Bajaj Auto rallies 12% in 8 trading days; stock nears record high

Analysts at Emkay Global Financial Services believe Bajaj Auto's Ebitda margin may expand 196 bps YoY in Q4FY23 due to price hikes, better mix and rupee depreciation

Shares of Bajaj Auto hit an over two-year high of Rs 4,249.05, gaining 2 per cent on the BSE in Wednesday's intra-day trade, in an otherwise range-bound market. The stock of the two/three-wheeler company was quoting higher for the eight straight trading day, and has rallied 12 per cent during the period. It is inches away from the record high level of Rs 4,361, touched on February 4, 2021. In comparison, the S&P BSE Sensex was up 0.12 per cent at 60,237 at 11:27 am.

In a regulatory exchange filing, Bajaj Auto on Monday, April 11, informed that the company and Triumph Motorcycles have completed the successful transfer of Triumph's India Sales & Marketing operations to Bajaj Auto. This follows the announcement, done back in 2020, of the strategic partnership between the two companies, in which both confirmed that they would jointly collaborate to create a new range of mid-sized Triumph Motorcycles.
 

This launches the next phase of the partnership, effective from April 1, 2023, where all the current 15 Triumph Motorcycle dealerships will be managed by Bajaj Auto.

This comes as the third partnership for the company to manufacture higher CC bikes apart from KTM & Husqvarna in its Chakan plant with capacity of 1.22 million units annually. Under this partnership, Bajaj Auto, apart from manufacturing higher CC bikes for Triumph will also co-develop new products in the mid-size category and sell it under Triumph badge.

"Given that Triumph is a premium brand with higher CC (i.e. >600 cc) offerings, and ~1,000 units sales for FY23, we await more affordable offerings from the partnership adapting to the needs of domestic market in mid-weight category, which is currently dominated by Royal Enfield," ICICI Securities said in a note.

Meanwhile, for the January-March quarter (Q4FY23) quarter, analysts at Emkay Global Financial Services expect Bajaj Auto's Ebitda (earnings before interest, taxes, depreciation, and amortization) margin to expand 196 bps YoY due to price hikes, better mix and rupee depreciation. On a QoQ basis, Ebitda margin may remain unchanged as impact of the price hike is negated by the adverse scale.

Revenue could grow YoY, despite decline in volumes (-12 per cent), owing to increase in realizations (+20 per cent). Realization to improve due to better mix (higher domestic 2W and 3W mix), price hikes and INR depreciation, the brokerage firm said in a Q4 result preview report.

Over the years, Bajaj Auto has created a formidable franchise in the export market, with a market share of 45 per cent in FY23YTD (out-of-India 2W exports) and leadership position in several countries (over 80 per cent of exports from countries enjoying either the number 1 or number 2 position).

"Exports, though volatile over the near term, offer a structural growth opportunity. They could sharply rebound (as seen in the past), with improving macros at the margin level. Thus, we have built-in a 13 per cent export volume CAGR over FY23E-25E (-2 per cent over FY22-25E), to reflect the improved volumes from 2HFY24E," Emkay Global Financial Services said in a auto sector update.

However, the weakening domestic ICE-2W franchise with continued market-share loss in the commuter and premium motorcycles space, along with sustained absence from the ICE-scooter segment, is a structural concern, it added.