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PLI benefits, higher spares lend margins support

Valuation and View – Sharp re-rating to limit upside as catalyst play out

BJAUT’s 1QFY25 reported results though were in-line, this was supported by higher spares and accrued PLI benefits (<50bp support). EBITDA margins expanded ~130bp YoY (+20bp QoQ) at 20.2% was due to 1) favorable currency and product mix, 2) benign RM, and 3) operating leverage. We believe, margins likely to be range bound given positive impact of favorable mix (increasing share of premium ICE 2W and 3W), operating leverage to off-set by expected RM inflation coupled with higher share of EVs (even though PLI benefits have started to accrue). Overall demand outlook is improving as 1) domestic 2W industry volumes expected to grow 7-8%, 2) domestic 3Ws to continue current volume momentum led by conversion from diesel to CNG and from e-rick to e-auto, 3) exports – 2Ws to see gradual recovery.

Bajaj Auto continue to up the game in domestic EV as it targets volume ramp-up for Chetak as well as EV 3W, led by new launches and network expansion. This will further be supported by captive financing arm (BACL), with ~50% of BJAUT network covered already. The near-term focus is to 1) increase distribution for Chetak (to ~500 stores in 1HFY25 from 200 in FY24) and EV 3W to 200 cities (from 140 with ~70% coverage). 2) New EV 2W launch in 2QFY25E and 3Ws as it target to be full range player in 3W. BJAUT has witnessed the most re-rating in the past on the back of its market share gains in the 125cc+ domestic motorcycles segment and improved margins, and a one-of-a-kind policy to reward its shareholders. After the sharp rally, however, the stock at ~28x/24.4x FY25E/26E EPS offer limited upside. Therefor we retained an ADD with roll forwarded TP of Rs10,532 (earlier Rs9,966) at 25x Sep’26 EPS (v/s Mar’26 earlier).

Result Highlights – PLI benefits, higher spares lend margin support

* Revenues grew ~15.7% YoY/+3.9% QoQ at ~Rs119.3b (est Rs118.2b) led by 7.3% YoY (+3% QoQ) increase in volumes while ASP grew 7.9% YoY/+0.7% QoQ at ~Rs108.2k/unit (est ~Rs107.3k/unit).

* Gross margins expanded ~190bp YoY (+20bp QoQ) at 30% (est 29.3%). Sustained cost control and benign RM helped EBITDA growth of ~23.6% YoY at ~Rs24.1b (est ~Rs23.5b). Consequently, margins expanded 130bp YoY/+10bp QoQ at 20.2% (est 19.9%). The management indicated within EVs, cost rationalization helped offset drag from volumes ramp-up. Overall PLI benefits (<50bp positive swing) and higher spares sales (~11% of revenues), supported margins.

* Steady op. performance partially offset by lower other income at Rs3.2b (est ~Rs3.7b, -8% QoQ), Adj. PAT came in line at ~Rs19.9b (+19.4% YoY/+2.7% QoQ, est ~Rs19.8b, cons ~Rs19.8b).

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