Bajaj Auto Q1 preview: Robust exports, product mix to cushion margin hit

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Q1 preview: Bajaj Group’s automobile arm, Bajaj Auto, is all set to report its June quarter (Q1FY22) result on Thursday, July 22. Given the subdued quarter on weaker volumes and rising commodity cost pressures, analysts expect the industry’s performance to take a sequential hit even as year-on-year (YoY) numbers could show impressive growth owing to low base of Q1FY21.


“The auto industry broadly encountered healthy demand conditions in Q1FY22 barring May, where state-specific lockdowns amid Covid resurgence played spoilsport. Topline performance is expected to be slightly better than industry volume trends given broad-based price hikes but margins are seen declining across the board amid no respite in commodity cost inflation (metals, rubber, plastics),” noted analysts at ICICI Securities.





That said, within the universe, is expected to outperform the industry average as it has a significant exposure to exports, where healthy global auto demand in the US/EU would likely support the earnings. On the bourses, the stock of the Bajaj Group unit has zoomed 12.5 per cent in three months to June as against a 6 per cent gain in the benchmark S&P BSE Sensex. The S&P BSE Auto index, meanwhile, was up 7 per cent during the period.


Here’s what leading brokerages expect:


Nomura


The brokerage expects revenue growth of 142 per cent YoY, but down 13 per cent sequentially, at Rs 7,456.4 crore led by volume growth of 12 per cent on year. Operationally, earnings before interest, tax, depreciation, and amortisation (Ebitda) margins could decline 240bps QoQ to 15.6 per cent on higher commodity prices, partly offset by price hikes and a sharp jump in exports mix over the March quarter of FY21.


BAU had reported revenue of Rs 3,079.2 crore in Q1FY21 and Rs 8,596.1 crore in Q4FY21 while Ebitda margins were 13.3 per cent and 17.7 per cent, respectively.


ICICI Securities


Total sales volume of 10.06 lakh units (down 14 per cent QoQ) with product mix remaining unchanged sequentially may help report a relatively steady performance in Q1FY22, opines the brokerage. Total operating income, it says, is expected to decline by 14 per cent QoQ to Rs 7,394 crore, with blended ASPs flattish QoQ at Rs 71,917/unit. Ebitda is expected at Rs 1,173 crore with corresponding margins at 15.1 per cent, down 260 bps QoQ on the expected increase in all cost heads.


Given this, the ensuing profit after tax (PAT) is expected at Rs 1,093 crore, down 17.9 per cent QoQ but up 107 per cent YoY. The same was Rs 1,332.1 crore in Q4FY21 and Rs 528 crore last year.


HDFC Securities


According to the brokerage, while auto demand will benefit from the expected pick-up in economic growth, the pent-up demand has been low in the current unlock phase vis-à-vis last year due to higher fuel prices (up 40 per cent YoY) and price hikes taken by automobile manufacturers. That said, even as two-wheeler demand has been tepid, it believes Bajaj Auto will remain resilient due to a diversified geographic presence.


It pegs the company’s Q1FY22 net profit at Rs 1,190 crore, up a stellar 126 per cent over the previous year period, but down 10 pe cent QoQ. Revenue is seen rising 145 per cent YoY to Rs 7,540 crore and Ebitda margin is projected at 157.4 per cent.


Centrum Broking


For Bajaj Auto, total volumes degrew 14 per cent QoQ but exports grew 2 per cent and were at 64.5 per cent of overall sales. This affects the ASP but is favorable for margins. We expect QoQ ASP/Revenue/PAT degrowth at 1.5 per cent/15 per cent/14 per cent, respectively. Further, we expect Ebitda margin at 17.3 per cent, down just 80bp QoQ, on the back of better exports.


Nirmal Bang Institutional Equities


In-line with other brokerages, the firm expects Bajaj Auto’s Ebitda margin to decline by 90bps QoQ (to 16.8 pe cent) due to negative operating leverage. However, profitability is expected to be supported by a better mix (exports/3Ws), price hikes and cost-control measures. Overall, the bottomline is pegged at Rs 1,140.3 crore while revenue and Ebitda income is seen at Rs 7,513.7 crore and Rs 1,258.5 crore, respectively.





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