Markets
Bajaj Auto’s May sales beat estimates, but export decline YoY casts shadow
Summary
- While Bajaj Auto’s two-wheeler exports rose sequentially, they dropped on a yearly basis. This is the eleventh consecutive time of YoY drop in export two-wheeler volume
Bajaj Auto Ltd. outpaced analysts' projections with its wholesale volume figures in May. The two-wheeler segment of the automaker grew 23% year-over-year (YoY) to 307,696 units. This uptick was partly helped by a low base due to past supply constraints. Analysts at Jefferies India estimated the company to clock 286,000 units.
The Street responded favourably to this news, with shares of Bajaj Auto trading 1.6% higher in Thursday's morning trade on the National Stock Exchange. Meanwhile, the benchmark Nifty 50 index registered a modest 0.2% increase.
However, investors should note that Bajaj's four-year compound annual growth rate (CAGR) declined by 4% over May 2019-2023.
Moreover, exports continue to be a pain point. While Bajaj Auto’s two-wheeler exports rose sequentially, they dropped on a yearly basis. This is the eleventh consecutive time of YoY drop in export two-wheeler volume. Note that the automaker’s weak footing in the export markets has been a cause of concern for investors in the stock. This is because exports contribute a significant portion to volume.
In a silver lining, the company’s three-wheeler exports saw a YoY volume increase, following eight successive decreases.
However, it augurs well that Bajaj Auto’s three-wheeler exports saw a YoY rise in volume. This comes after eight consecutive times of fall in three-wheeler export volume.
In its Q4 earnings call, the automaker said the export market's demand weakness, which began at the onset of FY23, has bottomed out. Although promising, the dollar shortage remains a concern.
On the margin front, an increasing share of electric vehicles could prove to be a challenge as the segment is margin dilutive. But softening raw material costs may provide some cushion. Investors would do well to track the margin trajectory as the automaker aims to scale up electric vehicle production in FY24. In light of the recent reduction in the electric two-wheeler subsidy cap, which will inevitably increase costs, it will be interesting to see the company's pricing strategy going forward.
Shares of Bajaj Auto are up 28% in 2023 so far. Besides an improving margin trajectory, consistent volume growth is key to drive significant upsides hereon.
