Bajaj Auto gains 2% in a weak mkt after net profit climbs 20% YoY in Q2FY23

The management expects Q3 to be better than Q2 with supply chain visibility being much better

Shares of Bajaj Auto traded 2 per cent higher at Rs 3,659 per share in Monday’s intra-day trade after the company reported steady performance in the September quarter (Q2FY23). In comparison, the Nifty 50 index was down 0.43 per cent at 17,111 points at 9:34 AM.

In Q2FY23, the total operating income rose 27.5 per cent quarter-on-quarter (QoQ) and 20 per cent year-on-year (YoY) to Rs 10,203 crore, on favourable currency movement and increase in domestic two- and three-wheeler sales.

The company’s net profit, meanwhile, increased 20 per cent YoY to Rs 1,530 crore against Rs 1,275 crore. in the year-ago quarter. Ebitda margins, too, advanced to 17 per cent from 16 per cent last year. However, the company’s consolidated profit came down 15.6 per cent YoY to Rs 1,719 crore in Q2FY23 as against Rs 2,040 crore in Q2FY22.

“The second quarter was outstanding with record breaking top-line and bottom-line outcomes. As you know, there have been serious macroeconomic issues overseas and also supply chain challenges. That said, we expect Q3 to be better than Q2 with supply chain visibility being much better. The company’s key focus in the months ahead will be volume and market share gains.,” Rakesh Sharma, executive director at Bajaj Auto said.

Besides that, exports witnessed downturn in the international markets due to adverse currency movement (imports becoming expensive), USD availabilityand adverse economic conditions globally.

Analysts believe that lower employee expense and other expenses contributed to healthy margins for the two-wheeler automaker in Q2FY23.

"The healthy margins were on account of lower employee expense & other expense, which declined around 130 bps and around 100 bps QoQ, respectively, amidst gross margins decline at 120 bps QoQ vs. our expectation of 15 bps margin expansion," analysts at ICICI Securities said.

On the other hand, analysts also expect that the ramp-up ovolumes in the electric 2-W space and network expansion to 100 cities (expansion to 65 cities by FY23 end from current around 40 cities). The successful completion of electric-3W trials with launch expected by FY23E-end are factor as key triggers for the price performance, added analysts.

Bajaj Auto’s stock price grew at 1.5 per cent CAGR (from Rs 3,300 in October 2017) over five years and underperformed broader Nifty Auto index.

"We maintain 'hold' rating on Bajaj Auto primarily tracking slower pace of volume recovery in both domestic and export markets, delay in electric -3-W launch,” brokerage firm ICICI Securities added.