Margins to bottom out, EV focus intensified
Valuation and View
BJAUT 3QFY22 missed our estimates by ~9% both at EBITDA and PAT. EBITDA margins at 15.2% (est 16.5%, -80bp QoQ/420bp YoY). This was largely led by decade low gross margins at 25.3% (-100bp QoQ/390bp YoY) due to RM inflation and weak mix. However, as entire RM inflation has already been passed on, margins expansion is likely ahead. This will be further aided by 1) volume recovery in high margins 3W segment and 2) steady exports. We build in ~150bp margins expansion to ~17% by FY24 over FY22.
While domestic 2W demand outlook remain weak (especially in the lower end segment), BJAUT is relatively better placed led by its dominance in exports (~16% CAGR volumes expected over FY21-24), widest premium product portfolio and market leadership in 3W segment. We estimate Revenue/EBITDA/ PAT CAGR of ~14%/13%/13% over FY21-24E and arrive at TP of Rs3,807 (16x Dec'23 EPS) and maintain 'BUY'. We cut FY23/24 EPS estimate by 2.7%/3.6% to factor in lower other income and higher depreciation. While BJAUT is aggressively working on its EV portfolio through i) channel expansion, ii) investment towards building capacity of 5L e2W/year and iii) 3 EV platforms with launches expected in 1HFY23, any success on this front can be key re-rating catalyst.