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In line; stable margin despite increase in EV mix

Domestic business on firm footing; export outlook remains uncertain

* BJAUT’s 1QFY25 performance was in line with our estimates. Margins remained stable QoQ, despite EV ramp-up, due to PLI accrual and favorable forex. We believe BJAUT is likely to continue to outperform the domestic motorcycle industry on the back of its focus on 125cc+ segment; however, the export outlook remains uncertain.

We have marginally lowered our FY25/FY26 estimates to factor in persistent weakness in exports. BJAUT has significantly outperformed the Nifty Auto Index, led by market share gains in the 125cc+ domestic motorcycle segment, improved margins, and a one-of-a-kind policy to reward its shareholders. After the sharp rally, however, the stock at ~31x/25.5x FY25E/26E EPS appears fairly valued. We reiterate our Neutral rating with a TP of INR8,695 (based on 22x Jun’26E consol. EPS).

EBITDA margin expansion driven by PLI accruals and forex benefits

* BJAUT’s 1QFY25 revenue/EBITDA/PAT grew 16%/24%/19% YoY to INR119.3b/INR24.2b/INR19.9b (est. INR116.7b/INR23.3b/ INR19.8b).

* Volume grew 7% YoY, which, combined with a better mix, resulted in ~8% YoY improvement in net realizations to INR108.2k/unit (est. INR105.9k/unit).

* Spares revenue grew ~8% YoY to INR13b, while export revenue jumped ~32% YoY to INR38.4b in 1QFY25.

* Gross margin expanded 190bp YoY (+30bp QoQ) to 30% (est. 29.5%). The sequential gain in gross margin was driven by FX benefits and PLI accrual.

* EBITDA margin improved 120bp YoY to 20.2% (est. 20%). Margin expansion was driven by better realizations, PLI benefits and cost reduction efforts, offsetting expenses incurred for the expansion of e-2W business.

* BJAUT maintained a strong balance sheet position with total cash of INR167.6b. It infused INR5.05b into its wholly owned finance subsidiary for further expansion.

Highlights from the management commentary

Exports 2W:

Small but steady recovery visible. BJAUT expects 2Q to be better than 1Q. Production in its newly established plant in Brazil started in Jun’24, with a single-shift capacity of 20k units per annum, scalable to 50k units per annum.

Domestic 2W:

It anticipates 6-8% YoY volume growth for the industry in FY25, with the 125cc and above category outperforming. EVs, including 2W and 3Ws, contributed 14% of the domestic revenue.

Freedom 125:

The addressable market is 450-500k customers per month. It has received bookings for 4,200 units, with 90% from Maharashtra and Gujarat initially. It is expanding into Kerala and Delhi in two quarters. Initial production capacity is set at 10k units per month for the second quarter, with plans to ramp it up to 40k units per month by the fourth quarter.

* Expect cost inflation in the coming quarters:

BJAUT anticipates 50-70bp cost inflation in the coming quarters. It has increased prices at the beginning of the quarter, covering half of the estimated cost increase.

Valuation and view

* We have marginally lowered our FY25/FY26 earnings estimates by 4%/0.4%. We expect BJAUT to gain share in domestic motorcycles in FY25, aided by: 1) a shift in demand to the 125cc+ segment, which is its strong market; and 2) a healthy launch pipeline. However, the export outlook remains uncertain.

* BJAUT has witnessed a significant re-rating in the last 12 months, aided by market share gains in the 125cc+ domestic motorcycles segment, improved margins, and a one-of-a-kind policy to reward its shareholders. After the sharp rally, however, the stock at ~31x/25.5x FY25E/26E EPS appears fairly valued. We reiterate our Neutral rating with a TP of INR8,695 (premised on 22x June-26E consol EPS).

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