Bajaj Auto Ltd

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About the Company

Bajaj Auto Ltd has been one of the largest automobile players in India for a long time. They have been in operations since 1945. Bajaj Auto operates primarily in the entry-level and premium segment motorcycles along with small and large three-wheeler commercial vehicles segment. It is the largest three-wheeler manufacturer and third-largest motorcycle manufacturer in the world. They are now present in more than 70 countries around the world. Bajaj Auto also owns Force Motors and is a part-owner of the popular Austrian motorcycle brand KTM.

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a negative quarter with consolidated revenue growing by 16% but consolidated PAT falling by 15% YoY.
2. On the standalone basis, company had a good quarter with revenue increasing by 16% and PAT increasing by 20% YoY.
3. On the QoQ basis, company had a good quarter.
4. At a global level, Pulsar and Dominar increased their contribution in the portfolio of exports to 21% and the combined market share has also increased beyond 40%.
5. On a retail basis, motorcycles declined by about 5% in FY ’22 and grew by 50% in Q1, but that is because of the base effect of COVID impacted Q1 in FY ’22.
6. 60% of the company’s portfolio in Q2 was 125cc plus segment as compared to only 46% in FY ’20.
7. Bajaj Auto’s market share is 72%
8. Market share in CNG-based products is 80% in Q2.
9. Electric scooter Chetak volumes grew by over 50% from about 6,200 units in Q1 to almost 10,000 units in Q2. 
10. Top line crossed the very important milestone of INR 10,000 crores in a quarter for the first time.
11. Volumes growth is 23%.
12. EBITDA is INR 1,759 crores, up 26% YoY and 36% QoQ. 
13. Operating margins expanded about 100 bps sequentially
14. Added about INR 2,500 crores of cash from operations in the first half of this year.
15. At the end of the quarter, our surplus cash stood at about INR 15,500 crores.
16. Export revenues is about INR 3,800 crores for Q2.
17. The company’s motorcycle market share in FY22 is 19%.
18. CAPEX for the H1 is 340 crores.

Investor Conference Call Highlights 

1. The company had made substantive R&D and supply chain effort in the last 5 months to broad-based vendors for critical components and reduce dependencies. This project was completed, resulting in the resumption of supplies to now almost 98% levels. There are still some remnant issues in the top-end models and some 3-wheelers, but the company will also get resolved within October, management stated.
2. The management stated, on the export side, the key issue in Quarter 2 was a dramatic downturn in several overseas markets, which, are mostly emerging market economies. While the motorcycle industry’s pace of growth has slowed down in Q1, but in Q2, there was a dramatic double-digit fall in retail compared to the same period last year. These signs were visible by end of Q1. The root cause of this downturn has been a sharp appreciation of the US dollar causing two impacts, severe double-digit devaluation in most currencies leading to an increase in retail pricing in these markets and secondly, poor availability of the US dollar for trade.
3. The management stated recognizing the imminent fall in retails around April, May, as a prudent measure, they cut exports to bring distributor stock and their exposure down to manageable levels
4. The company is seeing some recovery in retail in both August and September after the low point in July.
5. Management stated ASEAN with the Philippines industry is reviving back to pre-COVID levels and hence, Bajaj Auto has registered its highest-ever sales in Q2 to emerge as a clear leader in the ASEAN market.
6. In domestic motorcycles, with the easing of supply chain constraints, volumes almost doubled sequentially to over 620,000 units in Quarter 2, therefore, the company is building back inventory across channels ahead of the festive. 
7. The management stated the motorcycle industry appears to be bottoming out of the negative performance zone. 
8. The overall industry performance is the consequence of 2 very distinct and opposite trends. While the entry commuter, which is largely the cheaper 100cc bikes is declining quite sharply and particularly in the rural areas, the 125cc plus segment is growing.
9. The company has made 2 important launches in quarter 2, the all Black dual-channel ABS Pulsar N160 and the CT 125 as well as a refresh of the Pulsar 125 is rolled out.
10. The company has gradually increased presence of EV in our 40 cities across the country. The company is also working towards expanding the EV portfolio to cover different emerging segments and geographies. 
11. The management said supply chain visibility is much better, and they expect Q3 to be a lot better than Q2. 
12. The company had supplies from the new vendor and that’s coming in very handy for the business. That kicked in and allowed us to really build channel inventory that’s significantly depleted and hit a low in the month of May.
13. The management stated focus for the next quarter will clearly be to build volume-led revenue momentum with a very strong emphasis on market share gain.
14. Pierer Bajaj or PBAG which is where the company has an indirect holding through wholly owned subsidiary, BAIHBV was not able to share its quarterly financials with the company, and they were only to be sharing it on a six-monthly basis and Bajaj auto will be consolidating the numbers of PBAG in the quarter ending September and the quarter ending March.
15. The management sees commodity prices and currency as tailwinds, expects both to come down.
16. The management expects quarter 3 in exports to be better than Quarter 2. On the realization front, they don’t expect the realizations to be used for reducing prices so that they can offset the devaluation impact in the destination markets.
17. The management expect good demand from LATAM and Africa, and they stated ASEAN growth will now temper down a bit because of the pent-up demand.
18. Management stated there is no need for the company to price out for cost recovery.
19. The other operating income contains export incentives and the realization from selling those incentives.
20. The 3-wheeler ban in Egypt remains. The company is through its distribution partners over there and is in engagement with the Egyptian government to work out solutions to satisfy their requirements of cleaner fuel and better rate aesthetics and lessor congestion, etc.
21. On the EV side, the management stated 6,000 units per month is doable task. Earlier they had thought that they will go up to 100 cities by the end of the financial year, but they will be at around 85 or so because there was a period in Q2 takes you through the supply chain proceed.
22. The aspiration was 10,000 unit a month which has come down to 6,000 due to supply chain visibility, the company is facing the supply chain constraints.
23. The management stated the company is expanding its portfolio over the next 18 months. It is going for 3 or 4 introductions which will be in new segments, not the same segment, but it will be under the Chetak Umbrella.
24. In 3-wheeler, the management stated that they were expected to be in the market by this time, but trails and feedback took time, as they want to come up with a E-auto which stands out on all parameters and fulfill the needs of commercial guys.
25. The management stated CAPEX estimate for the full year is about INR 750 odd crores. 340 crores was done in H1.
26. Capex is going on clearly-established the EV facility for 2-wheelers, the EV facility for 3-wheelers in our Waluj Plant, for the expansion of a new site at Chakan facility for premium motorcycles and then routine Capex.
27. The market share in sport segment is 37-38%, with the supply chain going off, the management is seeing the market share approaching the sports segment to 40% level. 
28. The overall piece mix has been adverse at an overall entity level purely because exports have been lowered, domestic has been higher. And within domestic, there’s been a significant build back of the end commuter segment, this cause the gross margin to decrease by 120 bps.

Analyst’s View

Bajaj Auto has been a long-performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a good year for export volumes which continue to grow and contribute hugely to the topline and bottom line. The company continues to maintain market share despite industry decline. It has also seen a good uptick in Chetak sales and now plans to expand it to 85 cities in total by the end of FY23. The company has focus on EV for 3-wheeler segment and new introductions in EV space will be there in next 18 months. It remains to be seen how the company handles the transition from ICE to electric in both the 2 & 3-wheeler sectors and how long will the semiconductor shortage last for the auto industry. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

• The company had a negative quarter with consolidated revenues at Rs 8263 Cr, a fall of -6.9% YoY and a decrease of -1.6% YoY in PAT for Q4.
• The standalone results were mixed with a degrowth of -6.7% in revenues and growth of 10.2% in PAT.
• FY22 results were great with consolidated revenues rising 18.6% YoY and PAT rising 26.9% YoY.
• The company reported highest ever annual turnover and highest ever annual exports.
• The volumes sold for the quarter stood at 976,651 units
• The export volumes were at 587,496 units in Q4FY22 which was down -8% YoY.
• EBITDA margin was at 17.5% vs 18.1% last year.
• The YoY changes in volumes for Q4FY22 are as follows:

• Domestic:

• Exports:

• Total:

• The overall share in the domestic motorcycle market for Bajaj Auto grew close to 18.2% in Q4FY22.
• Domestic market share in the commercial vehicles segment for Bajaj Auto was at 62% in Q4FY22.
• Africa, SAME region, and LATAM continued to record strong sales.
• The company maintained surplus cash and cash equivalents at Rs 19,090 Cr as of 31st December 2021.
• The board has declared a dividend of Rs. 140 per share, which amounts to Rs. 4051 crore with a payout ratio of 80%.

Investor Conference Call Highlights

1. The company witnessed a market share improvement of 2% in all regions of LATAM, Africa, South Asia, Middle East and ASEAN.
2. Over 85% of the company’s revenues come from markets where the company is holding number one or number two positions.
3. The share of sports brands Pulsar and Dominar continued to increase quarter-on-quarter and is at its highest now.
4. The company has a large order book for Dominar from LATAM, Europe and Asia.
5. The management states that supply chain issues in Q4 compromised the performance, which otherwise should have been better by 5%.
6. The management explains that the estimated decline in registrations at VAHAN was 12%, witnessed across all segments mainly due to cost increases, regulatory requirements, and nonrecovery of economic hardships of the weaker section of the society.
7. Bajaj fared slightly better than the industry and declined less than the industry resulting in a market share rise from 18% in FY21 to 20% in FY22.
8. The NS125 is 22% more expensive than the average 125 cc bike, yet it contributes to 45% of the company’s 125 cc portfolio. 60% of its buyers are below 25 years of age.
9. The company’s market share in the three-wheelers CNG segment inclusive of passenger and cargo is 77%. The CNG segment itself has moved from 24% in the industry in FY21 to 62% in Q4 FY22.
10. The company has sold 3,300 electric two-wheelers during the quarter and has an order book of 15,000. The company has also added another 12 cities during the quarter bringing the overall count to 20 cities.
11. Export constituted 60% of the company’s volumes in Q4 as compared to 55% in Q3. Thus, margins have been better as export enjoys better profitability.
12. The management expects a shortfall of 15% to 20% of its requirements on account of semiconductors which will mostly impact the domestic business unit.
13. The management plans to increase costs by 3.5% due to rising metal input costs. The company has already taken a price increase of 1.5%-2% on April 1. Remaining price increases will be taken after watching demand and competition.
14. The management has a steady outlook for exports and expects to deliver double digit growth for the next FY. The company is in a leading position in 65 out 70 markets. 
15. The company plans to launch electric three-wheelers in a limited way in June.
16. The company will not get affected on an overall level in the coming FY from the Sri Lankan economic crisis.
17. The company’s dollar realization for exports was 75.5 in Q4 which was better than Q3. The management expects the realization for the coming quarters to be at 76.
18. The management sees student demand coming back up which used to be at 10% to 15% levels of volume pre-covid.
19. The management thinks that electric three-wheelers will start to cannibalize CNG after EV cell costs resume their downward journey.
20. 50%-55% exports are contributed from Africa, 20% from LATAM, 22% to 25% from Middle East, Asia, ASEAN.
21. The top 20 countries for the company are all back to pre-pandemic levels of exports.
22. The management is confident for double digit growth in the export business and three-wheeler business.
23. The management states that the main problem being faced by Chetak is the semiconductor shortage which is resulting in a six to nine months waiting period. This is heavily delaying the delivery time of the EV which annoys the customer.
24. The management aims to make the Chetak as the most aspired and preferred brand even though it is the most expensive in the segment. It plans to do this in 100 cities by delivering a very good customer experience backed by solid service.

