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Healthy operating performance; multiple levers to drive growth

Bajaj Auto EBITDA margin at 20.2% was in-line with JMFe. 130bps YoY improvement was driven by favorable mix, cost reduction efforts and PLI incentive (c.50bps benefit). Domestic 2W demand is being led by premium segment (125cc+). And, overall 2W industry is expected to grow by c.6-8%. Recently launched CNG-bike, Freedom125, is being received well and the company indicated of gradual ramp-up in volumes. Near-term focus for Triumph is on brand building and expanding dealer network. Outlook for domestic 3W volume remains healthy led by rising EV penetration. Share of EVs is gradually expanding (14% of domestic revenue now) led by portfolio expansion, ramp-up of production and distribution network for both E2Ws and E3Ws. While domestic demand remains healthy, exports sales are witnessing gradual recovery. Margins in the medium-term are likely to draw support from a) favorable mix and b) higher operating leverage. Backed by successful track record of product intervention by BJAUT in the last few years, we remain positive on the stock. We estimate revenue / EPS CAGR of 15% / 17% over FY24-27E. Maintain BUY with Jun’25 TP of INR 11,000 (28x PE). Delayed recovery in exports remains key risk to our estimates.

* 1QFY25 – In-line quarter: 

BJAUT reported adjusted net sales of INR 119.3bn (+16% YoY, +4%QoQ), 1% below JMFe. Blended realisation increased 8% YoY (+0.7% QoQ). EBITDA margin stood at 20.2% (+130bps YoY, +20bps QoQ), in-line with JMFe. YoY improvement in margin was led by better realisation (price hike + forex) and higher operating leverage partially offset by EV ramp-up impact. EBITDA stood at INR 24.2bn (+24% YoY, +5% QoQ). Adj. PAT for 1QFY25 stood at INR 19.9bn (+19% YoY, +3%QoQ), 2% below JMFe.

* Domestic market & outlook:

2W industry volumes grew in double-digits YoY during 1Q. The company indicated that domestic 2W industry growth is being led by premium segments (125cc+). BJAUT has maintained strong position in 125+cc motorcycles (stands at 25%) and share of 125cc+ motorcycles increased to c.75% of its domestic sales (c.60% during FY23). Recently launched CNG bike “Freedom 125” is being received well and the company plans multiple product launches on this platform. Overall, the company expects domestic 2W industry to grow by c.6-8% in FY25 led by premium (125cc+) segments. In case of domestic 3Ws, growth going forward will be driven by E3Ws (new products + geography), expansion in CNG network and healthy retail finance penetration.

* Export market & outlook:

Demand in the international market continued to improve gradually. While markets like Nigeria continue to remain under stress (-40%), markets like Middle-East (+20), North Africa (+20%) ASEAN (+70%) and LATAM (+26%) are witnessing healthy growth momentum. New plant in Brazil commenced production in Jun’24 with capacity of 20k units p.a. (expandable to 50k units). BJAUT expects Brazil to be among top-3 international markets in the medium-term. Overall, the company indicated of continued growth momentum and expects FY25 to be better than FY24.

* Margin outlook:

EBITDA margin expanded by 130bps YoY led by higher realisation (better mix + price hike + forex) and cost reduction efforts. PLI incentive accrual had a favourable impact of c.50bps on margins. Stable supply chain and cost reduction efforts led by R&D helped BJAUT bring down the cost of EVs, thereby supporting QoQ margin performance. 

The Company indicated that prices of raw materials like Aluminium and Copper have started inching-up and will likely have an impact of 50-70bps on margins in 2Q. BJAUT has taken a price hike at the start of 2Q which will help partly mitigate this impact.

* Update on CNG bike: 

Recently launched CNG bike “Freedom 125” is being received well owing to its value proposition. The company is targeting mileage conscious customers and believe CNG is a good value proposition for longer commute (>30kms/day). Current pending bookings stand at 4,200 units (mostly for premium variant). Deliveries have commenced in Maharashtra and Gujarat and the company plans to expand to Delhi and Kerela during Q2. Current capacity stands at 10k units / month and the company plans to ramp-up the capacity to 40k units / month by year end.

* Update on Triumph:

BJAUT retailed c.19k units of Triumph Speed during 1Q (flat QoQ). Management indicated that Triumph has been received well in Metro/Urban region. However, in other market (for instance Semi-Urban), customer awareness / brand building efforts are required. Triumph is currently present in c.100 cities (vs. 60 cities QoQ). Focus is on brand development + network expansion (150+ cities) + new launches (in 2HFY25).

*  Update on EVs: 

Share of EV revenue for BJAUT stood at 14% of domestic revenue (i.e. INR 11.3bn) during 1QFY25 (vs. 6% in 1QFY24). Of this, 60% is from E2Ws and the rest from E3W business. E2Ws: BJAUT’s E2W retail market share expanded to ~14% (no. 3 position now) vs. 11% in FY24. This was led by recent launch of affordable variant (‘Chetak 2901’) and network expansion. Chetak currently has 250 outlets and the company plans to expand its touch points to 500/1,000 stores by Jul’24 / Sept’24 end. PLI certification on Chetak 2901 is underway. BJAUT indicated that E2W business is still sometime away from being profitable. E3Ws: BJAUT’s E3W has been received well. It is available in 140 cities (vs. 70 cities QoQ) and has already garnered c.26% market share. Near-term focus is on expanding presence in North, Central and North-east markets where sale of ICE 3W is restricted and E-ricks have a sizable presence. BJAUT also indicated that margins on E3Ws (with PLI benefit) are similar to ICE 3Ws and so cannibalization, if at all, will not have an adverse impact.

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