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Steady Q1; risk-reward unattractive

BJAUT reported a steady Q1 (revenue/EBITDA up 16%/24% YoY; 20.2% EBITDA margin, aided by 50bps accrual of PLI benefit). Domestic 2W prospects are healthy, though BJAUT’s position has slipped now (also in the 125cc motorcycle); response to newly-launched CNG motorcycle needs to be watched. The mgmt guided for exports recovery to be gradual, and its focus on Triumph is to build brand awareness. Valuations, though, remain expensive (trades near 2SD from LTA, at 28x FY26E PER). We raise FY26E EPS by ~2.6% (higher margin) and introduce FY27 estimates (13% FY24-27E EPS CAGR); we retain REDUCE and revise TP to Rs8,300/sh (roll over core 23x multiple to Jun-26E) + Rs900 cash & investment/sh. We prefer HMCL in 2Ws (link) amid growth/rerating triggers (successful Xtreme 125R launch) and an attractive risk-reward.

Margins sustain at over 20%

Revenue grew 16% YoY to Rs119.3bn, in line with estimates (volumes up 7% YoY; ASPs marginally higher QoQ). EBITDA was higher by 24% YoY/5% QoQ, with EBITDA margin up 17bps sequentially at 20.2% (largely on better USD-INR, at 83.4 vs 83 in Q4). Adj. PAT rose 19% YoY to ~Rs19.9bn (at a ~2% beat). Surplus cash stands at Rs167bn.

Earnings Call KTAs:

1) The management expects outperforming the 7-8% growth in the domestic 2W industry on the back of growth in the 125cc+ segment and launch of CNG motorcycle (‘Freedom 125’). 2) Exports is seeing steady revival led by Latin America. Key markets (like Nigeria) in Africa continue to struggle (now at 30% of peak volumes). Brazil is expected to emerge as one of the top-3 markets in the medium term. BJAUT expects Q2 to be better than Q1. 3) Freedom 125 has an addressable market of 450-500K units/mth (mileage-conscious customers in 100-125cc); currently, capacity of 10K units/mth to be expanded to 40K/mth by Q4. The company expects new variants (bottom-end and topend) in CNG down the line; current bookings are at 4.2K units. 4) BJAUT expects consistent volumes of over-100K units/Qtr in domestic 3Ws. E-auto volumes (at ~3K/mth now) are expected to grow owing to distribution expansion (140 locations now) and migration from E-rickshaws. BJAUT aims to be a full-range player in 3Ws, and is not worried about cannibalization of CNG 3Ws, as EVs have similar margins as ICE (incl. PLI incentives). 5) E-2W Chetak volumes are seen expanding owing to greater reach (targeting 1K stores by Sep-24 vs. 250 now) and ramp-up of the sub-Rs100K variant. The company targets becoming the second-largest E-2W player soon. Though E2Ws are still some time away from becoming profitable, increasing volumes are not dragging margins proportionately due to strong cost efforts. 6) Triumph distribution to expand to 150 stores by H1 (vs 100 now); the company focuses on brand-building beyond metros in India, and on retails in export markets. 7) PLI incentives have started being accounted for from Q1 (EVs formed 14% of domestic revenues); these incentives contributed to ~50bps of margin expansion. 8) Expects ~70bps RM increase in Q2; has taken ~0.35% price hike in July. 9) Rs7-8bn capex seen in FY25E. 10) Spares sales stood at Rs13.5bn.

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