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Exports reviving from the lows | Chetak to ramp-up to 10k/month from Jun’23

* Bajaj Auto (BJAUT) reported better-than-estimated EBITDA margin of 19.3% (nine-quarter high) driven by better product mix. However, we do not expect any material margin expansion in the coming quarters as this largely reflects the benefits of Fx and improved mix. Over the next two quarters, BJAUT has three catalysts for growth: a) Chetak EV ramp-up to 10k/month from Jun’23, b) Triumph product launch, and c) potential recovery in exports.

* We raise our FY24E/FY25E EPS by 7%/8% to factor in a sustained recovery in domestic 2W/3W volumes and better product mix. We reiterate our Neutral rating with a TP of INR4,400 (based on 16x Mar’25E Consol. EPS).

EBITDA margin at a nine-quarter high, largely driven by better mix

* BJAUT’s 4QFY23 revenue/EBITDA/PAT grew 12%/26%/17% YoY to INR89b/ INR17.2b/INR14.3b. In FY23, its revenue/EBITDA/PAT rose 10%/28%/21% YoY. ? Volumes declined 12% YoY/ 13% QoQ. However, ASPs grew ~27% YoY (+9% QoQ) to INR103.6/unit (v/s est. INR96.1k). Net sales grew 12% YoY to INR89b (v/s est. INR82.6b) during the quarter.

* Gross margin improved 210bp YoY (+80bp QoQ) to 30.2% (v/s est. 29.8%) largely driven by better mix and favorable Fx.

* As a result, EBITDA margin improved 220bp YoY (+20bp QoQ) to 19.3% (v/s est. 18.8%). EBITDA grew 26% YoY to INR17.2b (v/s est. INR15.5b).

* Adj. PAT was up 17% YoY to INR14.3b (v/s est. INR13.3b). Share of profit from associate for 2HFY23 rose 63% to INR3.3b or ~11% contribution to the standalone PAT.

* Payout for FY23: The company announced dividend of INR140/share, amounting to INR39.6b (or 70% of PAT), and buyback of INR30.9b. The net cash balance of the company stood at INR174.5b as of Mar’23.

Highlights from the management commentary

* Exports: 4QFY23 had the full impact of Nigeria election and demonetization, with a sharp fall in sales in Feb’23. However, retails have recovered postelection and due to easing of currency restrictions, as Apr’23 is better than Mar’23, which in-turn was better than Feb’23. Other regions saw better QoQ retails in 4QFY23. With low inventory, new products (new Pulsars for LatAm and Boxer range for Africa) and ramp-up in new market such as Brazil, exports should see a strong recovery if USD availability improves.

* India 2Ws: Management expects 6-8% growth for the industry over the next few quarters, driven by >125cc.

* EV supply chain has been restructured, and the company is now targeting to produce~10k units/month of Chetak from Jun’23 onwards. Revised pricing of Chetak has benefitted demand, resulting in 8k bookings and retails improving to >5.5k/month from 3k. BJAUT is working on Chetak’s upgrade, which will be launched in the near term.

* e-3Ws (both passenger and cargo) would be launched in the coming days. In the initial phase, BJAUT is targeting markets where there is no permit requirement for ICE 3Ws.

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