Bajaj Auto Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Record EBITDA despite volume headwinds: EBITDA hit an all-time high of ₹1,777 crores, with margins expanding 390 bps YoY, even as overall volumes fell 17% and exports faced severe macro pressure.
• Exports are bottoming, not recovering: Overseas retail has stabilized at depressed levels for three months, but dollar availability and currency devaluation continue to choke shipments; management does not expect normalcy until May or June.
• Domestic portfolio is firing on all cylinders: 125cc-plus motorcycles grew ~28%, 3-wheelers captured 76% market share, and Chetak crossed 10,000 units with supply constraints now fully resolved.
• EV build-out is a deliberate marathon, not a sprint: Management explicitly rejected volumetric ambition for Chetak, prioritizing cost reduction and a subsidy-proof business model ahead of a portfolio expansion promised in FY24.
• What to watch next quarter: Whether commodity costs stay flattish as guided, the pace of export recovery in Latin America, and the initial market response to the Triumph launch and electric 3-wheeler dispatch.

Export Markets: Pressure & Path to Recovery

• The macro hit: Devaluation-driven price increases and inflation eroded purchasing power across most emerging markets, pushing industry retail down ~30%. Dollar availability remains tight as central banks conserve foreign exchange, making it difficult to ship even to markets where demand exists.
• Stocks are lean, not bloated: Channel inventory is well matched to lower retail levels; in some markets, the company faces stock-outs because forex is not available for shipments, a sign that the problem is currency flow, not demand saturation.
• ASEAN is the outlier: These markets delivered double-digit growth, largely a release of pent-up COVID demand because they took longer to reopen.
• Philippines leadership: Bajaj is now market leader in the Philippines, with products commanding a premium over Japanese competition.
• The recovery bet: Management estimates normalcy starts returning in Latin America first, then Africa, around May or June, after which it can rebuild stocks and address high demand. Nigeria remains a wildcard, depressed and volatile until elections conclude in end-February and the new government settles in.
• Demand-side drivers are intact: Young demographics in Africa, increasing road networks, urbanization, and poor public transport underpin the structural case; people will digest new prices over time.

Rakesh Sharma: "I think if you go take May or June, that time and then I think the pendulum will really swing because we have been through this cycle before."

Domestic Motorcycles: Mix Shift Driving Margins

• The 125cc-plus engine: Industry retail grew 14%, driven almost entirely by the 125cc-plus segment, which rose ~28% and now accounts for 50% of the market. Entry-level 100cc remains soft, with rural demand still weak.
• Pulsar franchise rejuvenation: The new Pulsar 150 (launched November) and Dual Channel Pulsar N160 (launched July) grew 28% in December, capturing 40% market share in the sporty commuter segment. Early research shows these stylistic, nimble models are attracting younger customers, expanding the franchise after its demographic had aged up.
• Pulsar 125 Carbon Fibre: Launched in October, 85% of 125cc sales are now the Carbon Fibre Edition, which improved volumes, bumped up ASPs, and improved margins.
• Platina 110 ABS: Launched in December with a first-in-segment ABS feature; the "ABS on toh fisalana gone" proposition is being very well received, and volumes are growing week-on-week.
• Industry trajectory: Management expects the domestic motorcycle industry to remain on a ~3-5% growth trajectory going forward, and believes it is well positioned to grow faster than competition as the 125cc-plus segment continues to drive industry growth.

Rakesh Sharma: "One of the issues which we had started to get serious about in the last couple of years, we are finding that the demographic in Pulsar sort of moved up in age, and we wanted to get back to the youthful customers, which both these the N160 and the Pulsar 150 are delivering, which is, therefore, expanding our Pulsar franchise."

