QoQ at Rs10.35b. Exports revenue de-grew 5% YoY/ (+7% QoQ) at Rs42.7b. USD-INR rate for the quarter stood at Rs77.4 v/s Rs75.5 in 4QFY22.

* Gross margins remained flat QoQ at 27.8% (+80bp YoY, est at 27.5%). RM inflation for 1QFY23 was ~3% out of which ~2% has been recovered.

* EBITDA declined 3% QoQ (+16% YoY) at Rs12.9b (in line v/s our est). Consequently, margins came in line at 16.2% (-60bp QoQ/+100bp YoY).

* Higher interest cost of Rs43m (est at Rs23m) was offset by higher other income at Rs3.2b (est at Rs3b) resulting in Adj. PAT at Rs11.7b (-2% QoQ/+11% YoY, in line with our est).

* The company's cash stood at Rs205.1b as on June'22 (v/s Rs190.9b as on Mar'22).

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