Analyst’s View:

Bajaj Auto has been a long-performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a good year for export volumes which continue to grow and contribute hugely to the topline and bottom line. The company continues to see market share rise despite industry decline in Q4. It has also seen a good uptick in Chetak sales and now plans to expand it to 100 cities in total. The 3-wheeler segment is expected to see demand comeback as vaccination rises. Exports have now become the dominant segment for the company accounting for more than 60% of sales in Q4. It remains to be seen how the company handles the transition from ICE to electric in both the 2 & 3-wheeler sectors and how long will the semiconductor shortage last for the auto industry. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

• The revenues for the quarter were at Rs 9369 Cr with a rise of 0.96% YoY and decrease of -16.72% YoY in PAT for Q3.
• The volumes sold for the quarter stood at 1,181,361 units
• The export volumes were at 658,062 units in Q3FY22 which was down 4% YoY.
• EBITDA margin was at 15.6% vs 19.8% last year.
• The YoY changes in volumes for Q3FY22 are as follows:
  • Domestic:

• Exports:

• Total:

• The overall share in the domestic motorcycle market for Bajaj Auto grew close to 19.2% in Q3FY22 from 18.6% in Q3FY21.
• Domestic market share in commercial vehicles segment for Bajaj Auto was at 71% in Q3FY22.
• Africa, SAME region and LATAM continued to record strong sales.
• The company maintained surplus cash and cash equivalents at Rs 17,883 Cr as of 31^st December 2021.
• The company recorded Rs 75 Cr in Other income in Q3 which was a result of buyback of 1.49% stake in KTM AG in Nov 2021.
• The company swapped the rest of 46.5% stake in KTM AG for 49.9% in Pierer Bajaj AG.

Investor Conference Call Highlights

1. Q3 was a difficult quarter to navigate due to the combination of the uncertain demand environment, cost increases, and supply chain disruptions in semiconductors.
2. Exports is now the largest business unit for the company, accounting for 56% of the topline. In Q3, the company exported an average of 219,000 units per month.
3. By end of Q3, the company had price increases of 5% in retail terms.
4. The record performance both in shipping and retail has been delivered while digesting the price increases at the retail level and navigating all problems of shipping as well as shortages in semi-conductors.
5. The motorcycle business unit has declined by double digits in Q3. All segments, entry, mid and sports are in decline. This decline is seen largely in retails. This suggests an underlying issue with both purchasing power and sentiment of the two-wheeler customer.
6. The decline of the company was lower than the industry on a retail basis resulting in market share gains.
7. The company witnessed a 1.6 percentage points increase in market share to 20% YTD market share vs 18.4% FY21.
8. The rise in market share is driven by the upgrade strategy in 100cc as the kick-start to electric-start ratio has moved to 95% in Q3. 95% of the portfolio sales are in the 100cc-based electric start.
9. In the mid-segment of 125cc, 22% of sales come from premier Pulsar 125 NS.
10. The management plans to extend the upgrade strategy in the sports segment too. On OCT 28, a new 250cc platform was launched which was well received by riders.
11. The company plans to keep making new introductions at regular intervals over the next 6 to 9 months and completely upgrade and refresh the Pulsar portfolio.
12. The management expects Q4 to be negative over Q4 FY ’21 due to the third wave.
13. The domestic 3-wheeler business has returned to normalcy in Q3 with the company selling 52,000 units during the quarter which was 52% higher YoY. This helped the company reach a market share of 71% in domestic 3-wheelers.
14. During the year, active CNG pumps and the number of cities have increased by 50% which bodes well for the company. The company has a market of 75% in this 3-wheeler segment.
15. The company has applied for the Champion OEM Incentive Scheme of auto under PLI under which the company will invest over 1000 crores over the next five years.
16. The first investment of Rs 300 Cr is in Akurdi, Pune which will deliver a production capacity of 5 lakh electric two-wheelers per annum. The first vehicles are expected to roll out by June 2022.
17. The company sold over 2000 chetaks in Q3 and is currently present in 8 cities. Now that the management sees better visibility in the supply chain, it plans to roll into 12 more cities in the next 9 months.
18. The management states that despite all the frenzy surrounding the EV space, the company will use a 3-pronged approach to build the EV business and build a robust, dependable brand.
19. The company delivered a 15.6% EBITDA margin this quarter. This 60 bps QoQ improvement is accounted for by improved realization of the US Dollar and price increases this quarter.
20. The management’s outlook on cost increases is for a 1% rise in Q4 which has already been passed on by increases in early Jan.
21. Most of the company’s R&D efforts in terms of new platforms are focused on EVs.
22. The management remains uncertain of the supply chain environment because of the chip shortage situation.
23. The management states that an electric vehicle is 20% cheaper in operating costs compared to a CNG vehicle, yet the company is going to pursue both for 3-wheelers as the Capital costs for electric vehicles is higher compared to CNG.
24. Currently the company is selling 2000 units in Cambodia, 1800 units in the Philippines, 3000 units in Iraq of 3-wheelers per month.
25. The management states that the reason for 3-wheeler export performing better than domestic is the aggressive push to create new markets in new countries since the last few years after the drop of sales witnessed in Sri Lanka.
26. Egypt had banned 3-wheeler sales in October, yet the company continued to supply till December to fulfill the pending order book.
27. The management maintains the two-wheeler export outlook for Q4 as steady.

Analyst’s View:

Bajaj Auto has been a long-performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a decent quarter with export volumes staying resilient. The company continues to see market share rise despite industry decline in Q3. It has also seen a good uptick in Chetak sales and now plans to expand it to 12 more cities in the next 9 months. The 3-wheeler segment is expected to see demand comeback as vaccination rises. Exports have now become the dominant segment for the company accounting for 56% of sales in Q3. It remains to be seen how the company handles the transition from ICE to electric in both the 2 & 3-wheeler sectors and how long will the semiconductor shortage last for the auto industry. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q2FY22 Updates

Financial Results & Highlights

*Includes an exceptional item of gain of Rs 501 Cr

Detailed Results:

• The revenues for the quarter were at Rs 9081 Cr with a rise of 22.02% YoY and an improvement of 71% YoY in PAT for Q2.
• The volumes sold for the quarter stood at 2,150,421 units
• The export volumes were at 1,261,068 units in H1FY22 which was up 72.37% YoY showing good export resilience.
• EBITDA margin was at 16.4% vs 18.2% last quarter.
• The YoY changes in volumes for H1FY22 are as follows:
  • Domestic:

• Exports:

• Total:

• The overall share in the domestic motorcycle market for Bajaj Auto grew close to 19.1% in H1FY22 from 18.2% in H1FY21.
• Domestic market share in commercial vehicles segment for Bajaj Auto was at 67.5% in H1FY22.
• Africa, SAME region and LATAM continued to record strong sales.
• The company maintained surplus cash and cash equivalents at Rs 17526 Cr as of 30^th September 2021.
• The drop in EBITDA margin of 180 bps was due to increase in raw material costs.
• The exceptional gain of Rs 501 Cr resulted from restructuring of Bajaj’s stake in KTM which was swapped for another stake in KTM parent Pierer.

Investor Conference Call Highlights

1. The management emphasized the success of the company’s new product launches in April – CT 110X and Pulsar NS 125. Sales of both doubled between Q1 and Q2
2. In the large passenger and cargo segments, management expects retails to cross 20,000 units in October 2021, which would be the 2nd time after March’20.
3. The management reiterated its focus on upgrading and premiumization through strong exports performance, despite the Philippines market operating at just 50% and Sri Lanka at 0. The company recorded the highest ever sales in Latin America and Pulsar brands.
4. Dominar 250 and 400 witnessed significant progress and the management believes they’re almost the leaders in the 250cc segment in 7 countries.
5. Bookings for Chetak opened up in Chennai and Hyderabad and the management intends to reach 30 cities by March’22. The company has 45 months of bookings already.
6. The unavailability of semiconductor chips impacted 20% of the company’s motorcycle portfolio. Gaps of about 50% in demand supply led to stock-outs in India and overseas markets, affecting KYM, Dominar, and Pulsar clients. The management expects the shortages to continue for the next 3 to 4 quarters.
7. The management finds the 3-wheeler business to be well poised and expected Q3 to be better than Q2. Similarly, the highest-ever performance in exports is expected at 2.2 to 2.3 million units in Q3. This will cross the $2 billion mark in exports for FY22.
8. Although headwinds on the cost side are less severe, cost increases of 2% may be seen which would be passed on based on demand sensitivities and competitor moves.
9. The management passed a resolution to form an NBFC for captive auto financing. This will allow customers to avail seamless and integrated experience of sales, service, and finance.
10. On the electric vehicle segment, the management highlighted that they are looking at an initial manufacturing capacity of only 0.5 million units per annum for 2-wheelers and would like to observe how the transition in the market unfolds for the time being.
11. The management believes that the transition from Internal Combustion Engine (ICE) to lithium and powered 3-wheelers would take a long time. The migration in electric 2-wheelers is, in their opinion, relatively stronger.
12. Talking about the relaunch of Pulsar, the management expects the intrinsic EBITDA of the product to be the same as otherwise due to successful high-volume production of Pulsar.
13. The management mentioned about fall in exports volumes of commercial vehicles in Q2 and accrued it to pressure due to pricing. They witnessed no significant price increases by competitors due to rising costs, as opposed to their stronger reaction by increasing prices.
14. The management iterated that demand for 2-wheelers, identified as mass consumption products, has declined not just for the company but that’s the case for the overall 2-wheeler segment. It witnessed a peak in FY19, followed by an almost 30% decline in the overall industry, as per them.
15. NS125 was the latest introduction in the company’s 125cc portfolio, accounting for 25% of the total 125cc portfolio. A couple of other products are also in the works but a new version of 125cc would take a few quarters to launch.
16. The Other Income component in Q2 results includes INR 45 crore dividend received from DHL.
17. The company has adopted a hub and spoke distribution model for Chetak. Although model selection and transaction can now be done completely online, the customer has to visit the dealership for final physical verification with RTO.

