PremiumBajaj Auto Ltd’s shares have risen by 18% year to date, widely outperforming sectoral index Nifty Auto, which has gained just 2%. A factor that may have helped sentiments could be the company’s resilient export markets, which contrasts with the subdued environment in the Indian market. Bajaj Auto’s key export markets include Latin America, Africa, and Asia.
In FY22, the company clocked its highest-ever annual exports and its market share rose by two percentage points (pp) across regions. In the March quarter, revenue (excluding other operating revenue) fell by 8% from year-ago to ₹7,728 crore. Note that exports contributed about 52% of Bajaj Auto’s revenues. Further, weak domestic demand led to a rise in the share of export volumes to 60% in the three months ended 31 March from 54% in the year earlier. Besides, the share of three-wheeler (3W) volumes rose by 1.6 percentage points.
The upshot: Ebitda (earnings before interest, taxes, depreciation and amortization) margin comfortably surpassed analysts’ expectations. For instance, adjusted Ebitda margin of 16.9% was ahead of BNP Paribas Securities India’s estimate of 14.5% in Q4. The measure stood at 15.2% in the preceding three months. With this, Ebitda per vehicle reached a multi-quarter high of ₹13,808.
Of course, price hikes came to the rescue, too, along with the deferral of the impact of high input costs, which will reflect in the first quarter of FY23. In an analysts’ call, the company’s management said it prioritized chip usage towards higher profitability products and markets. True, the semiconductor shortage did hurt in Q4 as production dipped by 15-20%. This crisis would cause a temporary market share loss in the June quarter, which the company expects to recover in the following three months.
To be sure, margins are expected to face headwinds ahead. “The sales mix could come under pressure as a share of lower cc (cubic centimetres) and domestic volume increases. Commodity prices remain volatile and exposed to geopolitical tensions. Even if the costs stabilize at current levels, the company would need further price hikes to fully pass on the input inflation," said Kumar Rakesh, a senior automobile and technology analyst at BNP Paribas Securities India.
Bajaj Auto expects a 3.5-4% increase in costs in Q1FY23 as prices of the relevant metals in its portfolio continue to rise. It took a price hike of 1.5-2% on 1 April. It helps that the management commentary on demand is comforting. The domestic market is likely to rebound with the reopening of colleges and offices. Also, as schools reopen, 3W sales might see increased traction.
Growth in FY23 will benefit from a lower base, given that FY22 was impacted by two covid waves. As the two-wheeler (2W) industry has taken significant price hikes, demand returning to pre-Bharat Stage-VI levels would take several years, Rakesh said. “We see a normalized recovery rather than a sharp growth."
With regard to its sustainable offerings, Bajaj Auto sold 3,300 units of its electric 2W in the March quarter. The order book stood at about 15,000 units, said the management. It expects to launch the electric 3W in June. In the CNG (compressed natural gas) segment, Bajaj Auto’s market share stood at 77%.
Meanwhile, the stock trades at 17 times its FY24 estimated earnings, according to Bloomberg data. Bajaj Auto has announced a dividend of ₹140 per share, which translates into a dividend yield of about 4%, which is not bad.
ICICI Direct Research has maintained a “hold" rating on the stock, primarily tracking management’s conservative stance on EV transition amid prominence in the export market.