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Consistent quarter of record performance: Bajaj Auto posted strong overall performance as its Q2FY24 revenue grew by 5.6% YoY/4.6% QoQ to Rs 10,777 Cr. The growth was mainly driven by domestic business of motorcycles and 3-wheelers segment. Albeit a decline of 8.8% YoY in exports volumes, it showed sequential recovery of 7.9% and as a result it accounted for ~30% of the overall revenue while the domestic business accounted for ~70%. Consequently, PAT was reported at Rs 1,836 Cr, higher by 20% YoY/10.3% QoQ.

Better operating leverage: Its gross profit came in at Rs 3,126 Cr, up by 15.1% YoY/7.9% QoQ with a margin of 29% which expanded by 238bps YoY/91bps QoQ. Consequently, EBITDA increased by 21.3% YoY/9.2% QoQ at Rs 2,133 Cr and a margin of 19.8% which expanded by 255bps YoY/84bps QoQ. The strong operational growth was supported by better product mix and softer prices of commodities like metals, steel and aluminum which resulted in strong operating leverage.

Structural shift towards premium products: Consumer preference towards premium and better products has been one of the key catalysts for the shift towards the 125+cc category in the overall industry. As a result, the volumes contribution from 125+cc category was at ~65% vis-a-vis ~55% in the same period last year. Consequently, the higher participation from premium segment triggered the realizations growth of 15.4% YoY/1.9% QoQ to Rs 102,256/unit.

Strong domestic 3-wheeler volumes: It was a landmark quarter for 3-wheeler segment as it reported highest quarterly volume of 132,236 units in the domestic market, registering a growth of 80.5% YoY/34.1% QoQ. The shift from diesel powered to CNG powered vehicles is aiding the growth for the company where it has a strong moat. Additionally, the company will benefit from government’s initiative to increase the number of pumps across India by adding another ~4,000 pumps, shall support the demand resulting from the shift towards CNG vehicles.

Outlook & Valuations: Bajaj Auto is amongst leading players in the motorcycle space while it is a top exporter of 2/3 wheelers in the country. Its exports have remained under pressure; however on sequential basis it is witnessing a recovery in its key markets which will aid in volumes and revenue growth. Going ahead, the 2-wheeler industry will witness premiumization in 125cc+ category, consequently Bajaj Auto has been focusing on increasing its product portfolio and attracting higher volumes for 125cc+ segment which would result in market share gains and higher realizations. The strong domestic business outlook coupled with gradual recovery in exports, we remain bullish on growth prospects of the company and estimate its revenue/EBITDA/PAT to grow at 19.3%/23.6%/22.2% CAGR over FY23-25E. We have assigned a PE of 20x on FY25E EPS and maintain a Buy rating with a revised target price upwards to Rs. 5,944.

Concall & other key highlights: 1) The company will be launching 6 new and upgraded motorcycles in H2FY24. 2) Posted double digit growth in the African market led by Nigeria while other markets like LATAM and SAME reported single digit growth. 3) Company has engaged in the business development activities in 11 new markets for its 3-wheelers. 4) Delivered a total of 8,000 units of triumph motorcycles, while exports to start by November 2023. 5) The company plans to expand its capacity stands from 5,000 units/month to 10,000 units/ month by the end of FY24 for triumphs and also increase its presence from 20 cities to 100 cities by FY24. 6) Aims to sustain 80% market share in the 3-wheeler segment. 7) Spare revenue for the quarter was ~Rs 1,200 Cr 8) Free Cash Flow at Rs ~3,600 Cr with Surplus funds at Rs ~17,326 Cr as of Q2FY24.

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