Analyst’s View:

Bajaj Auto has been a long-performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a decent quarter with export volumes staying resilient. The company continues to see market share rise due to sustained momentum in Pulsar 125. It has also seen a good market share in the 125cc+ segment. Bajaj Auto has started selling Chetak in Chennai & Hyderabad and has adopted a model where model selection and transactions are done online and only physical interaction is there during test drive and RTO. The 3-wheeler segment is expected to see demand comeback as vaccination rises. It remains to be seen how the company handles the transition from ICE to electric in both the 2 & 3-wheeler sectors and how long will the semiconductor shortage last for the auto industry. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q1FY22 Updates

Financial Results & Highlights

Detailed Results:

• The revenues for the quarter were at Rs 7715 Cr with a rise of 126% YoY and an improvement of 195% YoY in PAT for Q1. The growth figures were exaggerated due to low base in Q1FY21.
• The volumes sold for the quarter stood at 1,006,014 units which was down mainly on account of the 2^nd wave of COVID-19 at the time.
• The export volumes were at 648,877 units in Q1 which was up 2% QoQ showing good export resilience.
• EBITDA margin was at 15.6% vs 18.1% last quarter.
• The YoY & QoQ changes in volumes for the quarter are as follows:
  • Domestic:

• Exports:

• Total:

• The overall share in the domestic motorcycle market for Bajaj Auto grew close to 19.7% in Q1 from 17.3% in Q4FY21.
• 3-wheeler market share for Bajaj Auto was at 65.3% in Q1.
• Africa, SAME region and LATAM continued to record strong sales.
• The company maintained surplus cash and cash equivalents at Rs 19097 Cr as of 30^th June 2021.
• The drop in EBITDA margin of 220 bps was due to increase in raw material costs.
  

Investor Conference Call Highlights

1. The company’s market share in the 125 cc+ segment increased to 25% in Q1 from 22% previously. This segment accounts for 45% of the Indian Motorcycle market.
2. The 125 cc+ segment accounts for 60% of Bajaj Auto sales.
3. The market share in the 125-cc segment has risen to 28% due to the continued rise of Pulsar 125 despite it being the most expensive bike in the industry segment.
4. The exports have risen above 200,000 units despite a drop in sales in the Philippines which is the biggest market for Bajaj Auto in the ASEAN region.
5. Global market share improved 2% QoQ in motorcycles and 6% QoQ in 3 wheelers.
6. 85% of revenues now come from markets where the company is in the top 2 in the industry.
7. Exports to KTM have increased 48% QoQ due to strong demand from North America, Europe, and Australia.
8. The company saw overall cost increases of 3.7% in Q1 of which it was able to mitigate 1.5%.
9. Margins also saw a contraction of 1.6% due to loss of operating leverage due to lower volumes.
10. Better forex and product mix helped mitigate 1.3%. All of the above resulted in an overall EBITDA margin contraction of 2.5% QoQ.
11. Chetak bookings were opened for Pune and Bangalore and were closed in 48 hours due to a strong response. The company expects a manufacturing rate of 1000 units a month.
12. The company has announced the expansion of Chetak into Nagpur, Aurangabad, Mysuru, and Mangalore.
13. The management expects a flat Q2 YoY.
14. 3-wheelers should expand in Q2, and demand should rise from the Philippines as the COVID wave there recedes.
15. The company announced the formation of a 100% subsidiary for EV to create a separate space for pursuing its EV ambitions according to the management.
16. The company is looking at the EV segment from all angles, from micro-mobility to high-performance EV bikes. It has also invested in Yulu which is a leading micro-mobility solutions provider operating across major cities in India.
17. The company employs around 1400-1500 people in R&D alone.
18. Q2 should see operating leverage come back resulting in improvement in EBITDA margin for Bajaj Auto.
19. Steel and other input prices may remain high in the short term but they should unwind back to long-term equilibrium levels according to the management.
20. The first-mover advantage in the EV space may not necessarily be good for the mover as the market is evolving and thus it is uncertain if the first mover will be able to retain the early access advantage.
21. The management states that the transition to EVs will be gradual and will take at least 3-5 years for the segment to become sufficiently significant.
22. The company’s market share in CNG 3wheelers is at 85-90%. The major deciding factor between CNG and electric comes down to the pricing difference between CNG fuel and electricity price per mile.
23. Current employee costs have come down in Q1 vs Q4FY21 as the Q4 number was smaller due to the reversal of retirement benefits.
24. Total export revenues in Q1 were at Rs 4500 Cr and in $ terms, it was at $580 million.
25. The management expects quarterly revenues to come back to Rs 9000 Cr.
26. The company will introduce a new platform in Sep and will provide upgrades on existing brands for the next 12-15 months. It is not looking to launch any new brand in this period.
27. The company and Bajaj Finance have both seen higher than expected applications for 3 wheeler finance which is a good indicator of demand comeback according to the management.
28. The company has lost 3-4% market share in Nigeria in the last 1 year. This was mainly due to Chinese competitors based on a pricing advantage. The management has stated that Bajaj Auto will look to combat this by providing better product quality and service network

Analyst’s View:

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a mixed quarter with its highest ever export volumes and domestic business decline due to the 2^nd wave of COVID-19 in Q1. The company continues to see market share rise due to sustained momentum in Pulsar 125. It has also seen good market share in the 125cc+ segment. Bajaj Auto recently announced the formation of a 100% subsidiary to concentrate on EV which is a strong signal of its ambitions in the space. The 3 wheeler segment is expected to see demand comeback as vaccination rises. The company is also expected to benefit greatly from the shift to CNG in the 3wheeler space as it controls 85-90% market share in this segment. It remains to be seen how the company handles the transition from ICE to electric in both the 2 & 3-wheeler sectors and how will commodity prices move in the near future after a sustained rise in the past few quarters. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q4FY21 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were at Rs 8880 Cr with a rise of 22% YoY and an improvement of 15% YoY in PAT for Q4. FY21 figures remain subdued with revenues down 7.7% YoY and profits down 6.8% YoY. 
• The volumes sold for the quarter stood at 1,169,664 units which is a rise of 18% YoY. 
• The export volumes were at 635,545 units in Q4 which was up 24% YoY. 
• EBITDA margin was at 18.1% vs 19% last year. 

• The YoY changes in volumes for the quarter & FY21 are as follows: 

• Domestic:  

• Exports:  

• Total: 

• Pulsar 125 sold over 128,000 units in Q4.  
• The overall share in the domestic & international motorcycle market by Indian Players grew close to 27.6% in FY21 from 27.5% last year. 
• Pulsar had its highest ever sales in a year of over 1.25 mn units in FY21. 
• KTM along with Husqvarna, sold over 143,000 units in domestic & export markets in FY21. 

• Domestic CV volumes continue to remain muted and recovering slowly. 
• Bajaj is now the market leader in big 3-wheeler passenger carrier segment with market share of 46.9%.  
• Market share in goods carrier segment improved 670 bps YoY to 33.7% in FY21. 
• The company maintained surplus cash and cash equivalents at Rs 17689 Cr as of 31st Mar 2021. 
• The company announced a dividend of Rs 140 per share for FY21. 

Investor Conference Call Highlights

1. 60% of total motorcycle volumes for Bajaj come from 125+ cc bikes.  
2. Pulsar 125 has risen to a market share of 19% in Q4 vs 7% last year while the 125cc market itself has grown by 4% YoY.  
3. The company launched 3 upgraded variants of Platina with electric start in the 110cc segment.  
4. 3-wheeler sales had climbed to sales of 11,000 units per month but it got halted in April due to the 2nd wave of COVID-19.  
5. The export business continues to perform with a 200,000-volume performance every month.  
6. Bajaj’s exports to KTM have grown at a significant pace of 60% plus, powered by a surge in demand in the developed markets of North America, Europe, and Australia.  
7. The company saw commodity cost increases of 3% and was able to recover at least 2% through price increases.  
8. Shipping issues caused spillover of around 10-15% of the export order book.  
9. 77% of export revenues come from markets where Bajaj is No 1.  
10. Bajaj has reopened bookings for the electric scooter, Chetak. It had to close bookings again in 48 hours due to overwhelming reception. The company aims to expand Chetak to many cities in India in FY22.  
11. The company has taken a further price increase of 1.5-2% in Q1 to mitigate the commodity cost rises.  
12. The management expects the following year FY22 to be the best for exports in terms of volumes.  
13. The company’s approach to focus on the 125+ cc segment and premiumization seems to have paid off according to the management as the top half of the market has been almost unaffected financially by the pandemic and thus demand has remained sustained.  
14. The fall in other expenses has been a measure of cost-cutting in lean times but they are expected to come back when everything normalizes.  
15. Promotion spend is always the highest in Q3 because the festive season in both India and abroad lies in the quarter.  
16. The revenues from spare parts in Q4 were at Rs 1089 Cr.  
17. The spare parts business has a lot of headroom for growth as the current sales is less than 70% of possible sales according to the management.  
18. The management expects the performance in KTM to continue and that demand has outstripped supply by at least 10-15% due to the semiconductor shortage.  
19. The management admits that the near-term outlook for the motorcycle market is subdued due to a variety of factors but the long-term demand drivers (of a youthful population, rising penetration of retail financing and road network expansion, etc) remain intact.  
20. The company will be putting out newer platforms and newer variants in the next 6 months according to the management.  
21. The management states that the capacity to build the Chetak is determined by the ability of international vendors to supply critical components, most of which are electronic. The management also states that it has not started full-time booking for Chetak as it hasn’t secured guarantees of continued supply yet.  
22. The management expects to be doing delivering 1000 Chetak units each month.  
23. The management feels that the business case like-for-like is not very supportive of a movement from ICE to electric at the moment. This case will indeed change in the future but it is dependent a lot on how the battery costs move and whether there is some outside support from the government for creating a protected space for electric. The company is working on building capability on this slowly and is not in a rush to do so.  
24. The current electric 3-wheeler market is built on lead-acid battery which the management feels is a substandard solution and is not looking to get into at the moment.  
25. The company is not looking to get into price competition with other rivals for Chetak and will price its model based mostly on battery costs and technology. 

