Summary of Bajaj Auto Ltd (BAL)
Bajaj Auto Ltd is engaged in the development, manufacturing, and distribution of two-wheeler and three-wheeler in India as well as in 79 other countries.
Bajaj’s market share in the two-wheeler industry hovered at 18% and has the leading position in the Three-wheeler market share at 76% in FY23. Though YTD volume is down by 10% because of exports falling, however, revenue grew by 7% and EBITDA by 28% on a TTM basis.
Liquidity Analysis – Current ratio is 1.89, the quick ratio is 1.25, and the cash ratio is close to 1 which shows that the liquidity position of Bajaj is very comfortable. Bajaj borrowing is zero and their cash conversion cycle is negative which is positive for the company. Moreover, their working capital days are coming down from 73 days in FY21 to 53 days in LTM. Though their day’s outstanding inventory and payable are the same as FY20, days sale outstanding has decreased from 21 in FY20 to 15 in LTM. Additionally, Bajaj’s surplus stood at around INR 15000 crores after paying out INR 3100 crores towards buyback and tax.
Shareholding – Bajaj promoter share has increased from 53.77% in Mar 2022 to 54.99% as on Dec 2022. A similar trend can be seen in FPI from 10.49% to 11.82% as on Dec 2022. But a reverse trend is seen in DIIs and Public from 13.7% to 10.91% and 22.57% to 22.20% as on Dec 2022 respectively. Bajaj has a 100% share in 2 domestic and 4 foreign subsidiaries which are under the same management.
Ratio analysis – Dividend Pay-out ratio is around 70% for the last two years. A sustainable growth rate based on ROE and Retention ratio shows 6-7%, if needed to support growth higher than a sustainable rate, Bajaj can utilize their investments or borrow from the market as they are in a comfortable position to borrow. Bajaj fixed assets turnover is 17-18 times, though total asset turnover is 1 because of high investment numbers. The interest coverage ratio stands at 275 times on an LTM basis. Even though Bajaj holds the fourth position in terms of market share, Bajaj has better ROE, EBITDA, and Net Profit margins at 20% and 19%, and 17% respectively.
Positives
Leadership in the three-wheeler passenger – Three-wheeler market has increased from 70% in Q4FY22 to 76% in 3QFY23. Though Industry is still 25% away from precovid levels, Bajaj is now at almost precovid levels. BAL has an 86% share in CNG and 72% of its products are CNG. CNG is low cost compared to Petrol and Diesel and demand is shifting towards CNG which is good due to pricing power and better margins in CNG than ICE. This shift will improve their ASP.
Electric Vehicle Segment – They bagged 10,000 volumes in chetak this quarter i.e., Q3FY23. Though management views the EV segment as a marathon rather than gathering market share by selling at a lower price, they have planned for an expansion from 50 cities to 85 by end of the March 2023 and 100 by April 2023. To make it a premium and preferred choice, management has decided to go with an exclusive retail experience. Further, in the electric 3-wheeler, they are in round two of field testing and plan to launch in the selective markets by the end of March 2023.
New launches into the Market – According to management, the Bajaj-Triumph partnership will bring more volume than KTM did because of the diverse segment catering that will increase the margin and volume. As for the Dominar launch in Brazil, Bajaj has decided to go slow and steady and build a distribution network, and as soon as micro situations in Brazil improve, we might see decent volume and better margins. Additionally, Management has decided to focus on bringing the young crowd back to the pulsar brand ranging in 150cc and 160cc. Bajaj has 20 models between 125cc and 400cc to cater to diverse pulsar maniacs and 66% sales contribution from 125cc Plus. Three new launches in 3Q have been successful and garnering market share.
Improvement in Supply Chain Management – According to management, Semiconductor supply has stabilized, still, it remains tight across players and they continue with their approach of securing supplies and have added even further alternate sources to navigate the situation.
Negatives
Macroeconomy headwind for exports and domestic – Bajaj sales export fell from 58% in FY22 to 48% in LTM. According to Bajaj management, Export volumes are bottoming out at current lower levels, and going forward after the June quarter, we can see improvement in export volumes. Bajaj’s one of the significant markets in Africa-Nigeria going through civil unrest, unavailability of dollars, elections, and demonetization. Africa and South Asia are impacted highly, and even the Latin American markets are showing fatigue except for the ASEAN market which showed double-digit growth because of pent-up demand. Although, Domestic market demand is improving there is a divergence in growth between the 125cc plus and 100 cc segments. Growth is slower in the lower segment than the 125cc segment where it grew by 28% in Q3FY23. The lower segment has suffered because of weaker rural demand, inflation, and price increase.
Inflation – Inflation has cooled off from its peak and has aided the gross margins in Q3 FY23. Management is cautious about the uptick in aluminum, nickel, and copper. Inflation in metals is projected to be flattish unless significant events take place that will dent the margins.
Credit Outlook – stable
Even after exports fell by 27%, volume had minimum impact due to partially offset by higher domestic growth that shows revenue resilience. Similarly, Bajaj maintained their market share at 18% in the last few years in the intense competition environment that reflects competent management and market share resilience.
Penny Thoughts 