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Strong margin momentum maintained

EBITDA per vehicle scales new high despite surge in EVs

Bajaj Auto’s (BJAUT IN) Q4 EBITDA improved 34% YoY/ -5% QoQ to INR 24.3bn, with margin flat QoQ at 20.1%, as estimated. Average selling price (ASP) improved 6.6% QoQ on favorable product mix, premiumization and rising contribution from spare parts. EBITDA/vehicle scaled a life-time high at INR 21,600, up 6.7% QoQ. For FY24, export volumes dipped 10.2% YoY and exports revenue declined 5.6% YoY. Export demand, though improving, continued to be hit by unfavorable macro.            

BJAUT expects domestic 2W industry to grow 7-8% in FY25    

BJAUT expects 2W industry volume to grow 7-8% in FY25; and the premium segment to outperform. Egypt has now approved quadricycle as a category, where 3W were banned. BJAUT used to sell 6,000 units of 3W per month in Egypt at its peak. At 72k units per annum, akin to earlier peak, this has potential to add 1.4% to total volumes and 2% to total revenue. BJAUT has received PLI certificates for all five EV-3Ws and two EV-2Ws. The Chetak EV 2W is not profitable currently even after PLI. Price reduction of the product in the recent quarters is the main reason for losses. Over a period of time, expect it to turn profitable.       

Valuations: Revise to Accumulate; TP raised to INR 10,050

BJAUT continued to post impressive market share gain (2W retail share up 140bps YoY to 12% in FY24, led by 125cc outperformance). While export volume was subdued due to delayed recovery in Africa, model mix improved with ramp-up in Triumph (expect exports ASP to surge 3-4% in FY25E-26E). Also, monitor domestic volume ramp-up for Triumph. We factor in 16% volume CAGR in exports in FY24-26E, despite Africa being sub-peak. BJAUT’s over-dependence on 3Ws for profitability has pared with profitability for domestic/exports (2W) improving. Launches and distribution network expansion may yield a market share gain for EV 2W. We keenly monitor the launch of the new CNG motorcycle, which may aid share gain in the entry segment, if successful (not in our model). Capital allocation is robust, with +95% of FY24 PAT returned to the shareholders. We up FY25-26E EPS 3% each as we roll-over to FY27E. But given that the stock price has surged 25% since our last quarterly note in Jan-24, we revise BJAUT to Accumulate from Buy. But we raise TP to INR 10,050 from INR 8,600 on 26x, in line with TVSL’s FY26E EPS (23x earlier).

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