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Bajaj Auto Ltd's two-wheeler (2W) volumes saw further decline in March, falling 8% sequentially and 22% year-on-year (y-o-y) to 2.6 lakh units. Subdued domestic demand in the two-wheeler segment coupled with a severe shortage of semiconductors led to a 41% slump in domestic volumes. Flattish exports, however, cushioned some of the fall.
Meanwhile, rising fuel prices have been weighing on affordability.
Bajaj Auto’s management said overall demand for motorcycles in India remains soft. “With key 2W overseas markets either showing static demand or a declining bias, we expect Bajaj Auto’s 2W export volumes to grow at 8% CAGR in FY22-FY24E," said analysts at ICICI Securities in a report on 31 March. CAGR is compounded annual growth rate.
To be sure, Bajaj Auto’s peers also saw a year-on-year drop in sales volumes in March, even as they recorded sequential improvement. TVS Motor Co. Ltd reported a 5% y-o-y volume decline in 2Ws while Hero MotoCorp Ltd’s volumes fell 22% y-o-y. However, both saw sequential increases in volumes - by 10% and 26%, respectively. Eicher Motors Ltd's motorcycle volumes (Royal Enfield) rose 2.5% y-o-y and 14% sequentially.
Going ahead, rural markets hold the key for two-wheeler demand. As such, dull demand conditions are not the only concern. Rising costs of raw materials such as steel and aluminium are likely to impact margins, and therefore pose a challenge.
For Bajaj Auto, “About 15% increase in raw material basket cost would require a price hike of about ₹9000/unit, to keep gross profit/unit neutral," added the ICICI Securities report. The majority of cost inflation would get reflected from Q1FY23 onwards. Consequently, analysts at ICICI Securities are reducing earnings before interest, tax, depreciation and amortization (Ebitda) margin estimates for FY23 by about 300 basis points to 14.5%. One basis point is 0.01%
Meanwhile, in Bajaj Auto's three-wheeler (3W) business, demand remained firm, with domestic volumes in March rising 15%. Exports fell 4% y-o-y. “We estimate 3W volumes to grow by about 22% y-o-y in FY23," said analysts at Motilal Oswal Financial Services in a report on 4 April.
After declining nearly 6% in CY21, shares of Bajaj Auto have risen about 17% in calendar year 2022 so far.
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