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a good quarter with the 2nd highest ever export volumes and revenue growth of >20% in Q4. The company has seen good momentum continue in Pulsar 125 which has managed to capture a 19% market share in FY21 vs 7% in FY20. The company also showed some light on Chetak and the management stated that Chetak should start seeing sales in the next 6 months. The recovery of the 3-wheeler segment on the other hand continues to be slow and has also lost recent momentum due to the 2nd wave of COVID-19. It remains to be seen how the company handles the transition from a mass-market player to a premium focus auto major and from ICE to electric in both the 2 & 3-wheeler sectors. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for. 

Q3FY21 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were at its highest ever levels exceeding Rs 9000 Cr with a rise of 16% YoY and an improvement of 30% YoY in PAT for Q3. 9M figures remain subdued with revenues down 17% YoY and profits down 14% YoY.
• The volumes sold for the quarter stood at 1,306,810 units which is a rise of 9% YoY.
• The export volumes were at 687,111 units in Q3 which was up 22% YoY.
• EBITDA margin was at 19.8% vs 18.4% last year.
• The YoY changes in volumes for the quarter & H1 are as follows:
  • Domestic:

• Exports:

• Total:

• The overall share in the domestic motorcycle market grew close to 18.6% in Q3FY21 from 17.5% last year.
• Pulsar and Boxer had their highest ever sales in a quarter of over 420,200 & 380,000 units respectively.
• Domestic CV volumes continue to remain muted and are dependent on the return of adequate short distance mobility demand.
• Export continues to perform very well, with highest ever export volumes. This is despite the shortage of shipping containers which
• Pulsar125 witnessed strong traction with sales of over 164,000 units; growth of 32% over Q2FY21; market share for Pulsar125 in its segment has grown to 22.8% for Q3FY21.
• The company maintained surplus cash and cash equivalents at Rs 16891 Cr as of 31^st Dec 2020.
• The company signed an MoU with Maharashtra Govt to set up a new manufacturing facility at Chakan, Maharashtra for the manufacture of high-end motorcycles and electric vehicles, at a proposed investment of Rs 650 Cr. Production at the facility is expected to commence from 2023 onwards.

Investor Conference Call Highlights

• The management acknowledged that a rebound effect or pent-up demand is returning as economies emerge from the pandemic.
• The export recovery and rise was mainly due to the company’s top 2 position in most export countries which helped it capture much of the economic recovery in those regions.
• South Asia, with the exception of Sri Lanka, is back to pre-COVID levels.
• The Philippines is still at 50% of pre-COVID levels.
• In three-wheelers, LatAM is back to 50%; ASEAN is struggling at 25%; & for all others in Africa & Middle East are at or higher than pre-covid levels.
• The container availability posed a huge challenge with 15% of order book getting spilt over to the next month.
• Despite the rise of Pulsar 125, the core Pulsar segment of 150+ cc is protected and cannibalization is well maintained.
• The company is looking to build the 250+ cc segment around 4 models in Bajaj, KTM and Husqvarna. KTM and Husqvarna have seen 35% growth in these brands in India.
• The company has seen some cannibalization action in 150 Neon due to the Pulsar 125 and the raising of prices for entry-level 150.
• Sales of CVs have recovered only to 40% levels. the cargo three-wheeler segment is outperforming others and is back to about 70% level of normal times.
• The company is expecting high growth in Q4 due to continued momentum and low base in Q4FY20.
• The company did price increases in Jan to offset RM cost rise and MEIS in international markets.
• The cost increase in Q3 was 3% of revenues. This was mainly due to rise in prices of steel and aluminium. The company is not getting any indication from any steel or aluminium manufacturer that they’re going to roll back these prices anytime soon.
• The company is running with export stocks slightly behind retail right now.
• The main reason for the company’s robust export performance is the competitive positioning where 85% of exports are to countries where it has more than 25% market share and wide dealer network with assembly plants and service facility.
• KTM added around Rs 160 Cr to consolidated profits. KTM has done very well in e-bicycles which have boomed since the start of COVID-19.
• The management has stated that other expenses which are primarily advertising and promotion will come back to pre-covid levels as consumer schemes run down.
• The company expects to capture the rise of 3 wheelers fast when demand rises because three-wheeler is almost 100% financed which shall aid in fast sales whenever needed.
• There shouldn’t be any noticeable rise greater than 1-2% in employee costs as ramping up production does not require additional manpower for the company.
• The company expects the 3 wheeler industry to show 15-20% growth in FY22 once normalcy comes back. The company is not in a hurry to launch electric 3 wheelers as it is more focussed on the development of necessary infrastructure for charging and cost reductions.
• The management has stated that the Pulsar 125 experience has inspired the company to push the industry into better products and premium products in the bottom half of the industry. Although competition is tough in this segment, the management is confident that Bajaj Auto can compete on the basis of getting the customer to upgrade to better products and better formats.
• The management has stated that given the targeted promotion plans and their intensity, there shouldn’t be any durable cost savings in other expenses going forward as compared to pre-covid times.
• The company is expected to have a blended tax rate of 23.5%.
• The company will be looking to retire the Pulsar 150 Neon as the price increase has been pushing most customers to Pulsar 125. But the overall market share gain from Pulsar 125 is much greater than for Pulsar 150 Neon.
• Electric start is now 75% of all motorcycles for the company and Bajaj is aiming to bring this number up to 100%.
• Overall price increases were 1% in Jan across all models.
• The company will be focussing on comprehensive brand building in the higher segments to be able to compete with the like of Royal Enfield.
• The dollar realization in Q3 was around $20 million.
• Overall spare parts revenue was at Rs 990 Cr.
• The proposed plant at Chakan will be making primarily high-end bikes for KTM, Husqvarna and Triumph. It will also have some capacity to make electric vehicles but it will not be making the company’s flagship models like Pulsar.
• The company has pulled back on bookings for the electric Chetak as there were a lot of vulnerabilities in the sourcing from Wuhan and shortage in semiconductors worldwide. The company will be looking to fix these weaknesses first before looking to go forward with the launch. The management expects this product to have rolled out in top 24 cities in India by the end of FY22.
• The management has stated that it is planning for 1-2 launches in each quarter in 2021.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a phenomenal quarter with its highest ever revenues, export volumes and export revenues in Q3. The company has seen good momentum continue in Pulsar 125 which has managed to capture 23% market share despite being the most expensive bike in the category, all within 6+ months of launch. The recovery of the 3 wheeler segment on the other hand continues to be slow but Bajaj is confident of capturing the recovery momentum when it comes. It remains to be seen whether the recent rise in demand is sustainable and how will the RM costs fare out in the near future. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q2FY21 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were encouraging with a decline of only 8% YoY and an improvement of more than 100% QoQ in both standalone and consolidated terms for Q2.
• Profits were also down with a fall in PAT of 19% and 21.6% YoY respectively in standalone and consolidated terms respectively.
• The volumes sold for the quarter stood at 1,053,337 units which is a decline of 10% YoY.
• The export volumes were at 479,751 units in Q2.
• Operating EBITDA margin was at 18.2% & excluding MEIS impact it was at 19%.
• The YoY changes in volumes for the quarter & H1 are as follows:
  • Domestic:

• Exports:

• Total:

• The domestic motorcycles industry grew 7% YoY in Q1 vs Bajaj decline of 70%.
• The overall share in the domestic motorcycle market grew close to 18.2% in H1FY21 from 18.1% last year.
• KTM and Husqvarna had their highest ever sales in a quarter of 20,200 vehicles.
• Pulsar had its highest sales volumes ever in a quarter at 348,561 units.
• Domestic CV volumes continue to remain muted and are dependent on the return of adequate short distance mobility demand. Within CV, cargo has fared better than the passenger, and Bajaj’s share has increased to its highest ever level of 37%. Overall, the market share in the CV segment was at 53.3%.
• Export continues to perform very well, and September was the highest ever month at 2,12,000 units. A strong revival of demand was witnessed in Latin America and Africa while ASEAN continues to be weak and Sri Lanka has stopped all vehicle imports. The growth in LATAM is driven by the Sports segment -Pulsar and Dominar.
• During the quarter, Bajaj Auto introduced Pulsar 125 Drum Split Seat and expanded the footprint of Pulsar 125 Disc Split Seat. Further refreshed versions of Platina 100 ES and Duke 50 were also introduced.
• The company maintained surplus cash and cash equivalents at Rs 16240 Cr as of 30^th Sep 2020.

