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Healthy operating performance; exports to witness gradual recovery

Bajaj Auto EBITDA margin at 20.1% was broadly in-line. 30bps bps sequential improvement was driven by higher operating leverage and cost reduction initiatives partially offset by unfavorable mix. Domestic 2W demand is being led by premium segment (125cc+). And, overall 2W industry is expected to grow by c.8-10%. Recently launched Triumph 400 has been received well and the near-term focus is on expanding capacity and dealer network. Outlook for domestic 3W volume remains strong led by higher CNG demand. In EV segment, the company is gradually ramping up production and distribution network for both E2Ws and E3Ws. While domestic demand remains healthy, exports sales are expected to witness gradual recovery owing to macro headwinds. Margins in the medium-term are likely to draw support from a) favorable mix and b) higher operating leverage. Given the 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 c.16%/c.21% over FY23-26E. Maintain BUY with Mar’25 TP of INR 7,700 (22x PE vs. 18x earlier). Delayed recovery in exports remains key risk to our estimates.

3QFY24 - In-line quarter: BJAUT reported adjusted net sales of INR 121.1bn (+30% YoY, +12%QoQ), broadly in-line with JMFe. Blended realisation increased 6.5% YoY (-1.4% QoQ). EBITDA margin stood at 20.1% (+100bps YoY, +30bps QoQ), broadly in-line with JMFe. Sequential improvement in margin was led by higher operating leverage and cost control initiatives partially offset by unfavourable mix. EBITDA stood at INR 24.3bn (+37% YoY, +14% QoQ). Adj. PAT for 3QFY24 stood at INR 20.4bn (+37% YoY, +11%QoQ), broadly in-line with JMFe.

Domestic market & outlook: 2W industry volumes grew in double-digits YoY during 3Q. The company indicated that domestic 2W industry growth is being led by premium segments (125cc+) and the company continued to outpace the industry. BJAUT has gained market share in 125+cc motorcycles (stands at 31%) and share of 125cc+ motorcycles increased to c.70% of its domestic sales (c.60% during FY23). The company plans multiple product launches (incl. higher cc Pulsar) and product refreshes (with added features) going ahead. Overall, the company expects domestic 2W industry to grow by c.8-10% in FY24 led by premium (125cc+) segments. In case of domestic 3Ws, rising CNG penetration and improving retail finance penetration is driving the growth. CNG 3Ws market share currently stands at c.85%.

Export market & outlook: The company indicated that recovery in exports (+2% QoQ) has been slower than earlier antipated (+10% QoQ) owing to continued challenges in the international markets (high inflation, currency depreciation and forex unavailability). While volumes in Africa and South Asia has reached 50% of its peak, in market like LATAM and South East Asia, it has already crossed its previous peak. Overall, exports sales have recovered upto c.70% of the previous peak. Nonetheless, the company expects gradual recovery in exports going ahead. So far, Red Sea crisis has not impacted operations and the company remains watchful of the situation.

Margin outlook: The Company indicated that most of the commodities have remained stable barring prices of few raw materials like steel and copper which have started inching-up. This may impact RM cost during 4QFY24.

Update on Triumph: Triumph Speed 400 has been received well by customers and the company retailed >15k units during 3Q (c.8k units in domestic market & rest in exports). Overall, the company plans to ramp-up Triumph’s production capacity to c. 30k units/month by 1HFY25 (10k units/month currently). Triumph is currently present in 41 cities and the company plans to increase its presence to 100+ cities (covers 50% of the market) going ahead. The company also highlighted that Triumph has already reached 15-20% market share in cities like Bangalore, Kochi, etc. which are large market for classic motorcycles.

Update on EVs: E2Ws: Chetak’s E2W market share increased from 4% in Dec'22 to 14% in Dec’23 led by network expansion, price correction (to make it competitive) and plugging gaps on features. Chetak is currently present in 140 cities through 160 outlets and the company plans to expand its touch points going ahead. Near-term objective is to ramp-up Chetak’s volumes to c.15k units / month by FY24 end (10k units currently). The company also plans to expand Chetak’s product portfolio by launching multiple products going ahead. The company indicated that it is also working on a CNG motorcycle and plans to launch it during FY25. E3Ws: BJAUT’s E3W has been received well and the company has already garnered c.50% market share in few cities. The company indicated that while E3W offers better TCO, CNG 3Ws offers better value proposition owing to rising CNG penetration and thus it expects CNG 3Ws to continue to grow. Near-term focus is on ramping-up E3W volumes and expand E3W’s presence to c.50 cities by FY24 end and to 200 cities thereafter.

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CIN Number : L67120MH1986PLC038784