Bajaj Auto Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record quarter, broad-based strength: Revenue, EBITDA and PAT all hit all-time highs, driven by domestic 125cc+ motorcycle outperformance, three-wheeler records and a steady export recovery.
• Three-wheelers are the margin engine: The business delivered record volumes and market share gains while improving EBITDAs, and the newly launched E-auto is already at margin parity with the ICE business after PLI.
• Exports are recovering, but slowly: Management expects a gradual, steady climb back to peak levels, not a quick snapback, as currency-led inflation continues to dampen the pace.
• The EV build-out is accelerating: E-three-wheelers are expanding to 40 cities, Chetak is pushing to breach 10,000 monthly units, and a fuller electric two-wheeler range is coming by next year, all while management insists the E-three-wheeler business is not margin-dilutive.
• What to watch next quarter: Whether the festive 12–15% industry growth sustains into November and signals a decisive shift to double-digit growth, the pace of Triumph export commencement, and the trajectory of commodity costs which are expected to stay flattish.

Domestic Motorcycle: The 125cc+ Strategy

• Billing decline is a base effect, not a demand signal: The Q2 billing drop reflects the skewed base of last year when channel inventory was being refilled post semiconductor shortages; retail performance tells the real story.
• 125cc+ segment is the growth and profit engine: Bajaj Auto retails grew 22% on the back of 125cc+ performance which expanded to 36%, significantly outpacing the rest of the industry, driven by product differentiation and sharp positioning.
• Pulsar franchise is consolidating leadership: Upgrades to the Pulsar 160, 200 NS and the new N160 have combined to increase market share, and the recently launched N150 targets the modern sporty commuter segment; Pulsar now holds a commanding market share of almost 40% in the 150cc–250cc segment.
• Six new Pulsar launches and upgrades are coming in the next six months to further consolidate the 125cc+ position and drive market shares to a new high.
• ICE industry growth is not over yet: Management does not believe the ICE two-wheeler industry will stop growing in the next 2–3 years, citing low penetration, road-building programs facilitating intercity commutes, and the fact that the industry is still 25–30% below its 2018–2019 peak; recovery depends on economic growth reaching bottom-of-pyramid customers.

Rakesh Sharma: "We cannot extrapolate this 20% and say that is how the balance of the year would be so therefore I say that one would need to look at post festive November to really take a call whether the fortunes of the industry have decisively shifted from the 8% range to the double-digit range or not."

Three-Wheelers: ICE Dominance Meets EV Expansion

• ICE three-wheeler volumes hit a record by capturing a disproportionately high share of the diesel-to-CNG conversion, while also increasing shares in cargo and diesel segments; all market share gains were achieved while improving EBITDAs and maintaining a pricing premium over competition.
• The CNG flywheel is structural: Post-COVID recovery brought people back to the streets, improved driver earnings unlocked retail finance (90% of the business is financed), and the country decisively promoted CNG usage; CNG three-wheelers deliver much better economics than diesel, and as the pipeline network penetrates new territory, Bajaj Auto is the first choice with a 90% CNG market share.
• Future ICE growth will be muted: Market share has grown from 60% to 80% overall (CNG to 90%), so future growth will ride market growth rather than the combination of market and share growth; volumes will continue to rise on CNG network penetration and traffic recovery, but at a slower pace than experienced.
• E-auto is not margin-dilutive: The business is EBITDA margin positive and management is driving for near-parity margins with ICE autos; the battery cost as a proportion of total vehicle cost is much lower than in two-wheelers, and no significant manufacturing, establishment or marketing cost has been added yet.
• PLI bridges the economics: The PLI benefit of about 13% once DVA norms are met helps bridge E-auto economics with ICE auto; Bajaj is comfortably meeting those norms because of its existing three-wheeler business scale.
• E-auto opens restricted markets: The EV side opens up markets that were earlier restricted for ICE vehicles; the approach is to first attack markets where ICE autos are not permitted.
• Phase two expansion is underway: After a successful Agra pilot where Bajaj captured almost 70% market share within the quarter, the calibrated expansion will take E-three-wheelers to 40 cities in the next six months, with a big push planned for FY2025.

Rakesh Sharma: "So therefore, there will be growth, but it will be muted. It will be less than what we have been experiencing."

