Upgrade to Buy Bajaj Auto for the Target Rs 12,096 by Motilal Oswal Financial Services Ltd
Business resilience displayed yet again Promising outlook across segments
* The key highlight of Bajaj Auto’s (BJAUT) 1QFY27 performance was that its margins remained largely stable QoQ at 20.9% (ahead of our estimate of 20.2%) as benefits from favorable currency movements, price hikes, and an improved export mix helped to offset a surge in input costs. Resultantly, PAT came in 8% higher than estimates at INR29.8b.
* On the back of its healthy launch pipeline, we expect BJAUT to gradually recover market share in the domestic motorcycle market. Export outlook continues to be healthy, with management targeting 250k+ units per month in 2Q. Further, it continues to outperform even in EVs, both 2Ws and 3Ws. Given a better-than-expected performance in 1Q and a strong outlook across segments, we raise our EPS estimates by 5%/9% for FY27/FY28. Overall, we expect BJAUT to deliver a CAGR of 20%/22%/22% in revenue/ EBITDA/PAT over FY26-28E. Given the strong earnings forecast, healthy return ratios, among-the-best dividend payouts and a resilient business model, valuations at 23x/19.6x FY27E/FY28E EPS appear attractive. We upgrade BJAUT to BUY (from Neutral) with a revised TP of INR12,096 per share, based on 24x FY28E core EPS.
Earnings beat led by strong margins
* BJAUT’s 1QFY27 revenue came in line with our estimates, growing 37% YoY to INR172.4b. Volumes were up 29% YoY at ~1.4m units and realizations were up 6% YoY at ~INR119k/unit. An improved export mix, favorable currency movements, and record volumes drove growth across all businesses. EV revenue was ~30% of domestic revenue in 1QFY27.
* EBITDA margins grew 110bp YoY to 20.9% (flat QoQ), 70bp higher than our estimates. Margins were stable QoQ despite a surge in input costs and were driven by an improved mix, price hikes, and favorable currency.
* As a result, EBITDA grew 45% YoY to INR35.9b, 6% higher than estimates.
* PAT rose 42.3% YoY to INR29.8b (8% higher than our estimates).
* Surplus cash balance as of 1QFY27 was over INR210b.
Valuation and view
BJAUT demonstrated business resilience once again in 1Q as the company sustained its high margins despite the surge in input costs. Considering its healthy launch pipeline, we expect BJAUT to gradually recover market share in the domestic motorcycle market. Export outlook continues to be healthy, with management targeting 250k+ units of exports per month in 2Q. It continues to outperform even in EVs, both 2Ws and 3Ws. Given a better-than-expected performance in 1Q and a strong outlook across segments, we raise our EPS estimates by 5%/9% for FY27/FY28. Overall, we expect BJAUT to deliver a CAGR of 20%/22%/22% in revenue/EBITDA/PAT over FY26-28E. Given the strong earnings forecast, healthy return ratios, among-thebest dividend payouts and a resilient business model, valuations at 23x/19.6x FY27E/ FY28E EPS appear attractive. We upgrade BJAUT to BUY (from Neutral) with a revised TP of INR 12,096 per share, based on 24x FY28E core EPS.
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