Investor Conference Call Highlights

• The management credits the company’s supply chain response for helping post its highest-ever export number in September.
• The company increased prices in Q2 and passed on the impact of the MEIS withdrawal.
• The company is now facing not only Chinese competitors in export markets, it is also facing Japanese brands manufactured out of China.
• The blended margin had taken a hit due to the fall of 3 wheelers in the product mix which is a high margin product for the company. This hit was offset by the improved performance and expansion by the Pulsar brand.
• The Pulsar 125 has managed to capture a 16% market share in the 125cc category despite being the most expensive 125cc motorcycle on the market. The rise of Pulsar 125cc has also contributed to the rise of the 125cc segment which has expanded to 25% of the total market from 20% last year.
• Another contributor to margin was the highest ever sales of ultra-high end segment of KTM and Husqvarna.
• All in all, the domestic motorcycle division saw its highest margin profile in the past 15-16 quarters.
• Domestic demand for motorcycles has recovered to 90% of pre-covid levels.
• Domestic CV recovery on the other hand has been very slow mainly due to slow recovery in the 3 wheeler space.
• The management expects sales to continue rising for each month in Q3.
• In the disc vs non-disc segment of the 125cc market, Pulsar 125 has managed to capture 40% of the disc category since launch a few months ago.
• Around 2/3^rd of the drop in other expenses is mainly due to a drop in marketing spending. The rest is due to operating cost reduction.
• The management has stated that input costs are certainly manageable. Although the margin performance has been outstanding in Q2, the management expects only a 50-75 bps correction in margins going forward and even that is expected only due to higher sales promotion spending.
• The management doesn’t expect any significant discounting trends as the entire industry is suffering.
• The uptake of Pulsar125 has been especially good in small towns as well as big cities and the management considers it a pan India phenomenon without much distinction in rural and urban demand.
• The is still some uncertainty in domestic demand from the underlying economic contraction in the country. Whether demand comeback is sustainable or not will be better gauged in December when festive demand is over and pent up demand should have been covered.
• Three-wheeler demand is expected to rise back slowly as traffic resumes and financiers come out.
• ASEAN area is at 50% recovery. South Asia and the Middle East, apart from Sri Lanka, which has banned imports, is at about 90% recovery. Africa is at 90-95% back and LATAM is at 80% of previous levels.
• The management is expecting a good season in the Christmas period in the Philippines and LATAM to come back to 100% by then.
• The management expects Pulsar 125 to capture more market share as the marketing activity intensifies.
• 80-85% of export revenue comes from markets where the company has a minimum of 25% market share or is at the top 2 positions in the country.
• It is still too early to tell whether demand will shift from 4 wheeler CV to three-wheeler CV due to price increase from BSVI. This is because industry recovery has been very slow and only when the segment comes back to normal can it be verified.
• The top half of the motorcycle pyramid has grown. This is mainly due to the fact that financiers are being more cautious with the entry-level customer. This is also helping spur premiumization for the company.
• Currently, around 52% of sales are financed and 60% of all the financed sales are through Bajaj Auto Finance.
• The management expects financing penetration to come back to FY20 levels of 70-72%.
• The company has stocked up at the dealer level so that it does not miss out on any upward surprise in demand and put undue stress on its supply chain.
• The normal level of stocking for the festive season is around 45-48 days.
• The main aims for the company are expanding the 125cc category, holding its market share in the sports category, and taking the top part of the entry-level segment. That is to expand rigorously in the mid-segment, hold the leadership in the top and skim the top of the entry-level in the motorcycles segment in India.
• There hasn’t been any significant impact on RM prices in Q1 & Q2. But the management is expecting RM costs to rise in Q3.
• The staff cost run rate is expected to stay stable at Rs 325-340 Cr per quarter.
• Three-wheeler demand is better in export markets than in India currently. It has recovered to 75-80% levels in most export destinations. But ASEAN countries remain at below 50% level and Sri Lanka has outright banned the import of 3 wheelers in the country.
• Egypt has shown good recovery and the company has been able to capture around 90-95% of the market share there.
• The spare parts revenues in Q2 were at Rs 733 Cr while export revenue was at Rs 2800 Cr.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. The company has seen a good recovery in Q2, especially in the domestic motorcycles segment. The company has received a very good response to Pulsar 125 which has managed to capture 16% market share despite being the most expensive bike in the category, all in a few months of launch. The recovery of the 3 wheeler segment on the other hand has been very slow. It remains to be seen whether the recent rise in demand is sustainable and can be maintained beyond the festive season and how will the RM costs fare out in the near future. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q1FY21 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were dismal with a fall of 58% YoY in both standalone and consolidated terms for Q1.
• Profits were also down with a fall in PAT of 53% and 61% YoY respectively in standalone and consolidated terms respectively.
• The volumes sold for the quarter stood at 443,103 units.
• The export volumes were at 251,840 units in Q1.
• The YoY changes in volumes for the quarter are as follows:

• The domestic motorcycles industry declined 73% YoY in Q1vs Bajaj decline of 70%.
• The overall share in the domestic motorcycle market grew close to 20.7% from 18.5% in FY20.
• In Q1FY21, CT sold 32,000 units. Platina sold over 45,000 units including Platina 110H.
• The recently launched Pulsar 125 sold over 32,000 units.
• Market share in the mileage segment was at 15.5% vs 14.3% in FY20.
• In the sports segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 69,000 units in Q1 with Pulsar 150 selling 49,000 units Market share in this segment rose to 59% vs 44.7% in FY20.
• In super sports segment, the company sold almost 6000 units with a market share of 8.8%
• KTM & Husqvarna sold over 3,400 units in Q1. RS200 & Dominar sold over 2,500 units.
• In the CV segment in Q1FY21, the company had a market share of 42.6%. The industry declined almost 91% in the quarter and Bajaj Auto suffered the most as the dominant player.
• In the RE brand, the company maintained a market share of 80%.
• In the MAXIMA brand, the company maintained a market share of 27%.
• In the Goods carrier segment, the company maintained a market share of 34%.
• In the international business segment, the company sold over 251,000 units.
• Africa declined 50% while South Asia & Middle East declined 63%. Latin America declined by 63% while ASEAN declined by 67%.
• The proportionate loss from KTM AG for the company in March Quarter FY21 was Rs 132 Cr.
• The company maintained surplus cash and cash equivalents at Rs 14232 Cr as of 30^th June 2020.

Investor Conference Call Highlights

• Commodity prices have been adverse for the company and are not expected to provide any relief going forward.
• The management states that demand has come back to 75% in motorcycles in June.
• Most markets are now at 75% to 100% of demand in motorcycles and commercial vehicles are at 10% lower than motorcycles.
• The management states that Q2 should not see any price increases and motorcycle gross margins should improve as volumes come back to normal.
• The management expects the road to normalcy for 3 wheelers to take longer as it has been more severely impacted due to drop in ride-hailing and other major business areas for the industry division.
• The trend in 3 wheeler cargo vehicles is expected to be swift due to renewed demand for intracity movement of small cargo.
• The management does not expect any supply chain disruption as demand is slowly coming back and easing pressure on the supply chain.
• The company has seen 80-85% of demand in motorcycles in July.
• Motorcycle inventory levels are running at below 30 days.
• The overall margin profile has been kept buoyant by the good export margins.
• The company has indeed reduced is marketing and ad spend currently but the management assures that the company will indeed loosen its strings on advertising ahead of the demand curve as things return to normal.
• The management is satisfied with the decision to go with the electronic injection system as it reduces the dependence on the proprietary technology for pure fuel injection and decreases price sensitivity for the injection systems that have to be ordered from outside.
• The management has stated that electronic injection is far easier to service and maintain than fuel injection which makes it more convenient for the customer in the long run.
• The company’s import content is <5% of requirements and it is mainly those things which are not available in India.
• The company has made a cost reduction of Rs 100 Cr per quarter other than a reduction in marketing and ad spend.
• The current utilization is at 65-70% of overall production capacity.
• The management expects demand from retail to come back swiftly as pent up demand rises driven by agribusiness led small urban areas.
• The management has reassured that there will not be any risk-sharing with Bajaj Finance but there indeed may be some cost-sharing in a product-focused way. The company will not become over-dependent on Bajaj Finance.
• The management has stated that it is difficult to gauge what the new normal level of demand will be since we are still in the middle of the pandemic and cannot accurately gauge how consumer behaviour will evolve in response.
• Around 95% of motorcycle dealerships are open while 85% of CV dealerships are open currently.
• The management is pleased that the quality of demand is not going down and there is no down-trading going on based on the sales figures. The compelling evidence for this is the emergence of Pulsar which is anchoring the company with 50% of total motorcycle sales. Even in the pulsar brand, the highest-selling one is the more expensive disc brake variant.
• The company expects to hit 10000 units in pro biking sales by September.
• The currency volatility issues plaguing the company in the previous quarter have calmed down considerably.
• The management remains satisfied with the current EBITDA margin of 14.3% in Q1 and remains focused on maintaining the bottom line and market share dominance for the company.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Despite the expected decline in domestic business, the export business has helped mitigate the fall in performance for the company. Q1 was a dismal quarter for the company especially due to more than 68 days of manufacturing inactivity. The company did well to maintain its market dominance and increase market share in motorcycles despite the industry decline. The lockdown due to COVID-19 has hit the auto industry particularly hard and the company is no exception. But the company is expected to have managed better than its competitors mainly due to its performance in international markets. It remains to be seen how long will it take for the auto industry to revive from the triple threats of demand slowdown, BSVI price increases, and COVID-19 disruption. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q4FY20 Updates

Financial Results & Highlights

*Contains an exceptional item of reverse charge of Rs 342 Cr which was added to PBT

Detailed Results

• • The revenues for the quarter were dismal with a fall of 5.6% and 7% YoY respectively in both standalone and consolidated terms for Q4. FY20 revenues were mostly flat for the year.
  • Profits were also down with a fall in PAT of 0.3% and 3.8% YoY respectively in standalone and consolidated terms respectively. This was mainly due to the exceptional item mentioned above.
  • The volumes sold for the quarter stood at 991,961 units. The volumes sold for the year was at 4,615.212 units.
  • The export volumes were at the highest ever level at 562,772 units in Q3.
  • The YoY changes in volumes for the quarter are as follows:
    • Domestic:

  Domestic	Q4FY20	FY20
  Motorcycles	-34%	-18%
  CV	-27%	-8%
  Total	-33%	-17%

  • Exports:

  Exports	Q4FY20	FY20
  Motorcycles	15%	10%
  CV	-29%	-21%
  Total	7%	4%

  • Total:

  Total	Q4FY20	FY20
  Motorcycles	-15%	-7%
  CV	-28%	-15%
  Total	-17%	-8%

  • The domestic motorcycles industry declined 18% YoY in FY20.
  • The overall share in the domestic motorcycle market grew close to 18.5% in FY20 vs 18.7% in FY19.
  • In FY20, CT100 sold 480,000 units while CT110 sold 194,000 units. Platina sold 578,000 units while Platina 110H sold 154,000 units.
  • The recently launched Pulsar 125 sold over 160,000 units.
  • In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 747,000 units in FY20 and maintained a market share of 44.7%.
  • KTM sold 64,000 units in FY20 which is a growth of 26% YoY. With the RS200 & Dominar, the company improved its market share by 270 bps to 10.1% in FY20.
  • The company launched 3 new bikes in the quarter which are Husqvarna Svartpilen 250, Husqvama Vitpilen 250, and Dominar 250.
  • In the CV segment in FY20, the company sold over 365,000 units and maintained a market share of 57.3%.
  • In the RE brand, the company maintained a market share of 89.7% in FY20, an improvement of 360 bps YoY.
  • In the MAXIMA brand, the company maintained a market share of 38.5% in FY20, an improvement of 140 bps YoY.
  • In the Goods carrier segment, the division declined 2% YoY against an industry decline of 13% YoY and a market share of 27.2% in FY20, an improvement of 330 bps YoY.
  • In the international business segment, the company sold over 2.17 million units which were 4% up YoY and generated revenues of $1.642 billion.
  • IN exports, Motorcycles sold over 1,849,000 units with a growth of 10% YoY in FY20.
  • The commercial vehicle exports excluding Egypt grew 6% YoY. Total exports in this division were 301,000 units in FY20.
  • The company is now selling in 79 countries with a top 2 position in 22 of these nations.
  • The proportionate profit from KTM AG for the company in FY20 was Rs 322 Cr.
  • The company declared and paid out a dividend of Rs 120 per share in Q4.
  • The company maintained a surplus cash and cash equivalents position of Rs 14,332 Cr as of 31st March 2020.
  • The company saw a complete plant shutdown of 32 days in FY21 and although facilities have been opened in Chakan, Waluj, and Pantnagar, they are not working at full pace.

