Sharekhan interacted with the management of Bajaj Auto to discuss its plans for electric two-wheelers and its readiness to benefit from increasing e-2W penetration in the medium to long term. Bajaj Auto has launched its electric two-wheelers scooter with its iconic brand name “Chetak” in January 2020 in two cities, Pune and Bangalore. It plans to launch it in 30 cities over the next 18-24 months. Bajaj Auto Share price today Rs 3880, down Rs 19 or 0.5%. 

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Sharekhan expects Bajaj Auto to benefit from the expected recovery from urban markets, where Sharekhan believes Bajaj Auto will be a major beneficiary in the two-wheeler (2W) space, given its dominant position in the premium bike segment. Demand for three-wheelers (3Ws) is also expected to improve going forward, as COVID-19 vaccination rolls throughout the country. This will help Bajaj Auto to improve its margin aided by richer product mix and operating efficiencies. Bajaj Auto will also benefit from new launches in the premium segment, which it has lined up in the premium segment over the next 12-18 months.

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Bajaj Auto’s management continues to focus on new launches and expects to launch at least one model (either new or upgraded model) every quarter. Bajaj Auto has positioned itself strongly in export markets with its focus on Nigeria, Bangladesh, Philippines, and Colombia, which accounts for 50% of its 2W export revenue.

In 3W exports, Bajaj Auto has a strong presence in Nigeria, Egypt, Cambodia, and Iraq. Products are well diversified and have favourable sales mix in under-penetrated markets such as Africa. Bajaj AUto has improved its brand equity in these markets, which will help to improve its market share. During Q3FY2021, more than 85% of its export revenue was generated from geographies where Bajaj Auto is either No. 1 or No. 2 player. Export growth is organic and will continue to be a long-term driver for Bajaj Auto.

Bajaj Auto aims to outpace the industry in international operations, driven by increased distribution reach. 3W volumes are also improving on a mom basis, as the economy is moving towards normalcy. Domestic 3W sales are expected to improve with the opening of schools, colleges, other educational institutions, and corporates.

Moreover, Bajaj Auto is aiming to protect its margins as rising input costs are offset by price hikes, better product mix, and cost-control measures. Sharekhan expects EBITDA margin to remain above 18% in the medium term. Bajaj Auto is debt free and generates strong cash flows, which are enough to expand capacity through internal accruals.

Bajaj Auto has a strong long-term revenue visibility, given its leadership position in the premium bikes segment and key export destinations. Sharekhan expects Bajaj Auto’s earnings to grow by 14.1% in FY2022E and 15.3% in FY2023E, driven by a mix of volume growth and margin expansion. Sharekhan remains positive on Bajaj Auto and retains their Buy rating on Bajaj Auto.

Bajaj Auto Key Risks:

Bajaj Auto can lose its market share, if EVs in the domestic 3W market rise faster than Bajaj Auto expects. Moreover, Bajaj Auto has a significant exposure to export markets. Any slowdown in export markets and unfavourable forex fluctuations can affect the company’s profits adversely.