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Valuation and View – EV ramp-up on track

BJAUT’s 3QFY24 results were in-line where revenues grew 30% YoY (+12.4% QoQ) at Rs121.1b. ASP grew 6.5% YoY (-1.4% QoQ) at Rs100.9k/unit (in-line). EBITDA margins expanded ~30bp QoQ at 20.1% (+100bp YoY) was due to 1) favorable currency, 2) benign RM and 3) operating leverage. We believe, limited margins expansion scope ahead as we expect positive impact of favorable mix (ICE portfolio) and operating leverage to off-set by increasing EVs. Overall demand outlook yet remained mixed but improving as 1) domestic 2W industry volumes expected to improve 8-10%, 2) domestic 3W volumes to continue current volume momentum led by conversion from diesel to CNG, 3) exports – 2Ws to see gradual recovery while 3Ws to be under pressure. Going ahead, INR depreciation, Triumph contribution favoring overall mix, PLI benefits remain an upside risk to our margins.

Bajaj Auto is upping the game in domestic EV space now as it targets volume rampup for Chetak as well as EV 3W. The near-term focus is to 1) increase distribution for Chetak (to ~180 cities by FY24 end from 140 cities now) and 2) increase in EV 2W run-rate to 15k/month in 4Q (v/s 10k/month in 3Q), 3) New EV 2W launch in 1QFY25E and 4) network expansion for EV 3W. Overall commentaries around emand is improving with 8-10% volume growth for domestic 2W industry in near term and exports recovery (likely to be gradual QoQ). We raise FY25 EPS by ~5% to build in for higher 3W volumes. We build in revenue/EBITDA/Adj. PAT CAGR of 14.2%/18.3%/16% over FY24-26E. We maintain an ADD with TP of Rs7,921 (earlier Rs7,485) at 21x Mar’26 EPS (v/s 20x earlier), given improved EV narrative and diversified product portfolio to de-risk segmental slowdown, if any.

Result Highlights – In-line results

Revenues grew ~30% YoY/+12.4% QoQ at Rs121.1b (in-line, cons Rs117.4b) led by 22% YoY/ 14% QoQ increase in volumes while ASP grew 6.5% YoY/ -1.4% QoQ at Rs100.9k/unit (in-line).

Gross margins contracted ~50bp YoY (-10bp QoQ) at 28.9% (in-line). However, sustained cost control and operating leverage resulted in EBITDA growth of ~36.8% YoY/ +13.9% QoQ at Rs24.3b (in-line, cons Rs22.9b). Consequently, margins expanded 100bp YoY/ +30bp QoQ at 20.1% (in-line, cons 19.5%).

Led by healthy op. performance, Adj. PAT came in line at ~Rs20.4b (+37% YoY/+11.2% QoQ) wherein other income came at Rs3.46b (+28.6% YoY/ -4.2% QoQ, est Rs3.7b). Cash and equivalents stood at Rs184.4b as of 3QFY24 (v/s Rs173.3b in 2QFY24, Rs195.8b in 1QFY24 and Rs174.4b as of FY23).

KEY CON-CALL HIGHLIGHTS

Demand - Tight condition for dollar availability leading to uncertain recovery. Africa and SE Asia driving overall recovery but LATAM/Middle East performing above peak with highest level retails done in Mexico (second largest 2W market). BJAUT’s LATAM MS is currently at highest level.

Red sea impact – Seeing delay of ~3 weeks (to 6 weeks from 3 weeks) to markets like LATAM and Africa. Seeing freight rates doubling off-late. Consequently, alternate routes are put in place to ride volatility

Share of Pulsar in exports now at ~28% vs ~19% YoY. Production at the Brazil plant to begin by end of 1QFY25.

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