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Bajaj Auto reports steady performance in Q2FY22; broadly in line with our estimates

What’s buzzing: The company reported revenues of Rs.8,762 crore, up 18.6% QoQ led by 13.8% QoQ growth in total volumes at 11.44 lakh units and 4.3% sequential uptick in ASPs to Rs.76,565/unit. EBITDA for the quarter was at Rs.1401 crore with corresponding EBITDA margins at 16%, up 83 bps QoQ. Consequent PAT for the quarter came in at Rs.1,275 crore, up 20.1% QoQ. 

Context: The quarterly performance was supported by higher than anticipated other operating income which included eligible export benefits for the prior periods (~Rs.142 crore). The company also informed that its board of directors have approved setting up of a wholly-owned subsidiary (NBFC) i.e. Bajaj Auto Consumer Finance for captive financing purposes. It shall carry out the business of financing in the field of automobile and, in particular, solely for the two-wheeler, three-wheeler and light four wheeler categories manufactured and/or marketed by Bajaj Auto and/or its subsidiaries/associates.

Our Perspective: Bajaj Auto is one of the most capital efficient companies (RoCE>20%) in the large cap space and resilient EBITDA margin at ~15%+ is a testimony to its healthy brand recall in the domestic as well as export markets. The global automobile space, however, is currently in the midst of changing technology landscape with increasing preference towards electrification by both the consumer as well as governments. The company’s on-ground electric offering in the domestic market is presently limited to electric scooter i.e. Chetak and is ramping up its supply chain. The key monitorable for the company, going forward, will be its incremental offerings in this space especially in the 3-W domain wherein it enjoys market leadership with domestic market share pegged at 50.6%.