Bajaj Auto: Maintain ‘buy’, co posts 26.1% revenue growth

Bajaj Auto’S (BAL) Q4FY21 margins were a beat on consensus expectations at 17.7% (down 65bpsYoY). BAL’s margin resilience was driven by rise in export mix (up 340bpsYoY at 46.4%) and increased share of Pulsar-125cc has led to superior domestic motorcycle mix (share up 13.7% to 26.3%). Management’s focus on building on electric vehicles starting with Chetak is a long term positive. They believe existing incumbents are well placed in terms of technology distribution and brand to handle the potential entry of PE-backed start-up companies in 2Ws. We believe BAL’s key drivers of profitability remain exports demand in commodity markets (e.g. Africa, LatAm), exports incentives/FX benefits, c) premiumisation in domestic market. The stock remains attractive at <15x PE /5.4% FCF yield on FY23E basis. We maintain ‘buy’.

Key highlights of the quarter: BAL has reported 26.1% YoY growth in revenue as ASP rose 6.9% to ~Rs 73.5k/unit supported by product mix, price hikes (~2%). EBITDA margin contracted ~65bpsYoY despite tight control on employee costs (down 145bpsYoY) and other expenses (down 131bpsYoY). Gross margin contracted 341bps due to higher RM costs as commodity basket prices edge higher (~4% inflation in Q4). BAL has reported PAT of ~Rs 13.3bn (up 2% YoY) and declared dividend of Rs 140/share.

Key takeaways from earnings call: Management indicated, Second highest exports (~Rs 40 billion); BAL sold highest ever Pulsar motorcycles with 125cc variant leading the growth (128k units in 4Q), with ~77% sales from geographies where BAL enjoys leadership position; BAL’s strategy on electrification is focused on market expansion via product and not by discounting which as per them would make the business model unsustainable; domestic CV demand is gradually picking up.