Q3FY24 Review: Bajaj Auto: Impressive Q3; Export recovery yet to play out

25 Jan 2024 , 02:22 PM

Bajaj reported a strong Q3, with 22% YoY growth in volumes and 37% growth in Ebitda (2% beat vs est.). Bajaj is gaining share in domestic 2W industry, on the back of Pulsar. Export volumes have bottomed out but have not seen a sharp recovery yet, due to weakness in Africa and South Asia. Analysts of IIFL Securities believe ‘exports recovery’ would be a strong volume/earnings catalyst in FY25/FY26. Meanwhile, Bajaj has gained significant traction in 2W EV, with its mkt-share in 2W EV crossing its mkt-share in 2W ICE. Bajaj’s recently launched 3W EV is also making a mark in the limited markets, where it has been introduced. Triumph is likely to scale up, especially with commencement of exports. Overall, analysts of IIFL Securities feel Bajaj is well-placed to deliver 14% EPS Cagr over FY24-26, which when combined with 3-4% div yield, makes an attractive total return. Analysts of IIFL Securities upgrade EPS by 1-2% following these results. Retain BUY with TP of Rs8,100 (24x FY26 EPS). 

Q3 Ebitda 2% above estimate: 

Revenue grew 30% YoY, led by 22% increase in volumes and ~7% improvement in blended realisation (ASP). Gross margin (GM) was flattish QoQ at 28.9%, with RM benefit offsetting margin dilution due to higher rev share of 2W EV. Ebitda margin expanded 30bps QoQ to 20.1% (20bps beat), due to operating leverage. Absolute Ebitda/PAT came in 2% above analysts of IIFL Securities expectations. 

Gaining mkt-share in a reviving 2W industry: 

The 2W industry has shown signs of revival in recent months, with festive retails up 12-13% YoY. Bajaj has been growing at 2x industry growth due to market-share gains. Bajaj is likely to close FY24 with 2W mkt-share of close to 13%, vs ~11.5% in FY23. Bajaj has also improved its 2W EV market-share substantially vs FY23. Bajaj is planning a slew of models / upgrades / refreshes in its 2W portfolio in the coming quarters. Bajaj also gained market-share in 3W ICE. In 3W EVs, Bajaj has made a mark in the limited markets in which it has entered. 

Export recovery slower than expected, but would be a strong catalyst for FY25/FY26: 

Bajaj’s exports (2W+3W) is still about 35% lower than the quarterly levels of FY22. Although key export markets such as Africa and South Asia are still weak, they have clearly bottomed out and would be a key catalyst for growth in FY25/FY26.