The Bajaj Auto Ltd stock was the top gainer among Nifty 50 stocks on Thursday, closing almost 7% up. The excitement is understandable. The September quarter (Q2FY24) profitability has been stellar as better product mix and lower commodity costs boosted margin performance. Further, the management commentary on the outlook is positive.
On a year-on-year and sequential basis, Bajaj saw standalone Ebitda margin expansion of 255 basis points (bps) and 84 bps, respectively, to 19.8% in Q2. This meant Bajaj’s Ebitda increased by 21% year-on-year to ₹2,133 crore. Jefferies India’s analysts reckon that Q2 Ebitda was at an “all-time high” and Ebitda per vehicle, which was up 6% sequentially, was also at a new high. One factor that aided Q2 margin was the rise in the share of three-wheelers (3Ws) in the sales mix. On the other hand, operating revenue growth of 5.6% year-on-year to ₹10,777 crore is a tad underwhelming. Growth was entirely driven by price realizations considering that sales volume had dropped by 8%. Here, volumes of two-wheelers (domestic plus exports) and 3W exports, fell.
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What is encouraging is that both two-wheeler and 3W export volumes have risen sequentially. The company expects the recovery in export volumes to be gradual in the backdrop of uncertain macro conditions, geopolitical tensions, and unavailability of US dollars in some countries. Jefferies is factoring Bajaj’s monthly export volumes to rise from around 139,000 units in Q2 to 151,000 in H2FY24 and 163,000 in FY25 (for comparison: FY22 was 209,000).
Meanwhile, domestic demand is on a strong footing. The festive season has begun well and the industry is expected to grow by 12-15% during the festivals this year, said the management in the earnings conference call. The automaker’s recent launches in collaboration with Triumph Motorcycles are garnering good responses and it plans to ramp up the capacity.
Bajaj’s market share in electric vehicles is gradually accelerating. In September, the automaker’s electric two-wheeler market share was 11% versus about 5% in FY23. It plans to launch new electric two-wheelers.To be sure, Bajaj’s Q2 margin was better than some analysts’ expectations, but sustaining it at this level would be a tall order. Kotak Institutional Equities expects current profitability trends to reverse partly in the coming quarters. This would be driven by recovery in export volumes led by Nigeria (where average selling prices and margin are lower), increase in mix of margin-dilutive electric two-wheelers segment, and moderation in growth for margin-accretive 3W segment.
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Updated: 20 Oct 2023, 12:05 AM IST