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Bajaj Auto Limited (BAL) reported strong volume performance in Q4 FY24 despite exports markets not yet out of the woods completely, but showed signs of recovery. The numbers were overall below the Q3 FY24 levels on seasonality. Topline growth was up 29.5% yoy and down by 5.5% qoq as volumes in the domestic markets were quite strong at 28% yoy on low base of last year and demand uptick seen in 2W industry this fiscal. The total volumes in the quarter were up 24% yoy but down by 10.7% qoq, while the realizations grew by 3.6% yoy and 5.8% qoq. During the quarter, domestic motorcycles grew by 32% yoy . The strong yoy surge was due to various launches in the >125cc and Pulsar N Series launches in the premium segments in the domestic markets and Triumph & KTM sales ramp up. This is the first quarter since exports had started falling, to show a positive growth. Exports grew by 19% yoy from 35%-40% fall seen last year as we are seeing recovery in Africa and ASEAN markets, while other markets remained strong. Motorcycle exports grew by 19% yoy, while 3W exports grew by 20% yoy. Triumph and Chetak also pulled up a good show in Q4 as Chetak sold its highest ever quarterly volumes in Q4 and jumped to #3 position. EBITDA was up by 34.4% yoy to ?23 bn, while margins moved up by 80 bps yoy to 20.1%, while remained flat qoq. Margins were up mainly on better cost management, operating leverage, improved product mix and stable commodity costs. All other cost items below operating levels remaining more or less range bound, bottomline was 35% up yoy at ?19.4 bn.

Domestic volumes zoom; exports recovery on low base and some green shoots

Domestic motorcycle volumes witnessed a rise of 32% yoy in Q4, while saw a 25% growth in FY24. The company is strongly gaining market share especially in the sports and executive segment of >125 cc since H2 of last fiscal. In the executive business, the success was driven by its flagship brand Pulsar which continued to see new launches across different engine capacities. The company will launch 6 new models of Pulsar in H1 FY25. BAL’s market share has increased in the 125cc segment in the mid 30s range. In the 150cc-250cc segment, BAL has zoomed up its market share to 40% from 32% in FY23 on the successful launches of N-series. BAL is also set to launch a CNG bike in H1 FY25, which would further boost its domestic 2W volumes.

Company has also made strong inroads in the 2W EV portfolio as Chetak scooter sales clocked its highest ever quarterly sales at 40K units, even higher than FY23 sales and has secured #3 spot in the EV scooters space jumping from #7 spot a year ago,thus gaining market share of 13% from 5% yoy. Chetak is spreading its network of dealers over 164 cities in the country with 200 stores. The company plans to add 2 new models to the Chetak portfolio in Q1 FY25 as the company has adequate capacities. Triumph also succeeded in the quarter as the company exported 19K bikes to 57 countries during the quarter. On KTM front, the company is planning to launch big bikes soon.

Domestic 3Ws reported strongest ever show as CNG demand is reaching new highs. The company’s 3W demand has exceeded pre-covid levels and the company has added 5% to their market share which is at all time high. CNG now contributes >60% of the overall 3W industry. BAL being a sole leader in the CNG segment, 3Ws will even more strongly contribute to the numbers going forward. In the EV 3W segment, BAL is present in 60 cities now v/s 23 cities qoq and sold ~6500 units in Q4. The company targets to expand upto 200 cities by end of CY24. Management expects that the EV 3W shall co-exist with the CNG version while cannibalise the largely unorganized E-Rickshaw market and the petrol and diesel variants at a faster rate.

Within exports, the company is observing recovery in Africa and ASEAN. LatAm market is strong, while SE Asia and Middle East continue to show resilience. Exports have reported 19% yoy growth on lower base and green shoots seen in Africa and ASEAN. Better product and geographic mix and realisations led to improved export performance as well. BAL’s new plant in Manaus, Brazil shall start its production from Q1 FY25 with a monthly capacity of 20K shall intend to capture customers in one of the biggest 2W markets. Red Sea imbroglio led to heightened freight costs and lead times.

The Government of Egypt has approved the company’s quadricycle ‘Qute’ and BAL is on the verge of exporting 250,000 units within weeks of approval. The company sees a huge opportunity of converting ~500,000 3Ws in Egypt to quadricycles with the government mandating such conversion to improve safety. The currency situation in Egypt is also improving post the various aid pachages received in Egypt. We foresee this as a huge opportunity in a market which has been impacted since last few years due to regulatory hurdles. This can add significant amount of volumes to the company’s exports.

We expect domestic volumes to grow at 17%/15% in FY 25E/26E respectively, while exports to grow at 15%/19% in the same period.

Margins to post steady performance

BAL’s EBITDA margins came at 20.1% in Q4, up yoy and flat qoq, though this growth was slightly impacted due to higher EV 2Ws. The margin growth was also due to better cost management, better operating leverage, better export product mix and stable commodities. Management believes that the current tailwinds in metal prices may not continue going forward upto that extent as copper aand aluminium prices have started to firm up, though steel has remained benign. However, management has taken price hikes related with this increase and may continue to do so going forward if the need be. We believe - 1). Favorable product mix on robust high margin 3W sales 2). Solid sales of premium portfolio bikes 3). Stable currency movement 4). Expected easing of pressure in exports and 5). Stable commodity prices shall aid margins. We therefore expect margins to be at 20.2%/20.5% in FY25E/26E respectively.

Outlook and Valuation

BAL posted solid sales performance in Q4 despite slow recovery in the exports business sequentially. Going forward, we believe export volumes to improve month on month subject to Red Sea issues, while domestic 2W volumes should continue their strong run. We also expect a strong traction coming from the recent launches which would drive overall demand. >125cc segment has provided new identity to BAL. Solid performance of premium Pulsar models, KTM bikes and Triumph models this year should all provide the required fillip to both volumes and margins. On the exports front, we expect recovery in Africa and ASEAN, strength in Latam, Middle East and SE Asia and upcoming plant in Brazil to provide fillip going forward. With 2W Chetak expanding its coverage and winning market share, we believe Chetak to add to the numbers substantially in the ensuing years.

3W performance has been splendid over the past quarters, touching new highs, on CNG success. EV 3W is also ramping up at a great speed winning healthy market share. Neutral RM and currency price movement and prudent cost management should assist margins in the ensuing quarters. With strong balance sheet (surplus fund of ?164 bn & ?66 bn of free cash flow generated in FY24, up 45%), robust return ratios, minimum financial leverage, we believe the stock still looks attractive at 20x FY26E earnings. Expected above normal monsoons and premiumization theme in the urban markets should aid growth in the stock price further. We therefore maintain our BUY rating on the stock with a higher target price of ?10,138 (valued at 23x FY26E earnings).

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