Q4FY23 Review: Bajaj Auto: Q4 beat on rich mix; Exports set for rebound

26 Apr 2023 , 11:07 AM

Bajaj’s Q4 Ebitda beat analysts of IIFL Capital Services estimate by 10% as richer-than expected mix pushed up average realisations and gross margins. Demand environment for domestic 2W and 3W is relatively stable. Export volumes (2W+3W) have fallen 50% from peak but are set for a rebound. Export dispatches have been lower than end demand as dealers were in destocking mode. If end-demand picks up, dealers will start re-stocking, thereby pushing volumes above underlying retails. The mix impact seen in Q4 may dilute in coming quarters but would be offset by operating leverage as volumes improve.

Q4 Ebitda beat by 10% on rich mix: 

Q4 rev grew 12% YoY (3% beat), despite a 12% YoY fall in volumes, due to spike in average realization (price hikes, higher USD-INR on exports, rich better mix). Ebitda margin expanded 220bp YoY and 20bp QoQ to 19.3%. Margin beat our estimate by 130bps due to better-than-expected gross margin (impact of rich mix). Absolute Ebitda came in 10% above our estimate. Lower-than-expected other income restricted PAT beat to 5%.

Domestic to see steady growth; Exports set for rebound after 50% fall from peak: 

Mgmt. mentioned that domestic 2Ws are seeing real growth (beyond low-base effect) and expects 6-8% YoY growth in coming quarters. Demand environment for 3W segment is steady, with Bajaj’s ICE market-share at a decadal high. Exports have been weak but are well placed for rebound. Bajaj’s export dispatches were lower than retails in the past 15 months, as dealers were in de-stocking mode. De-stocking phase is behind us. Should the end-demand start improving, dispatches may accelerate beyond retails as dealers start stocking up. Elections in Nigeria hurt demand in Q4FY23; the situation seems to have stabilized now. Availability of USD for trade is the only concern in export markets.

 16% EPS Cagr + 5% dividend yield + reasonable valuations: 

Analysts at IIFL Capital Services forecast 16% EPS Cagr for Bajaj over FY23-25, built on 11% volume growth and margin expansion. The 16% EPS Cagr, when combined with 5% dividend yield, implies 20%+ annual total return. There is also potential for re-rating from the current 18.5x FY24 EPS, if visibility on exports improves. This will add further to stock returns.