BJAUT’s Q3FY22 EBITDA margin came in at 15.2%, largely in line with our estimate of 14.3% and met consensus estimate of 15.2%. ASP at Rs 76.3k was up 1.4% q-o-q (in-line). RM/sales declined 20bp q-o-q despite 200bp cost pressure as the company took up prices in export markets. Better forex realisations also helped.
Commentary: Domestic 2Ws: Q4FY22F has not seen recovery yet as consumer income remains impacted. It will focus on premiumisation and plans to roll out the new Pulsar platform over the next six months. 3Ws: Healthy recovery is underway. EVs: Chetak received a strong response with 10k bookings. It will start rolling out in 20 cities from March-22 (8 cities currently). The company will develop new products focussed on youth/delivery segments over next 12-18 months. It is also collaborating with KTM on EVs and plans to launch E-3W in Q1FY23F. Exports: Demand is healthy. FY22F production target is 2.5mn units (+22% y-y). Margins: There was a price increase of 1% in Jan 2022, which largely covered for increased costs.
Our view: Exports: We factor in FY22/23F growth of 23%/8% y-y. Domestic 2Ws: Our concerns are: (i) risk to mass consumption; and (ii) ICE scooters (or possibly the ICE 2W industry) have peaked in FY19. We estimate inventory levels at ~7 weeks, and thus revise our FY22/23F to -2%/+9% (on 4% lower volume forecasts). However, positive catalysts are: (i) focus on the premium segment; (ii) strong performance of KTM; (iii) EV scooters is a whitespace for BJAUT; and (iv) steady export demand. We also believe costs have peaked and there should be some improvement in margins going ahead.
Estimates: We lower overall FY22-24F volumes by ~1.5% to factor in the weaker domestic demand. We also lower our FY22/23/24F Ebitda margin estimates to 15.1% /16.2%/ 17.2% (vs 15.7%/16.5%/17.4%). Overall, we cut FY22/23/24F EPS by 7% /3%/2%.
Valuation: SOTP-based TP of Rs 4,307
We roll forward our TP to March-22 (from Dec-22) based on 17x FY24F core EPS. We have lowered the multiple from 18x to 17x to factor in the risks to domestic demand. We thus lower our TP to Rs 4,307 from Rs 4,476. The stock’s current valuation at 13x FY24F core EPS is attractive given the high FCF yield of 5.5% (FY23F) and ~90% payout.