Bajaj Auto Q3 Review: Analysts Cheer Margin Performance, But Weak Exports A Concern

Bajaj Auto Ltd.'s strong operating margin performance in the third quarter was positive, but analysts are still concerned about the company's weak exports.

Positive management commentary on volume recovery in three-wheelers and two-wheelers in 125cc and above categories also pointed to a better future, analysts said.

"Exports is likely to be under pressure in the near term, owing to weak macros, adverse currency movements, and U.S. dollar availability issues in Africa, South Asia, and Latin America regions," Emkay Global said in a report. In contrast, the brokerage expects domestic volumes to grow by double digits, driven by strong urban demand, better finance availability, and a favorable base effect.

Bajaj Auto beat analysts' estimates in the December quarter, with Ebitda margin expanding to 19.1% from 15.2% last year.

The company also highlighted plans to launch a range of electric two-wheelers over the medium term, ranging from low-speed, low-priced scooters to top-end premium models.

Plans to expand Chetak's sales to 100 cities by April are also underway, the management said.

Here's what analysts had to say about Bajaj Auto's Q3 performance:

• Export markets may take 1-2 quarters to recover.

• Muted demand for domestic entry-level two-wheelers may limit the company's prospects for healthy all-round growth in the near term.

• Both domestic and export volumes are expected to recover FY24 onwards from the low base driving good earnings recovery.

• Raise FY23 and FY24 earnings-per-share estimates by 4.5% and 6%, respectively, to factor in the mix and foreign exchange benefits. Reiterate a 'neutral' rating with a target price of Rs 4,150 apiece, implying an upside of 12%.

• Stellar performance, led by a sharp increase in the net average sales price and a softening commodity price.

• Continue to take a positive stance on the company despite the export volume being a near-term concern.

• Improving profitability and recovery in two-wheeler and three-wheeler segment positives.

• Recommend a 'buy' with a target price of Rs. 4,355 a share, implying an upside of 17%.

• Build in an 8% volume CAGR over FY23–25E (which is lower than the 11–12% CAGR for peers such as TVSL and EIM), mainly due to higher exposure to overseas markets.

• Exports is likely to be under pressure in the near term, owing to weak macros, adverse currency movements, and U.S. dollar availability issues in the Africa, South Asia, and Latin America regions.

• Maintain a "hold" on the stock, with a target price of Rs 4,250 per share, up from Rs 4,050 earlier, a potential upside of 14%.

• Raises rating to ‘buy’ from ‘neutral’ and target price to Rs 4,340 from Rs 4,021, implying an upside of 16.8%. 

• Current valuations at 13.2 times FY24 core earnings per share look attractive.  

• Launch of Triumph and two-wheeler revival key catalysts. 

• Two-wheeler industry may revive in FY24 on re-balancing of growth. 

• Expect export volumes to recover from second half of FY24. 

• Maintains volume estimates but raise ASP (average selling price) by 4% to factor in the beat. 

• Raises FY23, FY24, FY25 Ebitda margins to 17.8%, 19.1%, 18.95 respectively to factor in better mix. 

• Raises FY23, FY24 and FY25 earnings per share by 5%, 7% and 4%, respectively.  

• Keeps ‘overweight’ call on the stock and ups price target to Rs 4,449 from Rs 4,258, implying a potential upside of 20%. 

• Maintains that exports have low near-term visibility but high medium- to long-term growth potential.  

• Expects FY23 exports to decline 24% year-on year, bringing FY18-23 export CAGR to 3%. 

• Expects exports to improve sequentially, with normalization starting from June 2023. 

• Expect domestic 2W industry volumes to turn gradually higher in FY24. 

• Electric vehicle and Triumph launch to be white spaces for Bajaj.

• Says street is sceptical about Bajaj's success in EV as it lags TVS Motor in EV run rate and also missed the ICE scooter wave in the past.  

• Raises earnings per share estimates 2% for FY24 and 3% for FY25 reflecting stronger mix.  

• Projects FY25 Ebitda margin at 18% versus 19% in Q3 FY23. 

• Maintains ‘buy’ rating and raises target price to Rs 4,300 from Rs 4,200, implying an upside of 16%. 

• Raises FY23-25 earnings per share by 2-6% factoring in higher ASPs and margins. 

• Likes Bajaj, despite the near-term headwinds in exports, as it expects a strong revival in Indian 2W demand.  

• Believes domestic 2Ws are ripe for recovery from an abnormal cyclical trough. 

• Bajaj’s 4-6% dividend yield is attractive. 

• Export growth has slowed down in FY23, although has large headroom for long-term expansion.