Buy Bajaj Auto Ltd for the Target 13,700 by Emkay Global Financial Services Ltd
BJAUT logged a resilient 1Q, with revenue up 37% yoy led by 29% yoy volume growth and ASPs up 2.8% qoq. EBITDAM was stable qoq at 20.9%, as the 100bps qoq gross-margin drop was offset by lower other expenses. BJAUT highlighted a strong demand outlook for 2Q and FY27 across the domestic and exports markets despite the volatile environment and geo-political headwinds. The company saw a 4.5% hit from commodity inflation in 1Q which was offset by calibrated pricing actions and tight cost controls. BJAUT will continue its calibrated pricing actions as well as focus on value engineering and productivity improvement. To capitalize on the robust demand, BJAUT is enhancing its overall capacity to 9mnpa units (7mnpa now); Chetak’s capacity to be raised to 60k units/mth from 50k now, given the strong E-2W demand (E-2W retail penetration has surpassed the 10% mark). On exports, BJAUT targets achieving runrate of >250k units/mth in coming quarters (~244k/mth in 1Q) owing to a strong traction across end-markets. Further, BJAUT is also undertaking an exhaustive makeover of its domestic motorcycles portfolio over the next 6 weeks which includes a new 125cc/150cc Pulsar and 10 facelifts in the 160cc400cc range; BJAUT to launch two new 125cc brands later in FY27. Given the strong demand outlook and resilient margins, we model volume/revenue/EPS CAGR of 12/15/16% over FY26-29E; retain BUY on BJAUT and raise our TP by 5.4% to Rs13,700 from Rs13,000, at 26x Jun-28E core EPS (rolled forward).
Healthy volume-led growth lifts profitability
Revenue rose 37% yoy led by 29% yoy volume growth and ASPs up 2.8% qoq. EBITDA rose 45% yoy to ~Rs36bn, with EBITDAM stable qoq at 20.9% as the 100bps qoq gross margin contraction was offset by lower ‘other expenses’. PAT grew 42% yoy to Rs29.8bn.
Earnings call KTAs
1) Despite the volatile setting, BJAUT highlighted a strong demand environment across domestic/export markets; 1QFY27 was tough for BJAUT due to RM inflation, supply chain/logistics disruption, and a ransomware attack. The disruptions impaired availability by 10-15%, esp in exports/high-end bikes/EVs.
2) BJAUT effected calibrated pricing actions in Apr/Jun-26, offsetting ~50% of the 4.5% commodity inflation seen in 1QFY27. 3) Pricing to continue as a margin lever, but focus also on value engineering, sourcing initiatives, productivity, disciplined cost management. While discretionary/fixed costs to be tightly controlled, marketing and marketing spend for new model launches to sustain, for driving competitiveness.
4) BJAUT outpaced exports industry growth >2x in its top30 export markets (80% of the industry), strongly improving market share. The outlook is robust and BJAUT targets runrate of >250k units/mth over 2Q-4Q.
5) It targets raising overall capacity from 7mnpa units to 9mnpa units, focusing on EVs (Chetak’s capacity to be raised to 60k units/mth vs 50k now).
6) E-2W and E-3W businesses accounted for 30% of revenue in 1Q and logged double-digit EBITDAM, with Chetak now EBITDApositive (EBITDA-neutral earlier).
7) In 3Ws, the ICE franchise maintained 70% market share and leadership in E-3Ws.
8) BJAUT is undertaking an exhaustive makeover of its domestic motorcycle portfolio within 6 weeks; this includes a new 125cc/150cc Pulsar + 10 facelifts in the 160cc-400cc range; BJAUT to launch 2 new 125cc brands later in FY27.
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