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Valuation and View – Volume outperformance to continue in FY25

BJAUT’s 4QFY24 results were operationally better as EBITDA came in better by 5.5- 7% to our/consensus. This was led by better then expected ASPs at Rs107.5k (est Rs104.3k). EBITDA margins expanded ~80bp YoY at 20.1% (flat QoQ) was due to 1) favorable currency and product mix, 2) benign RM, and 3) operating leverage. We believe, margins expansion to be gradual given positive impact of favorable mix (increasing share of premium ICE and 3W), operating leverage to off-set by increasing share of EVs (even though PLI benefits are expected to accrue). Overall demand outlook is improving as 1) domestic 2W industry volumes expected to grow 7-8%, 2) domestic 3W volumes 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 while opening up of Egypt market to provide cushion to muted 3W volumes.

Bajaj Auto continue to up the game in domestic EV space as it targets volume rampup for Chetak as well as EV 3W, led by new launches and network expansion. This will further be supported by captive financing arm (BACL). The near-term focus is to 1) increase distribution for Chetak (to ~600 stores in 1HFY25 from 200 in FY24) and 2) New EV 2W launch in 1QFY25E and 3) network expansion for EV 3W. We believe, BJUAT to continue outpace domestic 2W volume growth of 7-8% while exports recovery likely to be gradual. We raise FY25/26 EPS by ~3.5-4% each to build in for better ASP and Qute exports. We build revenue/EBITDA/Adj. PAT CAGR of 18.1%/21.2%/19.4% over FY24-26E and maintain an ADD with TP of Rs9,966 (earlier Rs8,715) at 25x Mar’26 EPS (v/s 23x earlier), given improved EV narrative and diversified product portfolio to de-risk segmental slowdown, if any.

Result Highlights –

* Revenues grew ~29% YoY/-5.2% QoQ at ~Rs114.8b (est Rs111.4b) led by 24.3% YoY (-11% QoQ) increase in volumes while ASP grew 3.8% YoY/ +6.6% QoQ at ~Rs107.5k/unit (est Rs104.3k/unit). This was led by favorable product mix.

* Gross margins contracted ~50bp YoY (+80bp QoQ) at 29.7% (est 30%). However, sustained cost control and favorable product mix helped EBITDA growth of ~34.4% YoY/ -5.1% QoQ at ~Rs23.1b (est Rs21.6b). Consequently, margins expanded 80bp YoY/ flat QoQ at 20.1% (est 19.4%, cons 19.7%). The management indicated within EVs, cost rationalization and alternate sourcing helped offset drag from volumes ramp-up. Led by healthy op. performance partially offset by lower other income at Rs3.5b (est Rs3.9b, flat QoQ), Adj. PAT came in line at ~Rs19.4b (+35% YoY/-5.2% QoQ, est Rs18.9b, cons Rs18.4b). Share of profit from Pierer Bajaj AG (PBAG) at Rs839m (v/s Rs1.8b reported in 2QFY24).

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