PL Stock Report: Bajaj Auto (BJAUT IN) - Q2FY24 Result Update – In line results; export realization under pressure - Reduce

Bajaj Auto (BJAUT IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: REDUCE | CMP: Rs5,144 | TP: Rs4,800

Q2FY24 Result Update – In line results; export realization under pressure

Quick Pointers:

• Export realization fell 7% QoQ; volume recovery to be gradual
• Inventorisation helps margins

We marginally increase our FY24-FY26E EPS estimates by ~1% to factor in higher domestic realization and continued 3W volume strength. Bajaj Auto’s (BJAUT) 2Q revenue (Rs. 108bn) was largely in-line, while EBITDA margin (19.8%) was slightly higher than PLe (19.4%) and the street (19.5%). EBITDA margins benefitted from inventorisation and better mix QoQ, which was partially offset by lower export ASP. Export volumes recovered QoQ and BJAUT is expecting only gradual improvement, given macro challenges in those markets. BJAUT saw export realization falling ~7% QoQ given increase in mix from lower ASP markets like African regions which have low ASP and margin. Furthermore, increase in EV volumes will impact overall margins. We expect moderation in margin in 2H from current levels.

Until now, BJAUT had been witnessing a sharp increase in its 3W mix, which was aiding margins; we expect this trend to start moderating sequentially. We expect BJAUT’s domestic premium segment volumes to grow (similar to the industry), market share gains in this and fast ramp-up of EVs could make us turn constructive on the stock. BJAUT is currently trading at 18.5x FY25, on the higher side versus history. Maintain ‘REDUCE’ with a TP of Rs 4,800 (Rs 4,750 earlier) at 16x Sep-25E EPS.

In line revenues; slight beat on margins: Revenue grew by ~6% YoY, despite volume decline of ~8.4% YoY helped by sharp increase in ASP, and came in line with PLe and slightly below Bloomberg consensus (BBGe). EBITDA margins at 19.8% beat PLe (19.4%) and BBGe (19.5%), helped by inventorisation and lower than expected other expenses. Higher other income led to higher beat on PAT.

Key takeaways:

(1) Exports recovery to continue at gradual pace: Exports is at 66% of peak of FY22. Macroeconomic factors and geopolitical issues dampening recovery despite this, there has been improvement of 8-10% QoQ in both retail and shipment across segment. Africa and Nigeria recorded growth double digit growth while Asia, Middle East, North Africa and LATAM recorded single digit improvement.

(2) In domestic market : Retails increased by 22% QoQ due to strong performance in 125cc+ segment, which recorded a growth rate of 36%. BJAUTs market share in 125cc+ segment stands at 30% and accounts for 65% of its total volumes and BJAUT has a 40%+ market share in 150-250cc segment.

(3) 3W: Recorded a growth of 34% QoQ with a market share of 80% in September. Growth in 3W is on back of shift from diesel to CNG. E-3W launched in Agra with a market grab of 70% in the quarter, BJAUT plans to reach 40 cities in coming 6 months and sold 600 EVs in 2Q.

(4) Chetak: Reached 120 cities with 140 exclusive stores and aims to reach 180 cities and reach 10k volumes by FY24 end.

(5) Festive season outlook: Consumer sentiment and retail data showing positive signs. Industry expected to grow by 12-15% YoY, BJAUT to outperform.

(6) New launches: BJAUT aims to launch 6 products in coming 6 months.

(7) Premium: Scrambler 400X launched in domestic market and will start export by month end. Speed 400 were more than >8K units in Q2, pending orders could be >10k units. BJAUT wants to expand channel to over 100 cities by the year end, with current reach of 26 cities.

(8) Margin headwinds: Margin at 19.8%, up 260bps YoY due to dynamic price, cost management and softer commodity cost. BJAUT E-3W won’t be diluting margins due to lower battery cost component and benefits from PLI scheme.