BAL's Q4FY22 earnings were ahead of estimates, led by 140bps margin improvement QoQ to 16.9%, despite a 17% QoQ volume decline. The margin beat was led by improved mix in favour of higher margin segments and favourable currency. However, margins are unlikely to sustain as input cost pressure continues to rise and the mix is expected to normalise in the coming quarters. BAL has lost a significant market share in the 150-250cc category over the last few years, partly due to much better product refreshes from competition and due to cannibalisation to its own Pulsar125cc segment. Its market share loss in this segment remains a major concern, given that it is one of the most profitable motorcycle segments. Further, while BAL is likely to launch a 3W EV shortly and may emerge a key player in this segment, the 3W EV transition doesn't bode well for it, given that it is one of the company's most profitable segments. At 18x FY24 PER, valuation appears expensive, in light of the concerns raised above. Maintain REDUCE and a TP of INR3,489/sh.
- Revenue ahead of estimates led by improved mix: Revenue declined just 8% YoY, despite a volume decline of 17% YoY due to better-than-expected ASP. ASP was up 11% YoY and up 6% QoQ, led by a favourable mix, currency and price hikes taken in Q4. The mix was favourable as: (1) 100cc bikes contribution declined to 12.8% in Q4 vs 20.4% in Q3 QoQ; (2) 3Ws mix improved to 12% of total from 11.2% QoQ; (3) 2W exports improved to 53% of the mix, from 49% QoQ.
- Margin beat in Q4, but unlikely to sustain: On account of an improved mix and deferral of input cost increase, the gross margin improved 240bps QoQ to 27.9%. Employee costs were 14% lower than the last three-quarter average due to benefit on actuarial valuations (benefit of INR300mn). As a result, EBITDA margin improved 140bps QoQ to 16.9% (our estimate of 15%). Adjusted for exceptional items, PAT declined 7.4% YoY to INR12.3bn - ahead of our estimate of INR10bn. However, margins appear unsustainable as: (1) input cost rise would reflect from Q1; (2) mix would normalise.
- Call takeaways: Outlook: (a) Exports: Management indicated that it hopes to deliver double-digit growth in exports even in FY23, although near-term concerns remain around the ban of three-wheelers in Egypt and uncertainty in Nepal (other key markets back to pre-COVID levels); (b) domestic 3Ws: expect strong double-digit growth in this segment on the back of opening up of economy and, with rising CNG penetration, BAL is likely to be the key beneficiary; (c) domestic motorcycles: Apr-May demand has picked up for the marriage season and expect good growth in motorcycles in FY23, over a relatively low base; (d) RM pressure: input costs continue to rise and expect 3.5-4% rise in costs in Q1 QoQ; BAL has already taken 1.5-2% price hike in Apr and would observe competition reaction before taking another increase.
Shares of Bajaj Auto Limited was last trading in BSE at Rs. 3727.05 as compared to the previous close of Rs. 3833.50. The total number of shares traded during the day was 12566 in over 1930 trades.
The stock hit an intraday high of Rs. 3838.00 and intraday low of 3712.35. The net turnover during the day was Rs. 47554415.00. |
