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BJAUT reported a slight miss on margins in Q1 (down ~30bps QoQ to 19% vs our estimate of 19.4%), owing to normalizing mix; PAT was largely in-line. On the demand front, while exports are expected to improve sequentially, the pace of uptick is seen to be gradual. We believe the recent Triumph launch, while positive, will not move the needle much for BJAUT, even as the weakening domestic ICE-2W franchise and disruptive risk to the 3W space (from EVs) remain structural concerns. This compels us to maintain our HOLD rating on the stock, even as we upgrade FY24E/FY25E EPS by 11.6%/9.7% to largely reflect the Q1 margin run-rate (also introduce FY26E). Our revised target price stands at Rs4,760/share (15x core FY25E EPS and Rs924 cash/investment per share).

Adverse mix impacts margins: Revenue grew 29% YoY to ~Rs103bn (Emkay: Rs99.3bn), amid volume growth of 10% (+20% QoQ) and realization growth of 17% (-3% QoQ). Company took a ~1% price increase (offsetting the increase in material cost and the OBD-2 cost). EBITDA grew 51% YoY to Rs19.5bn (Emkay: Rs19.3bn), with EBITDA margin up 280bps (-30bps QoQ) to 19% (Emkay: 19.4%). Sequentially, margins were affected by the adverse mix (higher share of commuter 2Ws to cater to marriage season demand; higher E-2W sales). Adjusted PAT grew 42% to Rs16.6bn

Earnings Call KTAs: i) Domestic 2W industry retails expected to continue growing at 4- 6% in coming months; BJAUT expects to outperform, esp. in the +125cc segments, through targeted product interventions (Q2 dispatch growth rate may be hit by the higher base of last year). ii) Near-term exports outlook is cautiously optimistic; expects gradual improvements in line with uptick in factors like forex availability (e.g. in Nigeria, while Q1 retails were up 34% QoQ, driver incomes remain affected); however, suppressed inventory levels provide room for higher dispatches, once the situation normalizes some more. iii) Domestic 3W market share is now >80%, driven by CNG. iv) Triumph has 17K bookings; plans ramp-up to 5K/mth by Sep-2023, with exports to begin from Oct-23; initial qualitative feedback points to a different customer set than Pulsar’s; distribution to expand to 44 cities (vs. 17 now) by Q2; may launch a new Triumph batch per year. v) E-2W industry growth to ease from the earlier triple-digit run-rate post the FAME-2 subsidy cut; expects top-5 players’ market share to further consolidate to ~80% vs. ~50% last year. vi) E-scooter Chetak portfolio to expand from Q3, with network to expand to 120 cities from Q2 (vs. 100 now). vii) E-3W launched in a limited manner; to scale up from Sep-Oct ’23, initially prioritizing markets where ICE 3Ws are not permitted. viii) Commodity basket relatively stable; aims to maintain current margin levels; while operating leverage would help, mix may see some dilution as exports and E-2Ws ramp up. ix) FY24E EV capex at Rs4-5bn. x) Spares/exports revenues in Q1 stood at Rs12bn/USD400mn. xi) USD-INR in Q1 at Rs82.1 vs. Rs81.5 in Q4FY23 and Rs77.4 in Q1FY23. xii) Generated Rs20bn FCF in Q1.

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