Investor Conference Call Highlights

• The demand for motorcycles in Nigeria has certainly been affected by COVID-19 but the biggest concern for the company in the country remains the issue of currency devaluation.
• Overall, the company is seeing retail sales of 35% of the normal rate since the start of COVID-19 including all of its international markets.
• Almost 50-60% of dealerships for the company are in green zones. They are seeing 50% productivity in sales. Service is seeing 65-70% of normal levels.
• The company saw margin improvement in the quarter mainly due to the shift in product mix towards CVs and exports in Q4. Favourable forex has also helped bring up realizations.
• The management believes that there should be a case of positive demand coming from the fall in the use of public transport due to the COVID-19 pandemic and the change in consumer behaviour post the pandemic. But it is still too early to predict when and how this demand will rise.
• The management believes that Q2 shall also be a quarter for disentanglement of demand for the company and Q3 onwards the company should see steady demand coming in.
• The management does not believe that there will be widespread down trading as the customers who have graduated to a higher segment will not be willing to go back down a segment. But within the segment boundaries, the customer will definitely be looking for value for money.
• The management has stated that financing is much higher in three-wheelers than in motorcycles and three-wheeler portfolios of financiers have seen serious drop off during the lockdown. This is expected to reverse quickly when the lockdown is lifted and normal economic activity resumes.
• The management believes that due to the restriction on the number of people that can travel in a three-wheeler, the amount of damage done is greater for big three-wheelers than in small three-wheelers where the company has the dominant brand of RE. This is in addition to the fact that the price increases for large three wheelers from BSVI have been greater than those in small three-wheelers like RE.
• The company is not facing any issues with inventory and can run at 50-75% utilization at its plants whenever required in case of a shortage in inventory.
• The price increases that the company implemented is mainly a way to reshape the portfolio mix.
• The management has admitted that the number of inquiries has gone down but the conversion ratio is expected to rise significantly as only serious buyers are expected to make an inquiry for June and complete the sale.
• The company has seen good market capture in Africa and the management expects the company’s market share to rise to 38% for the whole continent soon. The threat from Chinese competitors in this continent is low mainly due to the small size and fragmented nature of competition here.
• The management does not believe that there will be any threat of shift from the bike taxis in Africa as there isn’t any suitable alternative in place to replace this transportation medium since public transport is nil here. But still the company is focused on developing the private ownership segment here which is still minuscule and has good potential in mature markets and industrialized nations in the continent.
• The management has clarified that the company does not need to fear much from the bike taxi ban in Lagos as the Lagos market is just 10-15% of the overall bike taxi market in the country.
• The management believes that the sales of entry-level motorcycles should suffer the most in the short term since this the segment which is most cash-driven. It has also stated that financiers will hesitate to finance this customer segment which may lead to lower sales in this division. The third reason will the mandatory price increases due to BSVI.
• Other than the running cost advantages of the smaller three-wheelers, the management believes that the economics of going for CNG will also play out in favor of smaller three-wheelers as compared to large three-wheelers.
• The % of first buyers for the company was at 56-59% depending on the segment.
• The management believes that financing for three-wheelers may have become more difficult as compared to two-wheelers as three-wheelers are used for business which has been affected by negatively affected by COVID-19 while there isn’t a direct threat to two-wheelers as it is a personal vehicle.
• The management has refrained from maintaining any guidance on the EBITDA margin as the margin is heavily dependent on product mix which is hard to predict at the moment.
• In terms of hedges, the company has already covered around 70-75% of its post lockdown targets.
• The management has identified ASEAN as the next frontier for the company. The management will also look for entry into Brazil and Europe.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Despite the expected decline in domestic business, the export business has helped raise the overall performance of the company. Q4 was a dismal quarter for the company especially in terms of domestic sales. The company did well to maintain its market share in the industry decline and rapidly raise its export proportion. The lockdown due to COVID-19 has hit the auto industry particularly hard and the company is no exception. But the company is expected to have managed better than its competitors mainly due to its performance in international markets. It remains to be seen how long will it take for the auto industry to revive from the triple threats of demand slowdown, BSVI price increases, and COVID-19 disruption. Nonetheless, given the company’s position in export markets and its strong presence in all market segments in the two-wheeler market and three-wheeler markets, Bajaj Auto remains a pivotal auto sector stock to watch out for.

Q3 2020 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were muted with a rise of 2% YoY in both standalone and consolidated terms.
• Profits were up with PAT at 14.5% and 8% YoY respectively in standalone and consolidated terms respectively. This was mainly due to the rate cut in corporate tax announced last quarter in India.
• EBITDA margin for the company improved 170 bps YoY to 18.4% in the quarter. This was mainly due to a reduction in the cost of materials, an increase in prices and an additional realization from the exchange rate conversion.
• The volumes sold for the quarter stood at 1,202,486 units.
• The export volumes were at the highest ever level at 562,772 units in Q3.
• The YoY changes in volumes for the quarter are as follows:
  • • Domestic:

    Domestic	Q3FY20	9MFY20
    Motorcycles	-16%	-13%
    CV	6%	-2%
    Total	-13%	-12%

    • Exports:

    Exports	Q3FY20	9MFY20
    Motorcycles	11%	9%
    CV	-13%	-19%
    Total	7%	4%

    • Total:

    Total	Q3FY20	9MFY20
    Motorcycles	-5%	-4%
    CV	-3%	-10%
    Total	-5%	-5%

• The domestic motorcycles industry declined 14% YoY in Q3FY20.
• The overall share in the domestic motorcycle market grew close to 20% in the current quarter.
• In the entry motorcycles segment, the company sold more than 299,000 units in this quarter. CT100 sold 137,000 units while CT110 sold 76,000 units in Q3. Platina sold 159,000 units while Platina 110H sold 46,000 units.
• The recently launched Pulsar 125 sold over 68,000 units.
• In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 158,000 units in Q3FY20.
• In the CV segment, the company sold over 96,000 units and maintained a market share of 57%.
• In the RE brand, the company maintained a market share of 89%.
• In the MAXIMA brand, the company maintained a market share of 38%
• In the Goods carrier segment, the division, grew 11% YoY against an industry decline of 3% and a market share of 26%.
• In the international business segment, the company sold over 562,722 units which were 7% up YoY and now constitutes 43% of net sales for the company.
• In Africa, the company recorded a growth of 15% YoY.
• In Sri Lanka, the company saw a relative growth which compensated for the slowdown in Bangladesh. Overall growth in the South Asian Middle East (SAME) was flat YoY.
• The company saw a growth of 37% YoY in Latin America.
• The commercial vehicle exports excluding Egypt grew 26% YoY due to over 81,000 units in the quarter.
• KTM saw a modest quarter which yielded a proportionate profit of Rs 61 Cr for Bajaj Auto.
• The company maintained a surplus cash and cash equivalents position of Rs 17,407 Cr as of 31^st December 2019.

Investor Conference Call Highlights

• The management has clarified that if the MEIS is withdrawn, the company retains enough pricing power to raise prices to counter this development.
• The contribution to margin expansion from forex appreciation is around 1/3^rd while 2/3^rd is from the improved brand mix, fall in raw material costs and forex appreciation.
• The spare parts revenue was around Rs 770 Cr for the company. Exports account for Rs 200 Cr in spare parts revenue.
• The dealer inventory level is around 5 weeks for the company.
• The management has mentioned that the drivers for export growth for the company are Nigeria and East Africa. Asia has been a mixed bag with the Philippines growing consistently while South Asia showing mixed growth in regions like Bangladesh and Sri Lanka.
• The motorcycle market in Latin America is declining mainly due to the economic decline in the region. The main reason for the good growth in this region in Q3 was the low base of last year.
• The management has reassured that the transition from BSIV to BSVI will be done through the supply chain and prevent any damage done to stock channels. The company should be able to complete the transition for all product lines by mid-February. By the first week of March, the company should have removed all of its BSIV stock.
• The company will not be making any additional big discounts to existing BSIV stock to gain a temporary market share. The company wants to avoid any instances of panic discounting and damage its stock channels.
• The management believes that the headwind that the company will face is most probably commodity prices which may increase in Q4 with global metal prices going up. Another factor here would be the changing product mix.
• The export revenue for the quarter was around Rs 3000-3500 Cr.
• The company does not have any major changes in NPAs in the parts associated with Bajaj Finance.
• The management has clarified that the new air injection system is expected to work well in low-cost commuter bikes. This is because it is cheaper to make and repair at roadside garages as compared to a sophisticated fuel injection system.
• The company is also not introducing ABS in below 150 cc bikes and the introduction of disc brakes in sub 150 cc segment is done to address the safety and comfort concerns in this segment which is moving away from a mileage-only mentality.
• The introduction of Pulsar 125 cc has been to solidify the brand image and to extend its strong brand capability into the lower segment. The same phenomenon has been successfully done by the company in the case of the KTM 125 which has been received very well in the market.
• The management has maintained that the price increase of around Rs 6500 in BSVI models is at a level where the company is not making losses. The company will be able to disclose it only after some time when the market stabilizes and BSVI has fully kicked in.
• The management has mentioned that the underlying demand is still low and it cannot comment on how the demand may change at the time before BSVI.
• The company is now exploring the EV business using the launch of Chetak and the response to the product has been very good. The company will not be pushing for a volumetric expansion from the start and it is just testing and analyzing the market before putting more focus on the EV portfolio and sales expansion.
• The management expects the 3 wheeler segment to grow around -2 to +2% in the near future.
• The management sees the 3 wheeler cargo vehicle to grow well as the costs for the 4 wheeler cargo vehicle rises due to BSVI norms. Thus the company expects some of the demand from the above segment to fall into the commercial 3 wheeler segment.
• The management has mentioned the gross profit margins in BSVI vehicles should be similar to current BSIV vehicles.
• The management has admitted that the overall price increases due to BSVI will delay demand in the short term but the consumer will get used to it in some time since this is mandated and demand shall inch to normal levels.
• The company should have a similar run rate of 3 wheeler exports in the near future as there are many regions where there may be a drop in demand which will be mitigated by good growing regions for this product segment.
• In Africa 2 wheeler segment, 95% of the market is in taxis. The company does expect the personal vehicle segment to rise slowly with the socio-economic development of the region.
• The management has commented that in the electric 3 wheeler space, the company is trying to understand the market and is not going to be making any big plays in this segment anytime soon.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Despite the expected decline in domestic business, the export business has helped raise the overall performance of the company. Q3FY20 was the best quarter for the company in terms of export volumes and export revenues formed 43% of total revenues. The company is also progressing well towards its transition from BSIV to BSVI. Despite the non-appearance of temporary demand due to muted pre-buying before the BSVI transition, the company has been able to keep its performance and sales figures well above industry standards and preserve its market share. It remains to be seen how long the current auto sector slowdown will continue and whether the company will be able to continue its export growth at the same pace as before. Nonetheless, given its commanding position in the Indian auto industry and the resilient performance of the company in troubled times, Bajaj Auto remains one of the safest bet in the auto industry.

