Q2FY24 Review: Bajaj Auto: Steady performer; multiple growth drivers

19 Oct 2023 , 01:35 PM

Bajaj’s Q2 results were slightly ahead of estimates (3% Ebitda beat), led by better margins. Commentary on domestic 2W has improved, with mgmt expecting 12-15% YoY growth in festive season. 3W industry is set to clock a record year in FY24, with Bajaj doing even better due to mkt-share gains. Export volumes are 40% off-peak; volumes are expected to improve, but recovery may be gradual. Meanwhile, EV and Triumph volumes are also expected to scale up (target: 10,000 units per month each). Overall, revenue growth outlook is strong and margins are on an upward trajectory. Analysts of IIFL Capital Services upgrade EPS by about 2% (slight increase in margins, Other income). Mgmt trimmed dividend payout commitment from ‘up to 90%’ to ‘>70%’; this is a slight negative. Retain BUY with TP of Rs6,120 (19% upside). 

Q2 results slightly ahead of estimates: 

Q2 revenue grew 6% YoY and came in line with analysts of IIFL Capital Services estimates. Ebitda margin improved 80bp QoQ to 19.8% (50bp beat), driven by softness in precious metals and better mix (higher 3W). Absolute Ebitda beat by 3%; higher Other income magnified PAT beat to 6%. 

All segments looking up: 

Early indications of festive season are positive; mgmt expects 2W volumes to grow 12-15% YoY. 3W industry is set to clock 40% growth in FY24, and Bajaj is likely to grow faster due to market-share gains. Export volumes are 40% off-peak and are improving, albeit at a slow pace. Dealer stock in export markets is low, leaving scope for building back inventory as end-demand improves. Bajaj has improved its 2W EV market-share from 4% in FY23 to 11% in the recent months. Mgmt plans to scale up 2W EV to 10k per month very soon, with new models and entry into new cities. Triumph is doing well in domestic markets. There is scope for volumes to ramp up to 10k per month, when exports commence. Mgmt is testing 3W EV in select markets, and plans to ramp up volumes with much better profitability compared to 2W EV.