Shares of Bajaj Auto Ltd are up 18% to date, the widely outperforming sectoral index Nifty Auto, which is up just 2%. One factor that may have helped sentiments may have been the company’s resilient export market, in contrast to the weak environment in the Indian market. The major export markets of Bajaj Auto include Latin America, Africa and Asia.
In FY 2012, the company saw its highest annual exports and its market share increased by two percentage points (PP). In the March quarter, revenue (excluding other operating revenue) fell 8% compared to a year ago 7,728 crores. Note that exports contribute around 52% to Bajaj Auto’s revenue. Besides, the share of export volumes rose to 60% in the three months ended March 31, from 54% a year ago due to weak domestic demand. In addition, the share of three-wheeler (3W) volumes increased by 1.6 percentage points.
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Result: EBITDA (earnings before interest, taxes, depreciation and amortization) margin comfortably exceeded analysts’ expectations. For example, an 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% over the past three months. With this, Ebitda per vehicle reached a multi-quarter high 13,808.
Of course, price hikes also came to the rescue, as well as deferring the impact of higher input costs, which would be visible in the first quarter of FY13. On the analysts’ call, the company’s management said it has prioritized the use of the chip for products and markets with high profitability. True, semiconductor shortages hurt in Q4 as production declined by 15-20%. The crisis will result in a temporary market share loss in the June quarter, which the company expects to recover over the next three months.
To be sure, margins are expected to face further headwinds. “The sales mix could come under pressure in the form of lower CC (cubic centimetres) share and increase in domestic volumes. Commodity prices remain volatile and exposed to geopolitical tensions. Kumar Rakesh, a senior automobile and technology analyst at BNP Paribas Securities India, said even if costs remain stable at current levels, the company will need to hike prices further to fully pass on input inflation.
Bajaj Auto expects costs to rise by 3.5-4% in Q1FY23 as the prices of related metals in its portfolio continue to rise. It hiked prices by 1.5-2% on April 1. It helps that management’s comment on demand is comforting. With the reopening of colleges and offices, the domestic market is likely to bounce back. Also, 3W’s sales may see an increase as schools reopen.
Growth in FY23 will benefit from a lower base given that FY22 was hit by two Covid waves. Rakesh said that since the two-wheeler (2W) industry has seen significant price hikes, it will take several years for demand to return to pre-India Phase-VI levels. “We see a general improvement rather than a sharp increase.”
With regard to its sustainable offerings, Bajaj Auto sold 3,300 units of its electric 2W in the March quarter. Management said the order book stood at around 15,000 units. It is expected to launch the Electric 3W in June. In the CNG (Compressed Natural Gas) segment, Bajaj Auto had a market share of 77%.
Meanwhile, the stock is trading at 17 times FY24 estimated earnings, according to data from Bloomberg. Bajaj Auto has declared dividend of 140 per share, which translates into a dividend yield of about 4%, which isn’t bad.
ICICI Direct Research maintains a “Hold” rating on the stock, tracking the management’s conservative stance on the EV transition, mainly amid major export markets.