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Margins below 20% for first time in seven quarters Export outlook positive, domestic remains uncertain

• BJAUT’s 1QFY26 earnings at INR20.6b beat our estimate of INR19.8b, aided by higher-than-expected other income even as margins were in line with our estimate at 19.7%. Margin has fallen below 20% for the first time in seven quarters.
• While a recovery in exports and a healthy ramp-up of Chetak and 3Ws are key positives, its market share loss in domestic motorcycles remains the key concern. Further, the ramp-up of its CNG bike, Freedom, has been slower than expected. BJAUT has acquired a controlling stake in KTM under a lucrative deal, though its effectiveness depends on how quickly it is able to turn around its operations, which will remain the key monitorable from hereon. At ~25.4x/22.7x FY26E/FY27E EPS, BJAUT appears fairly valued. We maintain a Neutral rating with a TP of INR8,618, based on 22x Jun’27E core EPS.

Margins below 20% mark on adverse currency impact

• 1Q earnings at INR20.6b beat our estimate of INR19.8b. ? Revenue grew 5.5% YoY to INR126b and was in line with our estimate. Growth was largely driven by 5% YoY growth in ASP despite largely flat volumes YoY.
• Gross margin fell 40bp YoY to 29.6%, largely due to rising input costs and currency impact.
• Overall, EBITDA margin dropped 50bp YoY and QoQ to 19.7% (in line with our estimate) due to weak volumes and an adverse product mix (impact of currency appreciation and lower exports). Margin has fallen below 20% for the first time in seven quarters.
• Other income came in at INR4.3b, ahead of our estimate of INR3.4b. As a result, PAT at INR20.6b was ahead of our estimate, up 5% YoY.
• BJAUT generated FCF of INR1.2b in 1Q, with surplus funds of INR167.3b despite an infusion of INR3b into Bajaj Auto Credit (BACL) and INR15.25b into Bajaj Auto International Holdings BV for the KTM Austria acquisition.

Highlights from the management commentary

• Given the positive on-ground fundamentals, management believes that 5-6% growth in the 2W industry is possible in the coming months.
• Management expects the impact of net material costs (cost less price hike) to largely be flat QoQ in Q2.
• Further, given that INR is again depreciating vs. USD, management expects some currency benefits in 2Q. However, BJAUT intends to use these benefits to target and recover some market share in the domestic market.
• Given the impact of rare earth metal shortage, BJAUT is likely to produce 50- 60% of planned capacity for 2W EVs and 75% of planned capacity for 3W EVs in Aug’25, with a similar shortage seen in Jul’25 as well.
• BACL delivered over 2x growth in PAT to INR1.1b in Q1. AUM has increased to INR120b and BJAUT expects to end FY26 with AUM of INR190b.

Valuation and view

• While a recovery in exports and a healthy ramp-up of Chetak and 3Ws are key positives, its market share loss in domestic motorcycles, that too in its breadand-butter 125cc+ segment, remains the key concern. Further, the ramp-up of its CNG bike, Freedom, has been slower than expected. While BJAUT has acquired a controlling stake in KTM under a lucrative deal, its effectiveness depends on how quickly it is able to turn around its operations, which will remain the key monitorable from hereon. At ~25.4x/22.7x FY26E/27E EPS, BJAUT appears fairly valued. We maintain a Neutral rating with a target price of INR8,618, based on 22x June-27E core EPS.

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