Bajaj Auto reports stellar performance in Q4FY22, ahead of our estimates!

What’s Buzzing:

Bajaj Auto (BAL) reported a robust performance for the quarter, with all key readings surpassing our estimates. The real positive surprise came in from better-than-expected ASPs (up 6.2% QoQ), gross margin expansion (280 bps QoQ) and consequently four quarterly high operating margins of 17.1% (up 191 bps QoQ). Consequent reported PAT for Q4FY22 was up 21% QoQ to Rs 1,469 crore (supported by exceptional gains).

Context:

Total operating income for Q4FY22 came in at Rs 7,975 crore (down 11.6% QoQ). Blended ASPs for the quarter were at Rs 79,129/unit, up 6.2% QoQ. Total volumes for the quarter were at 9.8 lakh units, down 17.3% QoQ with exports share in volumes pegged at 60% vs. 56% in Q3FY22. Reported EBITDA in Q4FY22 was at Rs 1,365.6 crore, with EBITDA margins coming in at 17.1%. The company also declared a dividend of Rs 140/share (~80% dividend payout) for FY22 with record date for the same fixed as July 1, 2022.

Our Perspective:

Bajaj Auto is a prominent player in the domestic motorcycle space with market share pegged at ~18.2% for FY22. It has a capital efficient business model (RoE, RoCE at ~20%) with surplus cash & investments on its book pegged at Rs 19,090 crore (~17% of current market capitalisation) as of FY22 end. BAL has commenced its journey towards electrification with the launch of electric scooter i.e. Chetak with sales volume in this domain pegged at ~8,200 units in FY22. It had also announced an expansion in the electric 2-W space for ~5 lakh units at a capex outlay of ~Rs 300 crore. BAL's product on the electric 3-W space, however, is still awaited. The key monitorables, going forward, at Bajaj Auto would be sustainable margin trajectory, demand outlook in domestic market and further affirmative steps on electrification. Notably, 2-W as a vehicle category is yet to witness meaningful growth and is underperforming the rest of the automobile pack. It is witnessing competition from new age OEMs in the electric side amid delayed EV strategy from existing OEMs. However, with robust performance by Bajaj Auto in Q4FY22, expectations are building for a better than expected result season in the auto OEM space, going forward, thereby justifying the recent outperformance in the Nifty Auto Index (up ~7% in last 1 month vs. Nifty 50 which is down by ~1%).