Buy Bajaj Auto Ltd For Target Rs.9,750 By Choice Broking Ltd
Strong Exports Driving Growth: BJAUT saw a muted performance in the domestic market in Q1FY26, impacted by consumer tendency to postpone purchases to festive season. This was offset by a significant 15.8% YoY growth in export volumes for the quarter. The company expects exports to grow 15-20% YoY in the near term (Exports accounted for ~43% of total volume in Q1FY26). BJAUT also plans to expand the Brazil plant capacity, from the current capacity of 30k units to 50K units. We believe BJAUT will continue this growth momentum in exports and we expect the export revenue to grow 21.3%/18.0% for FY26/FY27.
Rare Earth Magnet Supply Chain Headwinds: BJAUT faces an immediate challenge of non-availability of Heavy Rare Earth (HRE) magnets, which began to affect production in June. This issue led to a 50% shortfall in Chetak E-2W (contributed to ~6% of the total volume in FY25) deliveries to dealers in July, with a similar deficit feared in August. E-3Ws are also projected to face a shortfall of about 25% to 30% this month. While the company is actively pursuing multiple short-term and long-term solutions, including developing alternative sources and components, complete de-risking of the supply chain for this critical segment is anticipated to take about six to nine months.
Going forward, we expect to see some recovery in the domestic industry, led by a healthy monsoon, which will boost rural demand. The upcoming festive season will also aid the domestic recovery. BJAUT is focusing on new product launches such as E-rickshaw and new models in the Chetak series to improve its share in the domestic market.
View and Valuation: We revise our FY26/27 EPS estimates down by 4.6%/4.4%, and maintain our target price of INR 9,750. We value the company at 26x (maintained) on the average FY27/28E EPS, while we introduce FY28 estimates. We maintain our ‘BUY' rating on the stock.
BJAUT Q1FY26 results are in line with estimates
* Revenue was up 5.5% YoY and up 3.6% QoQ to INR 1,25,845Mn (vs consensus est. at INR 1,22,834Mn) led by 0.8% YoY growth in volume and 4.6% YoY growth in ASP.
* EBITDA was up 2.8% YoY and up 1.3% QoQ to INR 24,818Mn (vs consensus est. at INR 24,294Mn). EBITDA margin was down 53bps YoY and down 45bps QoQ to 19.7% (vs consensus est. at 19.8%).
* PAT was up 5.4% YoY and up 2.3% QoQ to INR 20,960Mn (vs consensus est. at INR 20,123Mn).
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