Bajaj Auto Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Supply chain defined the quarter: An acute ECU shortage, peaking in May, cut domestic volumes by up to 40% and exports by ~10%, depleting channel stocks and costing retail market share.
• Margins held up despite the volume hit: EBITDA margin rose 100 bps YoY to 16.6%, as pricing recovered ~2/3 of material cost inflation and a weaker rupee lifted export realizations to ₹77.4.
• The EV ramp is deliberately slow: Chetak volumes doubled QoQ to 6,200 units, but management is prioritizing deep in-house design and manufacturing capability over near-term volume, calling a buy-and-assemble approach a "rollercoaster ride."
• Export macros are deteriorating: Dollar unavailability and currency volatility in Africa, particularly Nigeria, are creating near-term hiccups that will make Q2 tough, even as LATAM sports segment leadership strengthens.
• What to watch next quarter: Whether the promised supply recovery materializes to rebuild channel stocks, the pace of Chetak's next doubling, and how quickly Nigeria's dollar turmoil settles into a new equilibrium.

Supply Chain: The ECU Shock

• Magnitude of the hit: ECU availability fell 20–25% short of plan, with domestic motorcycles and commercial vehicles impaired by up to 40%; exports were less affected at ~10% below plan, concentrated in LATAM sports and ASEAN 3-wheelers, with the sports segment in Latin America hit most.
• Channel stock depletion: Domestic motorcycle pipeline fell to under 3 weeks (norm is 6 weeks), with some lines below one week; commercial vehicle stocks dropped to ~10 days, leaving a large order book of customers waiting for supply to resume.
• Recovery trajectory: May was the lowest point, June improved, and July is tracking better than June; newly developed supply sources began kicking in during the latter part of Q1, with countermeasures effective from the second half of July.[20-21]
• Chip allocation strategy: Available ECUs were funneled into the higher-EBITDA portfolio (KTM, 3-wheelers, 125cc), so the 125cc segment faced no impairment from plan while entry-level segments bore the brunt. [20-21]
• Q2 rebuild commitment: Management expects not only to rebuild inventories to normal levels through Q2 but to be in a position to meet demand, with the exception of the Chetak electric scooter where supplies will still trail demand in the short term.

Thapar: "It was yet another quarter of rationing where we were not able to fulfill demand in its entirety."

Domestic Demand & Market Share

• Industry trajectory improving: Normalizing for the low base of Q1 last year (second COVID wave), the industry would still be in low single-digit decline, a sharp improvement from minus 15–20% in Q4 and Q3 of the prior financial year.
• 125cc segment gains: Market share in the expanding 125cc segment reached 25%, with the Pulsar NS125, the most expensive 125cc in the market excluding KTM, becoming a very significant contributor to the portfolio and brand EBITDA.
• Retail finance penetration: Finance sales grew 4–5x that of cash sales, with Bajaj Finance growing particularly; cash sales were almost stagnant, and urban and semi-urban demand recovery ran far ahead of rural.
• Retail market share loss: The 40% supply shortfall cost ~2 percentage points of retail market share in domestic motorcycles; management expects to recover as channel stocks rebuild.
• Demand outlook: Growth on a VAHAN retail basis is expected to improve to 0–5%, with rural demand returning alongside the monsoon and the 125cc-plus segment outperforming 100cc.

Export Markets: Two-Speed World

• LATAM sports leadership: Twin Dominar models (250cc and 400cc) and Pulsar have made Bajaj a solid leader across all Latin American countries in the sports segment, with market share acquired and maintained even after taking price increases ahead of competition.
• ASEAN recovery underway: The Philippines, a top 5–6 market, has returned as pandemic effects recede, with month-on-month sales building; Malaysia and other smaller ASEAN countries are expected to follow. [16-17]
• Africa and the dollar problem: Nigeria is the epicenter, where retail prices have risen 2–3x over 16 quarters from naira devaluation; the more immediate issue is dollar availability and volatility, which disrupts the market with sudden up-and-down moves.
• Nigeria resilience and risk: In past episodes, 2–3 months of turmoil were followed by equilibrium returning as people digest higher prices; motorcycles remain the most effective transport (50–60 km/l vs. 5–7 km/l for used cars). Bajaj's market share rose from 40% to 59% during this devaluation period. An outright nationwide motorcycle ban, while watched, is seen as a huge challenge for whoever attempts it.
• Near-term export outlook: Q2 will be tough due to dollar availability issues in Africa; management expects to get back to the planned ~10% export growth trajectory in 4–5 months, with the long-term objective of doubling exports in ~5 years.

