Q4FY24 Review: Bajaj Auto: Steady earnings growth to continue

19 Apr 2024 , 12:20 PM

Bajaj delivered another strong quarter, with 24% YoY volume growth and 34% Ebitda growth. Bajaj is a play on continued growth in domestic 2W (FY24 industry volumes 15% below FY19 peak) and recovery in exports (FY24 volumes 35% below peak). Mgmt. is confident of gaining a share in the domestic 2W industry, on the back of new launches (new Pulsar variants, first-ever CNG motorcycle). In the exports segment, some markets are recovering well while few countries are facing macro challenges. On an overall basis, analysts of IIFL Capital Services expect export volumes to grow 15% in FY25. Bajaj has gained significant traction in 2W EVs and is planning more launches in FY25. Bajaj’s recently launched 3W EVs are also making a mark in the limited markets, where they have been introduced. Analysts of IIFL Capital Services upgrade EPS by 2-3%. They expect Bajaj to clock 14% EPS Cagr over FY24-26 on 10% volume growth. Retain BUY with TP of Rs9,500.

Q4 in sync with estimates on all fronts:

Revenue grew 29% YoY (inline), led by 24% increase in volumes and ~4% improvement in blended realisation (ASP). Gross margin (GM) improved 80bps QoQ to 29.7%, led by richer product mix. Ebitda margin stayed flattish at 20.1% (in-line), as GM improvement was off-set by higher opex. Absolute Ebitda/PAT came in line with analysts of IIFL Capital Services expectations.

Steady volume/EPS growth to continue:

Analysts of IIFL Capital Services forecast Bajaj’s volume growth at 10% Cagr over FY24-26. The domestic 2W industry volumes are still 15% below pre-Covid peak and should continue to grow. Bajaj’s exports are 35% below FY22 peak; analysts of IIFL Capital Services forecast 15% volume growth in exports. Export of Qute (quadricycle) into Egypt, if scaled up, would also add to volumes. Bajaj is gaining traction in EVs (2W and 3W). Its premium motorcycle sales (KTM, Husqvarna, Triumph) are also scaling up. Overall, analysts of IIFL Capital Services forecast 14% EPS Cagr with 10% volume growth, increase in ASP and slight margin improvement.

Valuations are expensive, though:

Bajaj stock is up 121% in the past year, driven by earnings growth and a sharp re-rating in valuations. The 1-year forward PE has gone up from 19x to 30x in the last 12 months. Fundamentally, the steady 14% EPS growth over FY24-26 + 2.5% div yield looks attractive. Analysts of IIFL Capital Services TP of Rs9,500 is based on 27x FY26 EPS.