Q2 2020 Updates

Financial Results & Highlights

Detailed Results

• The revenues for the quarter were muted with a decline of 3% YoY in both standalone and consolidated terms.
• Profits were up with PAT at 21% YoY in standalone and consolidated terms respectively. This was mainly due to the rate cut in corporate tax announced last month in India.
• The EBITDA margin for the company declined 1% YoY to 16.9% in the quarter.
• The volumes sold for the quarter stood at 1,173,591 units.
• The YoY changes in volumes for the quarter are as follows:
  • Domestic:

• Exports:

• Total:

• The domestic motorcycles division grew 14% in retail terms and 21% in billing terms.
• The overall share in the domestic motorcycle market grew close to 20% in the current quarter.
• In the entry motorcycles segment, the company sold more than 280,000 units in this quarter. The company managed to bring the contribution of the higher-priced 110cc variants from 5% in Q2FY19 to 55% in Q2FY20.
• The company also launched the Pulsar 125 in August and sold over 40,000 units.
• In the 150cc+ segment, the company continues to maintain its dominance. Pulsar, along with Avenger, sold over 174,000 units in Q2FY20.
• In the CV segment, the company sold over 107,000 units and maintained a market share of 59.4%.
• In the RE brand, the company maintained a market share of 90.5%.
• In the MAXIMA brand, the company maintained a market share of 37.1%
• In the Goods carrier segment, the division, grew 17% YoY against an industry decline of 14% and a market share of 30.6%.
• In the international business segment, the company sold over 544,000 units which were 7% up YoY. The company grew 16% YoY in Africa.
• In Sri Lanka, the company saw a relative slowdown which was compensated by growth in Bangladesh. Overall growth in the SAME region is 7% YoY.
• The company saw a decline of 5% YoY in Latin America.
• The commercial vehicle exports grew 3% YoY due to over 81,000 units in the quarter.
• KTM saw a good Q1 which yielded a proportionate profit of Rs 120 Cr for Bajaj Auto.
• The company maintained a surplus cash and cash equivalents position of Rs 15,986 Cr as of 30^th September 2019.

Investor Conference Call Highlights

• The gross margins improved QoQ mainly on the back of the improved product mix.
• The company is now fully prepared for BS-VI transition. The company has started the reduction of the BS-IV stock. Unless there is a big gap in consumer behaviour or any desperate move by competitors, the company will stay on course with its plan to remove old stock.
• The management has reassured that their segmental margins will stay stable for the next quarter.
• The export sales for the company for the quarter were Rs 3,108 Cr vs Rs 3,123 Cr last year.
• The company is not changing its business strategy greatly and they have maintained the level of credit as in the last quarter.
• The management expects the decline in the industry to bottom out and they are expecting this festive season to be at the same level as last year. Whether this will bring the industry up permanently from its state decline is debatable.
• The inventory at the factory is very low and the management does not expect the production schedule to affect drastically.
• The company is not looking to resort to desperate measures to deplete their BS-IV stock and offer unreasonable discounts to do so and gain an unsustainable market share.
• The company decided to extend the pulsar into the 125 cc segment because they saw that the 150+ cc segment would face some headwinds due to increased costs from the mandatory ABS installation. The same factor would also act as a tailwind for the <150 cc segment and thus they moved with this action.
• The company has observed that it is gaining many new customers due to this product.
• The company will have a limited launch in Pune in January for its electric scooter. All the other details of costs and financing options will be disclosed then.
• The management stresses that the post-festive season shall be instrumental in providing an indication of the industry revival.
• The management expects product introductions to accelerate from April onwards once the company has successfully transitioned into the BS-VI regulations era.
• The other expenses are expected to stay stable at current levels in the coming quarters.
• The management states that the company has gained export market share and has grown faster than its rivals in major export markets.
• Egypt retail sales of 3 wheelers have stabilized at 3000+ per month.
• The management reckons that schemes and discounts run by competitors are in the same ballpark as the company and there is not any big difference between the incentives offered.
• The financed penetration is around 70% in the quarter and Bajaj Finance accounts for >50% in that.
• The company has not yet started exporting the newly launched Pulsar 125 yet but they do have another Pulsar 125 for export markets for a long time.
• The company will be launching Husqvarna motorcycles manufactured in India from Q1FY21 onwards.
• The price increase discussed in the last call was around 1-1.5% in select domestic products only.
• The management has declined from providing any definite guidance on the industry performance for the rest of the year because of the uncertainty around consumer behaviour around the BS-VI transition.
• The management has maintained that they will definitely be entering the electric 3 wheeler market and they will start marketing it in the next 6-9 months.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. They have suffered a dismal quarter with a big decline in their dominant segment of domestic motorcycles. The company has guided that they will get rid of their BS-IV stock and build up their BS-VI stock. The company is waiting on the performance of the festive season and the rest of the Q3 to gauge whether the industry slowdown has bottomed out or not. They will proceed with their new launch plans based on their review of festive season performance. The upcoming launch of the e-scooter is expected to be big for the company and provide it access to an in-demand but largely unorganized sector. Nonetheless, despite the dismal industry conditions, Bajaj Auto continues to stay resilient and has emerged as a bellwether stock in the volatile auto industry today.

Q1 2020 Updates

Financial Results & Highlights

* Includes an exceptional item showing a profit of Rs 342 Cr

Detailed Results

1. 1. The revenues for the quarter were muted with only 5% increase YoY in both standalone and consolidated terms.
   2. Profits were also subdued with PAT at 1% and -2.8% YoY in standalone and consolidated terms respectively.
   3. The volumes sold for the quarter stood at 1,247,174 units.
   4. The EBITDA margin for the quarter declined 2.2% YoY to 16.1% in the current quarter.
   5. YoY changes in volumes for the quarter are as follows:
      • Domestic:

      Domestic	Q1FY20
      Motorcycles	3%
      CV	-9%
      Total	1%

      • Exports:

      Exports	Q1FY20
      Motorcycles	8%
      CV	-23%
      Total	2%

      • Total:

      Total	Q1FY20
      Motorcycles	5%
      CV	-16%
      Total	2%

   6. The domestic motorcycles division grew 3% against an industry decline of 9%.
   7. The overall share in the domestic motorcycle market grew 2% YoY to 18.3% in the current quarter.
   8. In the entry motorcycles segment, the company enjoys a market share of 30.9% with more than 300,000 units sold in this quarter. The Platina motorcycle volumes grew 59% YoY.
   9. In the sports bike segment, the company maintained its dominant position with a market share of 46.9%. The volumes for the Pulsar and Avenger brands grew 17% YoY.
   10. The new launched Avenger 160 was well received and sold over 12,000 units in the quarter.
   11. In the CV segment, the company sold over 86,000 units and maintained a market share of 57.1%.
   12. In the RE brand, the company maintained a market share of 87.5%.
   13. In the MAXIMA brand, the company maintained a market share of 39.5%
   14. In the Goods carrier segment, the division, grew 11% YoY against an industry decline of 2% and a market share of 27.9%.
   15. In the international business segment, the company sold over 471,000 units which were 8% up YoY. The company grew 24% YoY in Africa.
   16. In Sri Lanka, the company saw a relative slowdown which was compensated by a 23% YoY growth in Bangladesh.
   17. The company saw growth of 8% YoY in the Philippines and modest growth of 5% YoY in Latin America except for Argentina.
   18. The commercial vehicles exports declined 23% YoY due to lower sales in Egypt which were expected and communicated repeatedly by the company in the past 2 quarters.
   19. KTM saw a dismal quarter which yielded a proportionate loss of Rs 9 Cr for Bajaj Auto.

Investor Conference Call Highlights

1. The company’s main agenda in launching the CT110 was to improve the average realization and EBITDA for the brand.
2. The company will not discontinue the Discover brand and will try and bring it around to something that the target customers want.
3. The management expects the drop in EBITDA to bottom out at current levels.
4. The company sees the current decline in motorcycle sales volumes to continue till September after which they expect the demand to revive again. The management is targeting 8% to 12% above the industry segment growth.
5. For the international motorcycles segment, the company is looking for a growth of 2% to 3% overall considering all the international markets the company operates in.
6. For the 3wheelers exports, the decline has been mainly due to Egypt where the company enjoys a 95% market share. The decline has been due to systematic changes that the country is going through and this has not affected demand which is expected to pick up once the changes have been incorporated and dealt with.
7. The expenses for the quarter rose both on QoQ and YoY due to higher advertising spending for commercial vehicles in international markets and the launch of a couple of new products. The advertising spends for domestic motorcycles for the company has remained stable.
8. The management feels that the company is suitably prepared for electrification of 3wheelers as they already have some prototypes on the road in a few places and feel ready for any developments in this sector.
9. The management is also a little skeptical as to whether the end customer is fully prepared for the cost implications due to complete electrification of 3wheelers. However, on the product side of things, they remain confident in their preparation.
10. The spare parts revenue for the quarter stood at Rs 740 Cr.
11. The company is looking forward to showcasing their new electric 2wheeler by the end of the current financial year.
12. The company has maintained that the cost increase for ABS for all models above 125cc should be roughly Rs 4000 for the end customer.
13. The company is on track for the BS-VI conversion of their current product portfolio and are looking for other variables which may affect demand when the regulations come into place. They expect these variables to be clear by Q4 later this year.
14. The management maintains that the transition for the new emission regulations should be small as the company already makes a lot of products in compliance with advanced regulations like those in EU for export purposes and thus will not need to make any wholesale changes to accommodate BS-VI.
15. The company does not maintain any inventory at the factory level and only keep inventory with dealers. The dealer inventory days are currently at 7-8 weeks. The company is currently destocking to keep up with muted demand.
16. The loss in KTM was due to soft sales in the Jan-March quarter whose performance is counted in the current quarter for Bajaj Auto. This was due to stock build-up in the quarter. The management reassures that the performance for April-June has been very robust and encouraging which should lead to normalization in annual terms.
17. The management believes that the launch of Pulsar 125 would not detrimental to the brand image of Pulsar as it would be accommodated as the KTM125 has despite the similar worries when launched.
18. The company does not expect any mix change occurring as a result of the upcoming BS-VI norms.
19. The company expects to do well in Africa as they have already gained a substantial market share of more than 40% in their major markets of Nigeria, Kenya, and others.
20. The management maintains that they will only resort to aggressive pricing in price-sensitive categories and in segments where they are the challengers.
21. The company is comfortable at the current levels of EBITDA margins and they will not be aggressively pushing to bring it up.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both India and abroad. They have outpaced the industry yet again and managed to stay stable at a time when all auto majors are reporting volume declines. However, mandatory electrification of 3 wheelers seems to have come up as the biggest risk for the company especially given that they have a completely dominant market share of 87.5% which looks likely to fall if the motion is hurried up. Nonetheless, the company has stayed true to their promise of outpacing industry growth and provide consistent volume growth, thus cementing their spot as one of the few bellwether stocks in India today.

