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Volume growth to moderate in the domestic market

Freedom 125’s initial feedback is encouraging

We met with the management of Bajaj Auto (BJAUT) to get an update on the different segments of the business. The management anticipates a 7-8% volume growth in the domestic 2W industry in FY25E as it expects growth to moderate in H2 due to a high base YoY. In exports, the strong demand in Latin America and ASEAN is being offset by the continued slowdown in Africa and Bangladesh, and the management expects exports to post a single-digit growth in FY25E. Amongst the positives are: 1) Freedom 125cc is experiencing strong demand, prompting the management to aim for a production increase to 40k units per month by Jan’25; additionally, the management plans to launch another CNG bike by FY25 end; 2) Chetak is performing well and is now ranking third in the market; the management aims to capture the second spot led by forthcoming new launches; and 3) the 3W EVs segment is experiencing significant growth. Amongst the negatives to be monitored are: 1) weakness in the KTM performance, and 2) likely margin pressure given the adverse mix. Reiterate our Neutral rating on the stock.

Domestic 2Ws: Expect 7-8% YoY volume growth in FY25

* The 125cc+ motorcycle segment accounts for 51% of the domestic market, with BJAUT holding a 25% market share. This is only 200bps short of the leadership position, according to the management.

* The management expects industry volumes to grow 7-8% YoY in FY25, with the 100cc segment experiencing a low single-digit growth.

* This is despite the 13%+ growth posted by motorcycles YTDFY25 so far. The management expects the overall industry growth to moderate in H2, owing to the relatively high base of last year (last year’s festive season experienced strong demand in 2Ws).

* However, if the demand during the festive season exceeds expectations, it may be necessary to reassess the above growth assumptions for the sector.

Freedom 125: Aims to cover 80% of the addressable market

* The new CNG bike: Freedom 125 has been well received by customers on account of: 1) almost 50% savings on fuel bill; 2) strong range delivery as a result of the dual fuel capability; and 3) superior styling and comfortable ride offered by the bike.

* For this bike, BJAUT continues to target mileage-conscious entry-level motorcycle customers (from 100-125cc segments) in regions where CNG pumps are available. This bike would also appeal to customers plying on longdistance routes on a daily basis.

* As per management, the 100cc-125cc segment accounts for 75% of the about 1mn motorcycles sold per month in India. Moreover, 60% of these have access to CNG pumps. Hence, the addressable market for this product is 450-500k per month.

* The model is currently available in 33% of the addressable market, with a target to reach 80% in the coming months.

* It has sold 10k units in the last month and expects to sell about 20k units in the current month. Its capacity is expected to further ramp up to 40k units per month by Jan’25, based on the demand conditions.

* There are no concerns about the resale value, given that BJAUT’s CNG has been a tried and tested technology in three-wheelers.

* BJAUT is looking to launch another CNG 2W by FY25 end.

400cc and above: Aims for 10k unit monthly volume run-rate

* In India, Triumph, through BJAUT, sells about 3.5-4k units per month.

* It is currently available in 100 stores, up from 40 earlier, and is expected to expand to 150 stores in the coming quarters.

* BJAUT is likely to launch 1/2 models under Triumph in the coming quarters.

* The management aims to focus on building the Triumph brand in rural and interior towns in India.

* In terms of exports, Triumph currently sells in 50+ countries globally and has been well-accepted in markets such as the UK, US, Australia, and Japan.

* Further, Pulsar 400cc is experiencing healthy demand with about 2,400 bookings made for the model.

* Overall, the management has indicated that BJAUT would be able to sell about 10k units in the 400cc+ segment in the coming months, led by: 1) ~4k units of Triumph; 2) 3-4k units of Pulsar 400; and 3) 1-1.5k units of KTM.

EVs: Eyeing market share gains in both 2Ws and 3Ws

Two-wheelers ? Following the launch of the affordable Chetak (2901), the company has observed a significant improvement in demand momentum.

* Chetak has helped the company address the sub INR 100k demand, which is about 50% of the e-2W industry.

* It is now the third largest player in the e-2W segment and aims to capture the second spot.

* The company has set up about 500 Chetak Experience Centers (250 in June) and expects to expand to 1k outlets by September.

* Besides, the company has recently decided to make Chetak available through existing dealerships, thereby rapidly scaling its reach.

* The company plans to introduce a new affordable 2W EV and a premium 2W EV following the festive season.

* It is also working on launching Chetak on a new platform in FY26

Three-wheelers

* The company has ramped up its e-3W sales to 9,350 units in Q1, which accounts for about 9-10% of its 3W mix.

* It has captured a market share of 26% in Q1, which has further increased to 36% off late.

* It is currently present in 140 towns pan India.

* BJAUT expects to launch an e-rickshaw in FY26.

* In terms of profitability, while the profitability of 3W EVs is equivalent to that of 3W ICEs (post the PLI benefit), 2W EVs are still well away from achieving breakeven. However, the management is assessing the segment’s profitability at the EV level (2Ws + 3Ws), where it is already showing profits.

Exports: Expect to post a single-digit growth in FY25E

* Nigeria, which contributes to about 50% of volumes for Bajaj in Africa, continues to be under pressure due to rising inflationary conditions in the region.

* One of the key reasons for the market weakness is the fluctuating currency in the last few quarters. In order to instill confidence in dealers, BJAUT is selling bikes at constant currency rates in the market. This approach has helped stabilize prices in the end market for the product. After three months of price stabilization, the market, which typically saw 50k units per month, has recovered to around 20k units per month, up from a low of 5k a few months ago.

* Bangladesh, the second-largest market for BJAUT, is also experiencing weak demand, which is likely to continue in the near term.

* On the other hand, markets such as Latin America and ASEAN continue to experience healthy demand.

* In Latin America, regions such as Colombia and Argentina are experiencing robust demand. In addition, the new plant in Brazil has recently commenced production with a capacity of 20k units pa, which is scalable to 50k units pa. The management expects Brazil to be amongst the top three international markets for BJAUT over the coming years.

* Further, the Philippines market, which faced demand disruption last year due to regulatory changes, is now experiencing a revival in demand.

* Overall, the management anticipates a gradual recovery in exports, with Q2 expected to perform better than Q1. It expects exports to post a single-digit growth in FY25E.

Valuation and view

* After outperforming in FY24, we anticipate that BJAUT’s growth rate (similar to other listed mass market peers) will moderate in FY25 as HMSI recovers back its lost share last year. Hence, we expect BJAUT to post a 5% growth in domestic motorcycles in FY25E and a 10% growth in FY26E. Similarly, in exports, we expect BJAUT to post a 7% growth in FY25E and exhibit a strong recovery with 20% growth in FY26E.

* BJAUT has witnessed a significant re-rating in the last 12 months, aided by market share gains in the 125cc+ domestic motorcycles segment, improved margins, and a one-of-a-kind policy to reward its shareholders. We have lowered the FY25 earnings by 6% to reflect weak performance at KTM in FY25E. At 39x/31x FY25/FY26E consolidated EPS, the stock’s valuation fairly reflects the positives from here on. We reiterate our Neutral rating with a revised TP of INR10,705 as we roll forward to Sep-26E consolidated EPS (valued at 25x Sept 2026 EPS).

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