Exports: Slow and Steady Recovery

• Recovery is underway but gradual: Macroeconomic and geopolitical uncertainty remains, but financial systems have adapted as a new normal, leading to some improvement in forex availabilities for trade; currency-led inflation continues to dampen the pace of recovery after the sharp fall in H1 of last year.
• Three-wheeler exports lag two-wheelers: Three-wheeler recovery is slow and follows a similar pattern to two-wheelers, a few percentage points behind but on the same trajectory; Egypt had been hit even before Q2 of last year, and the more expensive product is more difficult for customers to acquire.
• Egypt deficit is being mitigated through diversification: About 11 markets are under active business development to make up the Egypt deficit; no single market will replace Egypt, but in combination they should mitigate the gap, following a historical precedent where the Sri Lanka ban was overcome by opening Cambodia, Philippines, Ghana, Mexico, Colombia and Bolivia.
• Triumph exports are imminent: Exports will commence by end of October or the first few days of November, with product and prices already unveiled in several international markets; management hopes to see export volumes between December and January as conversations with Triumph are underway.

Rakesh Sharma: "The return to peak levels of performance will be a slow and steady process rather than a quick one."

Electric Vehicles: Building the Portfolio

• Chetak is scaling up: Supply chain work has increased capacity and reduced costs, allowing network opening, right pricing and a sales drive; management is pushing to breach the 10,000 monthly sales mark in Q3, with two upgrades coming within the quarter and a further range expansion in Q1 of next year.
• The network is expanding to 180 cities by the exit of FY2024, and exclusive Chetak showrooms are being set up because as the market grows it will need to be segmented, with different products needing different retail formats.
• A fuller electric two-wheeler range is coming: Post-festive introductions will expand the range, with products introduced at the end of Q4 and further on in Q1 and Q2 of next year; by the same time next year, the company will have a much fuller range.
• The customer proposition is economic: The company is targeting all economically driven customers for whom the scooter format is acceptable, from entry-level motorcycle owners to people supplementing a car; anyone riding 50 km and above saves substantial money shifting from ICE to electric.
• High-speed EV adoption is constrained by acquisition cost: After the recent FAME reduction, high-speed EVs have been running at only 65,000 units per month because the on-road acquisition cost is very high at ₹1.25–1.3 lakhs.
• EV export potential is being monitored: Opportunities for both two-wheelers and three-wheelers are in planning, and the company will appropriately enter some markets.

Margins & Commodities

• Sequential margin improvement of 80 bps came from softer commodity costs and a better product mix driven by higher three-wheeler sales, offsetting part of the drag from higher volumes into Nigeria; pricing across the business was flattish after adjusting for pluses and minuses.
• Year-on-year margins expanded 260 bps driven by dynamic price and cost management (the largest part), better foreign exchange realization and a richer product mix, more than offsetting the drag from investments in growing the electric scooters business.
• Commodity costs were favorable: The basket softened particularly on the metals complex; a slight uptick on steel and aluminum settled down towards the end of the quarter, and stable, soft commodity prices through the quarter provided tailwinds to profitability.
• Q3 commodity outlook is flattish: Despite a slight uptick in steel and crude derivatives, on balance Q3 is expected to be quite flattish from commodity costs given softening on other baskets, especially noble metals which have corrected significantly.
• Currency was stable to slightly positive: Export realizations were at 82.6 vs 82.1 in Q1 and 79.8 in the same period last year.

Dinesh Thapar: "Pricing across the breadth of the business after adjusting for the pluses and minuses has been flattish. So really marginal improvement sequentially coming on the back of softer commodity costs and an improved product mix largely led by the buoyancy of our three-wheeler business."

Triumph & KTM: The Premium Play

• Triumph response has been overwhelmingly positive: Customer and professional user feedback is pushing fast-track deliveries, and the company is building system capabilities on both the front and back end.
• Capacity is expanding from 5,000–7,000 units per month to about 10,000 units per month by the exit of FY2024, and the brand will be taken to over 100 cities by the end of FY2024 from the current 20 cities.
• The pending order book is approximately 10,000 units: Management stopped formally monitoring it as it has gone into business as usual; historically, the peak was 18,000 with 8,000 delivered, and the current figure is assumed to be around 10,000 if not an upward mark.
• The Scrambler 400X was launched early last week at ₹2.63 Lakhs ex-showroom.
• KTM updates continue: The all-new generation Duke 390s and 250s (Gen-3 Gen-Z KTM Dukes) were launched, and a new Husqvarna range is on the card.

Guidance & Commitments

Key Metrics