Q4 2019 Updates

Financial Results & Highlights

* Includes an exceptional item showing a profit of Rs 342 Cr

Detailed Results

1. 1. The sales volumes for the year crossed 5 million for the first time.
   2. The revenues for the last quarter were modest with almost 10% rise in revenues YoY.
   3. The normalised profit for the last quarter was flat.
   4. The FY19 performance for the company was good with more than 18% increase in revenues YoY.
   5. The EBITDA margin for FY19 stood at 17.6%.
   6. The YoY changes in volumes for the quarter and the year are as follows:
      • • Domestic:

        Domestic	Q4FY19	FY19
        Motorcycles	23%	29%
        CV	-16%	8%
        Total	15%	25%

        • Exports:

        Exports	Q4FY19	FY19
        Motorcycles	9%	22%
        CV	34%	43%
        Total	13%	25%

        • Total:

        Total	Q4FY19	FY19
        Motorcycles	17%	26%
        CV	1%	23%
        Total	14%	25%

   7. The company saw an increase of 3% to 18.7% market share of motorcycles market in FY19.
   8. In entry level motorcycles, the company witnessed a volume growth of 52% as compared to industry volume growth of only 26% in FY19.
   9. Market share in this segment grew to 35.4% as compared to 29.5% last year.
   10. In the sports motorcycles segment, the company witnessed a volume growth of 33% as compared to industry volume growth of 18%.
   11. Market share in this segment grew to 44.1% from 29% last year.
   12. The company sold around 908,000 Pulsars in FY19, their best ever annual sales figure for product.
   13. In Commercial Vehicles, the company saw highest ever annual sales and maintained an overall market share of 56.9%.
   14. In small three wheelers, RE maintained a market share of 86.1%.
   15. In big three wheelers, MAXIMA maintained a market share of 37.2%.
   16. In the goods carrier segment, the company saw volume growth of 34% as compared to industry volume growth of 8% with a market share at 23.8%.
   17. The quadricycle QUTE has been successfully launched in Kerala, Gujarat, Odisha and Rajasthan with other state launches in the pipeline.
   18. In the international business segment, the export volumes crossed 2 million units with a YoY volume growth of 25%.
   19. The company has expended its presence to 79 countries with it being near the top in its segment in 21 of these countries.
   20. Net Exports grew over 20% YoY to $ 1.64 billion.
   21. The results for KTM were also decent with 11% growth in yearly volumes, 9% growth in yearly revenues and 14% growth in yearly profits.

Investor Conference Call Highlights

1. The management declines to make any forward guidance on the industry as they do not expect macroeconomic conditions to see a big change and they have not been able to rationalise the decline of the industry last year to any macroeconomic developments.
2. The company is currently focussed on maintaining quarter on quarter growth while staying ahead of the industry growth. They have guided that segment growth figures need to be analysed rather than the entire industry growth numbers as the products making up the volumes have different features and demand scenarios. This was evident where the company saw its entry level segment volumes boom even when the industry volumes have declined.
3. The export markets have worked well for the company especially the African countries. The company expects to continue to generate similar levels of performance as seen in the last financial year.
4. There are a few areas like Iran and Egypt where the company sees downside in exports but overall they remain optimistic on their overall export expectations.
5. As guided in the last concall, Egypt is expected to affect 3 wheeler exports negatively for a few months as it makes up a large portion of the segment’s exports. But the company expects this phase to be over quickly and that the exports in this segment should rise up to expected levels.
6. The management expects margins to stay stable at current levels going forward in the future.
7. The management shares what they have observed in the economic turmoil of last year, that buyers have gravitated towards entry level segment and the higher priced segment from the mid-priced segment. They attribute the decline of the industry numbers mainly to the above phenomenon of customers dividing themselves in the entry level and high priced segments and Bajaj has been focused on leveraging this shift with the superior offerings in these segments.
8. The company is also looking to launch an electric scooter in this financial year.
9. The company has also added 4-5 days to their credit cycle to help the dealers clear old inventory. This has resulted in the rise in receivables in the balance sheet. The management is confident that with the revenue growth they have achieved they can extend some relief down to their dealers.
10. This extension is expected to stay as the company sees a lot of external factors at play in the year going forward like the new braking and emission norms, the economic slowdown, etc and thus they are not in a hurry to reverse this increase in credit cycle soon.
11. In passing down the additional costs from the ABS installations, the company has adopted a mix and match approach where they will be passing on the costs on those products depending on the premium that the particular products can command.
12. The company does not see brand dilution happening due to the launch of the Pulsar Neon edition as they believe that the new variant is only helping them extend their market reach across the target demographic without compromising the core offerings and expectations from the Pulsar brand.
13. The company is planning a few upgrades in existing brands but no new brand launches in this year.
14. The management refuses to be drawn into comparison with TVS in 3 wheeler exports as the scales at which they have been operating have been very different. In each of their markets, the company is a major player while any Indian competitors in that country have been fringe players with <10% market share.
15. The company is also contemplating expanding their 3 wheeler export portfolio to include the full range of offerings in the segment that is available in the domestic market.
16. The management feel suitably prepared for the roll out of BS-VI norms.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates both in India and abroad. Their drive to maintain their big market shares and constantly expand into emerging markets and expand product offerings should help them stay on their growth trajectory for years to come. However, the industry numbers are showing signs of weakness in the near term. Hence, it would be critical to note how Bajaj Auto deals with the same. Compared to its peers, Bajaj Auto has navigated the industry slowdown pretty well till date and have also has managed to increase its market shares in the motorcycle segment. Trading at 19 times earnings, a debt-free balance sheet, a global distribution reach and a leader & strategist like Rajiv Bajaj steering the business’s ship, Bajaj Auto remains an interesting investment opportunity.

Q3 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. This quarter has seen all round growth in volume, revenues and profits for Bajaj Auto.
   2. The revenues grew by almost 20% YoY with 13% growth in PBT and 16% growth in PAT on YoY basis.
   3. In October 2019, Bajaj Auto recorded their highest ever monthly sales volume of 506,599 units.
   4. Segment wise volumes figures are as follows:
      • Motorcycles: Domestic up 38% YoY, Exports up 23% YoY
      • Commercial Vehicles: Domestic down 17% YoY, Exports up 24 % YoY
      • Overall: Motorcycles up 32% YoY, CVs down 1% YoY
   5. In domestic motorcycles, Bajaj recorded growth of 38% YoY vs industry growth of 11% thus highlighting increase in market share.
   6. Market share in motorcycles came out at 20.3% in Q3’19 vs 18.6% in Q2’19 and 16.3% a year ago.
   7. In the entry motorcycles segment, Bajaj recorded a growth of 61% vs industry growth of 38%, thus bringing up market share to 38% in current quarter vs 31.7% last year.
   8. The brands in this segment CT and Platina witnessed a volume growth of 77% and 38% respectively on YoY basis.
   9. In sports bike segment, Bajaj increased its dominant market share to 45.7% vs 40.5% last year.
   10. The brands in this segment, Pulsar and Avenger, witnessed a growth in volume of 43% YoY.
   11. In Commercial Vehicles, Bajaj maintained its dominant market share of 55.2% with:
       • Brand RE keeping market share of small three wheeler segment at 85.6%.
       • Brand MAXIMA staying as a market leader of big three wheeler segment at 36.3%.
       • In the Goods carrier segment, Bajaj recorded YoY growth of 15% vs industry growth of less than 5%; market share coming up to 23.1%.
   12. Bajaj also recorded YoY volume growth of 23% in exports.
   13. Exports value grew to $ 399 million vs $ 340 million last year.
   14. In addition to the above profit figures, Bajaj also earned about Rs 120 Cr from their investment in Austrian motorcycle company KTM AG.
   15. Lastly, Bajaj Auto has embarked on a brand image makeover as “The World’s Favourite Indian” announcing their next step to becoming a global motorcycle manufacturer. This is expected to highlight Bajaj’s push into international markets and should show the new direction that the company seeks to go in the future.

Investor Conference Call Highlights

1. This quarter saw margin softening driven due to these factors:
   • The dollar realisation was lower than last quarter.
   • Lower volume of CVs sold (30000 drop).
   • The rise in making charges for export motorcycles were not priced in thus lowering margins.
   • Margins in African exports were lower than normal export margins.
2. Export margins are expected to go up in coming quarters as Platina volumes are going up which is the higher margin entry level motorcycle for them. Otherwise, softening of material costs is also believed to contribute to the rise in margins in the near future.
3. Any rise in costs will be slowly passed on to the customer to keep margins in their desired range.
4. Domestic outlook for Q4 in CVs is expected to stay stable but growth in this segment is expected to fall.
5. Expect a rise in CV exports mainly on account of Egypt distributors bringing in advance orders in to account for sales in the next few quarters as one time.
6. Plans to make a factory in Egypt for assembling CV units.
7. Demand has gone down for motorcycles segment in India which has seen the segment grow 10% vs 17% last year.
8. To keep up with this, Bajaj endeavours to keep innovating and reinventing their core brands and to keep generating demand for their products.
9. Bajaj is also resolute on resurrecting their less successful brands like Avenger in order to keep its product portfolio covering all of customer demands and needs.
10. Current quarter exports in rupees come to at Rs. 2,767 Cr and spare parts of Rs 238 Cr.
11. In Africa, the company enjoys a huge market share of 40% with the share in their largest market of Nigeria coming at a dominant 68%.
12. The company will be looking to maintain their high market shares in their current export markets while trying to expand into newer markets. Overall expecting export markets to grow at least 10-12% in the coming year.

Analyst’s View

Bajaj Auto has been a long performing player in the automobile sector that has established itself as a dominant player in all the segments that it operates in both in India and abroad. Their drive to maintain their big market shares and constantly expand into emerging markets and expand product offerings should help them stay on their growth trajectory for years to come. Adding on the fact that Bajaj Auto is heavily leaning on electric vehicles in the near future, the company presents itself as a good value preserver and growth option in the automobiles sector in India.

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