Bajaj Auto Results Review - Margin Tailwinds Bunched Up In Q3: ICICI Securities

ICICI Securities Report

Bajaj Auto Ltd.’s Q3 FY23 Ebitdam came in at 19.1% (up 180 basis points QoQ) versus our estimate of 18%. Combined effects of favorable currency rates (3% impact of QoQ U.S. dollar/Indian rupee rate movement), higher spare sales, higher domestic three-wheeler mix and falling input commodity prices drove gross margin expansion of 280 bps QoQ with average selling price increasing 7% QoQ.

Exports are expected to revive only after a couple of quarters. Elections and demonetisation in Nigeria, limited USD availability in key African markets and weak macro in SAARC markets are likely to keep export demand subdued at present levels in Q4 FY23E too.

In domestic two-wheeler portfolio, the 125cc plus segment drove retail growth in mid-single digits as against subdued demand for the entry level bike. We however expect rural markets to revive gradually with base effect catching up post industry-wide destocking in Q3 FY23.

Domestic three-wheeler sales continued to revive and touched ~75% of pre-Covid levels. Bajaj Auto attained ~76% domestic market share in three-wheelers on the back of its sheer leadership in CNG variants (72% volume mix and 86% market share).

Multiple Ebitdam tailwinds resulted in 19% margin and this can face headwinds from revenue mix normalisation, rising mix of electric vehicles and rising metal prices.

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