Bajaj Auto Q2 Results Review - Low Raw Material Costs, Favorable Mix Boost Margins: Motilal Oswal

Motilal Oswal Report

Bajaj Auto Ltd.’s Q2 FY24 Ebitda margin beat our estimate at 19.8% (+260 basis points YoY, our estimate 19.2%), led by favorable raw material costs and a better product mix (high three-wheeler contribution). The domestic two-wheeler industry is likely to grow 12-15% YoY during the festive season. A sequential recovery in exports and healthy demand in three-wheelers should lead to a healthy operational performance.

Change in dividend policy: Bajaj Auto is now exploring multiple routes to pay shareholders, including dividends and buybacks. The new slab for the dividend payout for over Rs 150 billion surplus funds is now more than 70% (versus 90% as per old policy).

We maintain our FY24/FY25 estimates. At 18.6times/16.6 times FY24E/FY25E consolidated earnings per share, the stock’s valuation fairly reflects the expected recovery as well as the risk of electric vehicles.

We reiterate our 'Neutral' rating with a target price of Rs 5,225 (based on 16 times September-25E Consolidated EPS).

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