Bajaj Auto surges 5%, hits record high in weak market on healthy Q2 margin

Bajaj Auto said the margin in Q2 was driven by better realisation and a richer product mix, which more than covered the drag arising from investments on growing electric scooters.

Shares of Bajaj Auto hit a record high of Rs 5,393.30, surging 5 per cent on the BSE in Thursday’s intra-day trade in a weak market on strong September quarter (Q2FY24) earnings.

The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin beat analyst estimates at 19.8 per cent, up 260 bp year-on-year (YoY) in the recently concluded quarter. The healthy EBITDA margin was led by favorable raw material costs and a better product mix (high 3W contribution).

The stock of two-wheeler (2W) company has surpassed its previous high of Rs 5,272.20 touched on September 18, 2023. In comparison, the S&P BSE Sensex was down 0.63 per cent at 65,463 at 09:25 AM.

In Q2FY24, Bajaj Auto posted a 17.5 per cent rise in consolidated net profit at Rs 2,020 crore, riding on the back of a 6.3 per cent rise in revenue from operations to Rs 10,838 crore. The overall volumes of Bajaj Auto (including two- and three-wheelers) were down 8 per cent year-on-year (YoY) in the September quarter.

Bajaj Auto said the margin driven by better realisation and a richer product mix, which more than covered the drag arising from investments on growing electric scooters. At Rs 2,133 crore, quarterly EBITDA surpasses the Rs 2,000 crore milestone for the first time during the September quarter.

Buoyant domestic business registers a new peak, on the back of six successive quarters of double-digit YoY growth underpinned by a broad-based performance, most notably the sustained competitive growth on 125 cc+ motorcycles and the further acceleration of three-wheeler sales that delivered its highest ever quarter, the company said.

The road ahead

The domestic 2W industry is likely to grow 12-15 per cent YoY during the festive season, analysts' estimates suggest. A sequential recovery in exports and healthy demand in 3Ws should lead to a healthy operational performance, they said.

Meanwhile, Bajaj Auto witnessed 90 bps expansion in gross margins on QoQ basis due to better product mix (higher share of 3-W in total sales volume). "With exports yet to pick up substantially and lack of sustained recovery in domestic 2-W space, we continue to hold a neutral view on the company," ICICI Securities said in a note.

Both domestic and export volumes are expected to recover in FY24 from the low base, driving a healthy earnings recovery. Motilal Oswal Financial Services expect Bajaj Auto to benefit from market share gains over the long term, driven by the premiumization trend, the opportunity in exports, and the potential sizeable position in the Scooter market via EVs. "However, a large part of its India profit pool (of premium motorcycle and 3Ws) is vulnerable to possible disruption from electrification," the brokerage firm said in result note.

According to analysts at Prabhudas Lilladher, Bajaj Auto, until now, had been witnessing a sharp increase in its 3W mix, which was aiding margins; the brokerage firm expects this trend to start moderating sequentially. The brokerage firm said further said it expects Bajaj Auto’s domestic premium segment volumes to grow (similar to the industry), market share gains in this and fast ramp-up of EVs could make us turn constructive on the stock.