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2025-02-07 11:53:15 am | Source: Motilal Oswal Financial Services Ltd
Neutral Bajaj Auto Ltd For Target Rs.8,770 by Motilal Oswal Financial Services Ltd
Neutral Bajaj Auto Ltd For Target Rs.8,770 by Motilal Oswal Financial Services Ltd

In-line result; favorable FX supports margins

Exports revive, but long-term outlook remains uncertain

* BJAUT delivered an in-line performance in 3QFY25, with volume growth of ~2%. Favorable FX and a higher spares mix helped BJAUT sustain margins at 20%+ despite a rising EV mix.

* We have marginally lowered our FY25/FY26 earnings estimates by 2% each. The key concern is that BJAUT has lost share in domestic 125cc+ segment on YTD basis. While exports seem to have revived in the near term, the longerterm outlook remains uncertain given the adverse macro globally. Hence, despite a correction in the stock price recently, BJAUT at ~25.5x FY26E/22.2x FY27E EPS appears fairly-valued. Therefore, we maintain a Neutral rating with a TP of INR8,770, based on 24x Dec’26E consolidated EPS

 

Margins maintained at 20%+ despite increase in EV mix

* 3QFY25 standalone revenue/EBITDA/PAT grew ~6%/6%/3% YoY to INR128.1b/INR25.8b/INR21.2b (est. INR130.3b/INR25.8b/INR21.7b). 9MFY25 revenue/EBITDA/adj. PAT grew 14%/17%/14% YoY.

* Revenue growth was led by 2% YoY growth in volumes and ~4% YoY growth in ASP at INR104.6k (est. INR106.4k).

* The green energy portfolio contributes ~45% of revenue (vs. 30% YoY).

* Gross margin was flat QoQ at 28.7%, (-20bp YoY, est. 28.4%). Raw material basket remained flat QoQ. Net impact of pricing was also minimal in 3Q.

* EBITDA margin stood at 20.2% (+10bp YoY/flat QoQ, est. 19.8%) despite the ramp-up of EVs due to favorable currency and improved spares (+21% YoY).

* Despite lower other income, adj. PAT came in line with our estimate.

* Cash balance stood at INR150b. BJAUT has invested INR15b in its finance subsidiary BACL. It has also invested INR4.5b in capex, two-thirds of which was invested in EVs.

 

Highlights from the management commentary

* Domestic 2Ws: Management expects the industry to post 6-8% growth in the near term. Given its focus on 125cc+ segment, BJAUT targets to outperform industry growth.

* Exports: Management expects exports to grow 20%+ for the next couple of quarters. The fastest-growing markets for BJAUT are Latin America (+30% YoY) and ASEAN. Even Africa has recovered, with Nigeria now clocking close to 30k units per month. However, BJAUT has refrained from giving a longterm outlook for exports given the current uncertainty in global markets.

* BJAUT expects the L5 segment to grow at 5-7%, driven by rising EV penetration and BJAUT targets to outperform industry growth with new launches.

* For its EV portfolio, BJAUT has posted EBIDTA in 3Q vs. just break-even in 2Q.

* Management has indicated that input cost is likely to see headwinds in 4Q, which is likely to be partially offset by favorable currency movement.

 

Valuation and view

* We have marginally lowered our FY25/FY26 earnings estimates by 2% each. BJAUT has lost market share in the domestic motorcycle segment by 150bp to 17%. The key concern is that it has lost share in 125cc+ segment as well on YTD basis.

* While exports seem to have revived in the near term, the longer-term outlook remains uncertain given the adverse macro globally. Further, the ramp-up of its CNG bike Freedom has been slower than expected. Hence, despite a correction in the stock price recently, BJAUT at ~25.5x FY26E/22.2x FY27E EPS appears fairly valued. Therefore, we maintain a Neutral rating with a TP of INR8,770, based on 24x Dec’26E consolidated EPS

 

 

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