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Riding Multiple Growth Engines with Long-Term Strategic Clarity

Est. Vs. Actual for Q1FY26: Revenue – BEAT; EBITDA – BEAT ; PAT – BEAT

Change in Estimates post Q1FY26:

FY26E/FY27E: Revenue -1.5%/-1.4%; EBITDA -1.7%/-1.1%; PAT -0.5%/-0.6%

Recommendation Rationale

• International Market: Q1FY26 exports touched an all-time high (~$500 Mn) in revenue terms despite volume still being ~20-25% below FY22 levels, highlighting pricing power and premium mix benefits. As per management, LATAM and Southeast Asia (apart from Nigeria, Africa) are in an upward cycle, and Brazil—a structurally tough market—is now showing clear traction (7,000 units). Dominar, Pulsar 400Z, and KTM export momentum is expected to sustain. Capacity expansion in Brazil is expected to unlock the next leg of volume growth (50,000 units per annum). Management guides for 15–20% QoQ export growth in FY26, supported by strong demand, market recovery, and product mix improvement.

• EVs Gaining Momentum: Bajaj’s EV portfolio (Chetak and E-3Ws) is now at high singledigit EBITDA margins, a sharp reversal from red territory in FY24. Despite near-term HRE magnet-based supply chain headwinds, Bajaj is pursuing multiple mitigation strategies. The company has thus cemented the pole position at 31% in e-2W vehicles. Short-term supply bottlenecks are likely priced in, but structural cost leadership and product acceptance offer a high-ROI EV optionality.

• Bajaj Auto Credit Limited; A Silent Value Compounder: BACL delivered Rs 102 Cr PAT in Q1FY26, doubling FY25 annual PAT. AUM now stands at Rs 12,000 Cr and penetration at 40%. Bajaj has infused Rs 300 Cr this quarter to support aggressive but profitable growth. This captive NBFC flywheel is increasingly accretive to core RoE and valuations.

Sector Outlook: Positive

Company Outlook & Guidance: In FY26, the management’s focus is on gaining leadership in the 125cc+ motorcycle segment, expanding exports—especially in Latin America—and scaling key platforms like Chetak, GoGo, and Freedom. Expanding operations in Brazil, reviving KTM, boosting spares performance, and growing Triumph in India remain key priorities. The company also aims to balance growth with profitability amid ongoing market volatility.

Current Valuation: 22x its Mar'28E core EPS (previously 24x Mar'27), plus PMAG stake and cash reserves at 1x book value.

Current TP: Rs 9,360/share (Earlier TP: Rs 9,890/share)

Recommendation: We maintain our BUY rating on the stock

Financial Performance: Bajaj's Q1FY26 beat our estimates on all fronts. Total revenue grew ~5.5% YoY (down 3.6% QoQ), driven primarily by ~1% YoY/QoQ growth each in volumes and better ASP (up 4% YoY) due to higher exports and an improved CV mix. EBITDA increased by ~2.8% YoY (up 1% QoQ) and EBITDA margins declined by 50 bps to 19.7%, due to lower dollar realisations, commodity inflation being offset by improved mix and operating leverage. PAT rose 5.5%/2.3% YoY/QoQ.

Outlook: We recommend a BUY on Bajaj Auto Ltd, supported by strong multi-cylinder growth triggers across domestic premium motorcycles, export rebound, a disciplined 3W and EV scale-up, and a sharply improving financial services business through BACL. Despite near-term noise around EV supply chain constraints and FX headwinds, Bajaj’s capital-efficient model, leadership in key segments, and countercyclical balance sheet strength support rerating potential.

Valuation & Recommendation We value the stock at a sustainable PE multiple of 22x its Mar'28E core EPS (previously 24x Mar'27E), adding the company’s stake in PMAG and surplus cash reserves at 1x book value to arrive at a TP of Rs 9,360/share (previously Rs 9,890/share), implying a 14% upside from the CMP. We maintain a BUY on the stock from a long-term perspective.

Key Concall Highlights

Bajaj Auto – Q1FY26

• Business Outlook: Bajaj Auto revenue was up 6% YoY as exports, premium motorcycles, CVs and Chetak led the way to doubledigit growth. The balanced business model is at play, as resurgent exports and scaling up of the emerging electric portfolio more than made up for the domestic motorcycle performance, which, although improving over the previous quarter, had a subduing effect on the overall growth. Geographically, demand from southern markets was subdued, whereas northern states like Uttar Pradesh, Delhi, and Haryana were relatively resilient. While management remains cautious about short-term demand trends, it expects the overall two-wheeler industry to grow by 5–6% YoY in FY26.

• Premium Segment (KTM and Triumph): KTM and Triumph billed over 25,000 bikes in domestic markets, up 20% YoY, driven by market share gains from a wider/upgraded portfolio. The premium retail footprint expanded to 136 outlets across 100 cities. Currently, KTM’s offerings are limited to sub-400cc motorcycles; however, the company aims to enter higher displacement categories (up to 990cc).

• Commodity & Currency Dynamics: Q1FY26 forex realisation dipped by Rs 1 QoQ to Rs 85.5/$; and is expected to stay volatile. Management expects a flat cost-price delta— Aluminium, platinum, copper, and rubber costs rose while steel cost settlement and pricing actions helped in Q1; sequential EBITDA margin growth could flatten or reverse in Q2. (The implementation of OBD 2 norms will add to input costs.)

• Strong Balance Sheet: In Q1FY26, free cash flow generation sustained at Rs 1,200 Cr, which was added in the quarter. The Surplus funds stood at Rs 16,726 Cr, after infusing Rs 300 Cr into Bajaj Auto Credit to finance the continued scale-up/ growth of its book and Rs 1,525 Cr into Bajaj Auto International Holdings BV, Netherlands, to partly fund the KTM Austria transaction.

• Spares Revenue: Spares contributed to the quarterly sales at ~Rs 1,600 Cr, reflecting the strength of the aftermarket and replacement business.

Key Risks to Our Estimates and TP

• Disruption in the supply of rare earth magnets from China.

• An increase in commodity prices from the current level would impact the company’s gross margins negatively.

• Market Share in Domestic 2Ws Still Under Threat: Hero’s aggressive entry pricing, TVS’s strong hold in premium 2Ws, and Honda’s recovery in urban markets together limit Bajaj’s ability to defend share without margin compromises.

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