Domestic 3-Wheelers & Spares: High-Margin Pillars

• 3-wheeler dominance: Bajaj captured 76% market share in Q3, driven by an 86% share in the expanding CNG segment. CNG now makes up 72% of the portfolio, carrying a 15% ASP premium over petrol and reflecting strong pricing power.
• Recovery runway: The 3-wheeler industry is recovering smartly, with big finance penetration returning, retail financiers coming back, and public sector banks offering schemes. Management is driving for a fuller recovery toward pre-COVID levels.
• Electric 3-wheeler entry: Expects to launch in selective markets by end of March; range improvements will be made during February and March, with dispatches starting end of March.
• Spares business at an all-time high: Revenue crossed ₹1,100 crores, driven by improved fill rates, annual maintenance contracts, extended warranties, and a conscious drive to improve customer interactions through TPM and NPS implementation.

Chetak & EV Strategy: Building Capability Before Volume

• Chetak milestone: Crossed 10,000 units in the quarter; supply chain constraints are now totally removed, and R&D has reconfigured products to bring down costs.
• Distribution overhaul: Chetak is now sold through stand-alone exclusive stores rather than Probiking outlets, already in 50 cities, targeting 85 by end of March and 100 by April. The network is eager to put up these stores.
• The marathon, not a sprint: Management explicitly stated it has no volumetric ambition at this point, prioritizing cost reduction and capability building to make the business "foolproof from subsidies." The goal is to prepare for a scenario where subsidies are halved or removed.
• FY24 portfolio expansion: After 12 months of preparatory work on R&D manpower, infrastructure, vendor discussions, and supply chain, FY24 will see a slew of EV launches addressing different demographics, lower pricing, and both personal and delivery use cases. The portfolio will span from low-speed, low-cost delivery products to top-of-the-line personal mobility scooters, sold through 100-150 stores.
• Chetak Technology Ltd migration: A fair amount of volume migrated from Bajaj Auto to the subsidiary in Q3; materiality of results will start reflecting from next quarter onwards.

Rakesh Sharma: "What happens if the subsidy is half, what will we do at that time, what will we say to our vendors, what will we say to our dealers? We want to make our business fool proof from subsidies."

Margin Walk & Commodity Outlook

• Record EBITDA: ₹1,777 crores, with margin expansion of 390 bps YoY and 190 bps QoQ, surpassing the previous record set in Q2 FY23. This was achieved despite both export and domestic volumes being way below their peaks.
• YoY drivers: Improved dollar realization (81.7 vs 75.1), price increases of ~5% over the last 12 months, and a richer mix (higher share of domestic 3-wheelers and sports segment, lower mix of entry-level bikes).
• QoQ drivers: The 190 bps sequential expansion came primarily from softer material costs and continued aid from dollar realization.
• Commodity cost movement: Softer costs across steel, aluminium, and noble metals; rubber and plastics showed marginal inflation; conversion costs remained tight due to utilities and energy.
• Q4 commodity outlook: Management expects Q4 to be broadly flattish or possibly see a marginal uptick compared to Q3, unless events alter the course. The big commodity cost tailwind seen QoQ is not expected to repeat to the same measure. Aluminium, nickel, and copper are starting to show some uptick.
• Margin intention: Management's clear intention is to try and hold margin at these levels, noting that a large chunk of the commodity cost benefit is already reflected in Q3 numbers.

Strategic Updates & Partnerships

• Triumph partnership: Products are developed and under field testing in the UK, a few other countries, and India. The company is in "countdown mode," working on front-end operations, with plans to be announced very soon. Management believes the scale of opportunity is bigger than the Bajaj-KTM partnership.
• Dominar launch in Brazil: Launched in December, initially in the Sao Paulo region through an exclusive store.
• YULU partnership: Bajaj will commence supplies of Bajaj-designed and manufactured products to YULU, its strategic partner in the micro-mobility space, in this quarter.
• Buyback completed: ₹3,100 crores paid out toward the buyback and its tax, completed in the last quarter. Surplus cash stands at ~₹15,000 crores after the payout.
• PLI accounting: Claims will be made at the end of the financial year; determination of the threshold investment (₹150 crores this year) is pending.

Guidance & Commitments

Key Metrics