Bajaj Auto likely to sustain premium valuation aided by margin focus, new launches
The operating margin before depreciation and amortisation (EBITDA margin) for the maker of Pulsar and Dominar bikes expanded by 132 basis points year-on-year to 20.2% in the first quarter of FY25. It was on account of lower raw material costs, a richer product mix that increased average selling prices, and the benefit of production-linked incentives. It was the third consecutive quarter where the company reported above 20% margin.
’s ability to expand margins despite the rising volume of low-margin (EVs) and improve domestic sales by launching is likely to maintain investors’ interest in the stock, which has doubled over the past 12 months.The before depreciation and amortisation ( margin) for the maker of Pulsar and Dominar bikes expanded by 132 basis points year-on-year to 20.2% in the first quarter of FY25. It was on account of lower raw material costs, a richer product mix that increased average selling prices, and the benefit of production-linked incentives. It was the third consecutive quarter where the company reported above 20% margin.
A year-on-year growth of 7% each in volume and realisation helped revenue to grow by 15% in the June quarter. In the domestic market, the share of revenue from EVs rose to 14% in the June quarter, totalling Rs 2,000 crore from under 5% a year agodriven by improving retail presence.
Electric two-wheelers, branded under Chetak, contributed 60% to the segment’s revenue while the rest was from electric three-wheelers. The number of retail EV outlets is expected to reach 1,000 by September 2024 from the current 250. The company expanded the two-wheeler EV by 471 basis points year-on-year to 12.3%.
Bajaj Auto has received production-linked incentive (PLI) certification for certain models, contributing to the margin expansion in the June quarter. These incentives currently represent around 13% of EV sales. In the electric three-wheeler segment, the company has established a presence in 200 cities. It sold 9,350 units in the June quarter capturing a 30% market share.
The company’s total domestic sales increased by 8% to 6.9 lakh units in the June quarter while exports grew by 7% to 4.1 lakh units. Domestic sales now constitute 62% of total volume. The company anticipates industry-wide volume growth of 6-8% for the current fiscal year, potentially outpacing this with the launch of a CNG-powered motorcycle.
Initial bookings for the CNG model have reached 4,200 units, primarily from Maharashtra and Gujarat, together accounting for 80-90% of total bookings. Bajaj Auto estimates an addressable market of 450,000-500,000 customers per month for the CNG model, with production capacity set to increase to 10,000 units by the second quarter of FY25 and 40,000 units by the fiscal year-end.
On the export front, declines in Nigeria have been offset by increased volumes in the Middle East, North Africa, and Asia, contributing to an expected volume growth of 9-10% overall for the current fiscal year, similar to the previous year.
At Tuesday’s closing price of Rs 9,707.9, the stock was traded at 30 times one-year forward earnings, a 42% premium over its long-term average. The premium is likely to sustain given the company’s margin focus and improving business prospects.
Source: Stocks-Markets-Economic Times
