In a note, Jefferies has revealed that Bajaj Auto management says that its electric scooter Chetak, launched in 2020, is seeing a good initial response but is facing supply-side issues due to semiconductor shortages. The company is building its EV capability for both 2Ws and 3Ws with a focus on the entire ecosystem, including products, dealerships, spare parts, and customer engagement. Bajaj Auto believes the mass adoption of EVs in India is constrained by battery prices, and the company will be ready to expand its EV presence as battery prices fall and the technology becomes more viable.  

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Notwithstanding some near-term weakness in domestic 2W/3W demand, Jefferies expects Bajaj Auto’s total volumes to rise at a strong 16% CAGR in FY21-23E. After an 11% YoY decline in FY21, we see EPS rising at 22% CAGR over the next two years. Valuations at 16x FY23 are reasonable and the new payout policy has pushed up dividend yield to 5%. Jefferies fine-tuned FY22-23 estimates and maintained Buy with a price target of Rs 4400.

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Bajaj Auto's exports have witnessed a strong recovery in recent months with volumes rising 23% YoY in 2HFY21. The company was optimistic on demand and expects FY22 export volumes to be at a new high. Domestic demand, on the other hand, has come under pressure due to the recent Covid spike, although Bajaj expects a recovery as the pandemic wave subsides. Bajaj's motorcycle market share was flattish YoY at 18% in FY21 as the gains of Pulsar-125cc were offset by loss of market share in 125cc+ segment. Supply chain is likely to face fewer disruptions in the ongoing Covid wave. The company is planning to launch new platforms and variants in 6 months, although did not share more details, explains Jefferies.

Jefferies says that the sharp rise in metal prices is pushing up input costs for autos and Bajaj Auto expects a further 3ppt commodity cost-push in 1Q. The company has hiked prices by 1.5-2ppt already, which leaves net 1-1.5ppt impact. Jefferies estimates factor in EBITDA margins of 16.7%/18.1% in FY22/FY23 vs 17.7% in 4Q for Bajaj Auto.