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Bajaj Auto Ltd>
  • CMP : 6,035.0 Chg : -105.10 (-1.71%)
  • Target : 4,100.0 (10.22%)
  • Target Period : 12-18 Month

30 Jan 2023

Robust performance, cautious export outlook to weigh

About The Stock

Bajaj Auto (BAL) is the 2nd largest motorcycle manufacturer and largest 3-W OEM domestically (FY22 market share at 18.2%, 61.5% respectively).

  • Exports comprised ~58% of FY22 volumes; 2W:3W mix at ~89:11 (overall)
  • Strong b/s with ~₹ 15,000 crore cash on books (Dec22 end), history of ~20% return ratios & one of the highest dividend yields among Nifty stocks

BAL reported healthy performance in Q3FY23

  • Net revenues in Q3FY23 came in at ₹ 9,315 crore, down 8.7% QoQ     .
  • Blended ASPs for the quarter stood at ₹ 92,015/unit, up 6.9% QoQ with total volumes in Q3FY23 at 9.8 lakh units, down 14.6% QoQ. Exports share in total volumes for the quarter was pegged at 45% vs. 40% in Q2FY23.
  • EBITDA in Q3FY23 was at ₹1,777 crores, margins:19.1% (up 184 bps QoQ)
  • PAT was down 2.5% QoQ to ₹ 1,491 crore, aided by higher margins.
What should Investors do?

BAL’s stock price has grown ~2.8% CAGR (from ₹3,240 levels in Jan 18) over 5 years in line with the broader Nifty Auto index.

  • We maintain HOLD rating on BAL following slower pace of volume recovery in export markets and gradual inching up the play in EV domain by the company with captive Electric -3W launch expected in March 2023.
Target Price and Valuation

Introducing FY25E, we now value BAL at ₹ 4,100 on SOTP basis (15x PE on FY24-25E avg. EPS, stake in PMAG; previous target: ₹3,910).

Key Triggers for future price performance
  • Ramp-up of volumes in electric 2-W space, expansion of network to 100 cities by April 2023 from current ~65 cities and unveiling of captive offering in Electric-3W space with deliveries to commence from March 2023.
  • Replication of success of its partnership with KTM to Triumph channels. Further leveraging its partnership with KTM to export Chetak in Q1CY24
  • With gradual recovery in sales volume and near normal supply chain we expect volume, net sales CAGR of ~3.5%, ~10.9% over FY22-25E.
  • Margins/RoCE to reach 19.6%/31% levels respectively by FY25E amid operating leverage gains, stable prices & healthy export realizations.
Alternate Stock Ideas

In our auto OEM coverage we like M&M.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness
  • BUY with target price of ₹ 1,590

Key Financial Summary

Key Financials FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E FY25E 3 year CAGR (FY22-25E)
Net Sales 29,918.6 27,741.1 33,144.7 8.8 36,367.7 41,219.6 45,259.3 10.9
EBITDA 5,096.2 4,928.5 5,258.7 3.5 6,459.2 7,990.5 8,881.0 19.1
EBITDA Margins (%) 17.0 17.8 15.9 - 17.8 19.4 19.6 -
Net Profit 5,100.0 4,554.6 5,018.9 5.6 5,587.9 6,817.8 7,473.0 14.2
EPS (₹) 176.2 157.4 173.4 - 197.5 240.9 264.1 -
P/E 21.1 23.6 21.4 - 18.8 15.4 14.1 -
RoNW (%) 25.6 18.1 17.6 - 22.3 26.1 27.5 -
RoCE (%) 23.9 18.2 18.4 - 24.2 29.0 31.0 -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q3FY23 Results:

  • Net sales came in at | 9,315 crore down 8.7% QoQ. Blended ASPs for the quarter stood at | 92,015/unit, up 6.9% QoQ. Total volumes for the quarter were at 9.8 lakh units, down 14.6% QoQ with exports share in volumes pegged at 45% vs 40% in Q2FY23. The 3-W share in volume rose ~200 bps QoQ to 13.4% in Q3FY23.
  • Reported EBITDA in Q3FY23 was at | 1,777 crore, with EBITDA margins coming in at 19.1% (up 184 bps QoQ). %. Margin beat was on account of higher than anticipated gross margin expansion which stood at 280 bps QoQ against our estimate of ~180 bps QoQ. Management informed about judicious pricing, better dollar realisation and richer product mix aided margin performance. 
  • Consequent reported PAT was down 2.5% QoQ to | 1,491 crore, supported by higher than anticipated margin.

Q3FY23 Earnings Conference Call highlights

  • Q3FY23 performance was record breaking for the company and reported highest ever quarterly EBITDA 2nd time in a row primarily aided by margin expansion despite difficulties faced in overseas market.
  • Exports continue to faced strong headwinds due to adverse macroeconomic environment, as industry retails in South Asia, Africa & Latin America were down by ~30% YoY.
  • Inventory in foreign market remained at low level due to lesser availability of forex (i.e. US $) and is facing stockout situation in some markets. Also, company expects its largest export market Nigeria to remain muted due to election in that company in Feb 2023.
  • Management expects industry to grow by 3-5% in FY23E, primarily driven by >125cc segment which was up 28% YoY. Company has gained ~2% market share sequentially in >125cc segment and this now forms ~65% of overall company’s sale vs ~60% in Q2FY23.
  • Company’s market share in 3W space remained at ~76% in Q3FY23 and same is ~86% in CNG. In 3W space CNG contributes to ~72% of product portfolio and are ~15% premium in pricing to regular ICE counterpart.
  • Company informed about unveiling its first E-3W in coming months with deliveries set to commence in March, 2023. However, deliveries initially will start in few cities only.
  • On electrification front company informed about expanding to 80 cities with target to expand to 100 cities by April, 2023. Further company is setting up separate showrooms for its EV Chetak franchise. Also, company will supply slow speed scooters to Yulu in Q4FY23 and will launch range of products in FY24E based on pricing ranges, different demographics, etc.
  • Management informed about its recent launch of N160 and P125 carbon fibre, which continued to display solid traction across markets.

    Company has taken ~5% price hike in last 12 months & has been largely flattish sequentially.

    |/US$ realization stood at ~|81.7 for Q3FY23 vs ~|79.8 in Q2FY23 vs ~|75.1 in Q3FY22.

    Spares revenue for Q3FY23 stood at ~|1,100 crores.

    Company informed about ECU supply is being near normal to industry level.

    Margin performance was due to commodity cost moderation with steel, aluminium witnessing drastic drop, however during Q4FY23 company witnessed slight uptick in nickel & steel & margins to remain largely flat.

    Company plans to replicate success of Bajaj KTM partnership to its partnership with Triumph.

    On E-2W front, company to continues focus on building capabilities and reducing cost rather than depending on subsidies to reduce cost of products & consequent market share gains.

    Export revenue stood at ~US$450 million




I/We, Shashank Kanodia, CFA, MBA (Capital Markets) and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.         

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