EUR 120.00 For Business Accounts Only

MOSL: BAJAJ AUTO: Worst behind in both exports and India

.  Bajaj Auto: Worst behind in both exports and India

(BJAUT IN, Mkt Cap USD12.5b, CMP INR3569, TP INR4000, 12% Upside, Neutral)

Commodity/Fx to drive margins | Completes share buyback

• Bajaj Auto (BJAUT)'s 2QFY23 witnessed a good all-round performance, driven by favorable FX and operating leverage. While domestic outlook is improving, exports have bottomed out in 2QFY23. The on-going buy-back of shares, which supported the stock price, is now complete.
• We largely maintain our EPS for FY23E/FY24E. We reiterate our Neutral rating with a TP of INR4,000 (based on 16x Sep-24 Consol EPS).

Fx and operating leverage drive margins

• BJAUT's 2QFY23 revenue/EBITDA/PAT grew 18%/40%/31% YoY to INR102b/INR17.6b/INR15.3b, respectively. For 1HFY23, revenue/EBITDA/PAT grew 14%/28%/21%, respectively.
• Net realizations grew ~18% YoY (~3% QoQ), led by price hikes and favorable Fx, volumes were flat YoY (+23% QoQ).
• EBITDA margins improved ~260bp YoY (+100bp QoQ) to ~17.2% (v/s est. 16.9%), driven by favorable Fx and operating leverage, despite a weaker mix. Higher-than-estimated other income boosted PAT to ~INR15.3b (v/s est. ~INR14.5b).
• Share of profit from associate (Pierrer Mobility) for 1HFY23 declined 47% YoY to INR1.98b.
• Cashflow from operations grew ~3% YoY in 1HFY23 to ~INR24.5b. Capex (net of disposals) was at ~INR2b (gross capex at INR3.35b), resulting in FCFF of ~INR22.5b.
• Sep-22 ending cash stood at INR155b post payout of INR70b toward dividend and buyback (v/s ~INR205b as of Jun-22).

Highlights from the management commentary

• Exports outlook: After witnessing a double-digit fall in retails and correcting inventory in 2QFY23, the company is witnessing a moderation in decline in Africa and LatAm, whereas demand from the ASEAN region remains strong. Hence, it expects export volumes in 3QFY23 to grow on QoQ basis.
• India 2W outlook: With its demand outlook bottoming out, the motorcycle industry (and BJAUT) is expected to grow in single digits. Chip supplies started to improve from Sep-22, helping BJAUT to build-back its inventory to five weeks, ahead of the festive season.
• E-2Ws: Chetak sales volume and footprint continues to scale up, with exit run rate up 2X over 1QFY23 average. It plans to reach 6k/month by end-FY23 and would cover ~85 cities (from 39 cities as of Sep-22). It plans to launch 3-4 e-2Ws over the next 18 months.

E-3Ws trials continued in various markets. It is incorporating users' feedback from the trials and would launch the product only when completely satisfied but before the end of FY23