Sharma: "In tough times, people gravitate towards the most trusted brand. It is precisely in this period of difficulty of devaluation, our... market share has increased from 40% to 59%."

Electric Vehicles: Capability Before Volume

• Chetak volumes doubled: Sales rose from 3,300 units in Q4 to over 6,200 in Q1, with the geographic footprint expanded to 27 cities and 43 dealerships; management aims to double again in Q2.
• The deliberate slow ramp: Management's objective is not volumetric; the focus is building deep in-house design and manufacturing capabilities, then flowing them out to a vendor system. The alternative of buying aggregates off-the-shelf would allow 10,000 Chetaks tomorrow but would not position the company to win in the medium term.
• Three early-phase objectives: (1) Make Chetak the top-of-consideration-set EV in at least 100 cities based on product performance and ownership experience; (2) develop strong R&D and supply chain capabilities to win in India and overseas; (3) commence portfolio expansion.
• Infrastructure investment: A new plant commissioned by Chetak Technology Limited in Akurdi, spread over 0.05 crore square feet, with a dedicated R&D center across the road; investment this financial year is above ₹160 Crores, with capacity scalable at minimal cost and effort.
• Portfolio expansion coming: New products addressing the B2B segment in both fixed-battery and swappable-battery formats will roll out in 3 months, targeting premium e-commerce companies in India and later overseas; battery-swapping alliance discussions are underway.
• Electric 3-wheelers: Product trials are underway in Pune and Delhi; management observed that despite permits for 4,000 electric 3-wheelers in Delhi, driver uptake has been less than 10% due to issues with current products. If trials have good turnout, volume expansion will begin with Delhi in the next quarter.

Sharma: "We can put out 10,000 Chetaks tomorrow if we just buy the aggregate off the shelf. But that would be a rollercoaster ride. And I do not think that would put us in a good position to win in the medium term."

Margins & Commodities

• EBITDA margin at 16.6%: Up 100 bps YoY, better than initial Q1 expectations, driven by judicious pricing, better forex realization, and value-accretive mix; sequentially broadly in line with Q4 adjusted margin of ~16.8% after stripping one-time items.
• Pricing vs. cost equation: Material cost inflation came in at a little under 3% of revenue, while pricing actions recovered ~2%, covering roughly two-thirds of the inflation; a depreciating rupee helped bridge the remaining gap.
• Commodity outlook improving: The metals complex cooled off during the second half of Q1, while energy-related derivatives (polypropylene, synthetic rubber, noble metals) and conversion costs remain stiff; Q2 material cost is expected in the ballpark of 1–1.5% of revenue QoQ, down from ~3% in Q1.[19-20]
• Mix headwind ahead: As supplies improve and the lower-margin domestic business recovers, mix could become a challenge after being a contributor in the past; on balance, rupee depreciation and the commodity context offer some comfort.
• Cash position: Surplus cash increased by ~₹1,500 Crores during the quarter to ~₹20,500 Crores; a buyback program announced last month opened on 4th July.

Thapar: "You are absolutely right that as supplies improve and the lower margin domestic business starts to come back, there could be some challenges on the mix... but I think, on balance, the rupee depreciation and the commodity context does offer some amount of comfort on the margin front."

Product & Portfolio Moves

• Pulsar platform refresh: A new platform in Pulsar was received extremely well; the naked dual-channel NS 160 (first in its class) launched with early excitement and stock-outs in West Bengal and Uttar Pradesh; an All Black Twin Channel ABS version in 250cc was introduced on popular demand.
• Further launches imminent: Additional models will be launched in the next 4 weeks, adding options from 125cc all the way up to a refreshed 400cc Dominar with touring features and accessories.
• Spares business surge: A conscious and aggressive push over the last 6 months grew domestic spares by ~40%, with spares turnover now almost 20% of overall domestic turnover, built on advanced analytics, improved fill rates, and deeper retailer engagement through distribution partners.
• Domestic 3-wheeler positioning: The industry remains at ~50% of FY20 levels due to work-from-home and reduced driver availability, but Bajaj Auto's market share is growing on the back of an expanding CNG network; once supply resumes, an initial surge from stock replenishment is expected, settling at 20,000–25,000 units per month.

Guidance & Commitments

Key Metrics