Bajaj Auto margins withstand input costs as EV, exports and launches accelerate

Investment View and Valuation

Motilal Oswal Financial Services upgraded Bajaj Auto to BUY from Neutral following a better-than-expected 1QFY27 performance and a favourable outlook across domestic motorcycles, electric vehicles and exports. The broker raised its FY27E and FY28E EPS estimates by 5 per cent and 9 per cent, respectively.

The revised target price of Rs 12,096 is based on 24x FY28E core EPS. Motilal Oswal considers valuations of 23x FY27E and 19.6x FY28E EPS attractive, given the expected earnings growth, return ratios, dividend payouts and Bajaj Auto's resilient business model.

1QFY27 Financial Performance

Bajaj Auto reported 1QFY27 revenue of Rs 17,243.7 crore, up 37 per cent year on year and broadly in line with Motilal Oswal's estimate. Total volumes grew 29 per cent year on year to about 14.4 lakh units, while realisations increased 6 per cent to approximately Rs 1,19,000 per unit. Improved export mix, favourable currency movements and record volumes supported the growth.

The EBITDA margin was 70 basis points ahead of Motilal Oswal's estimate despite higher input costs. Product mix, price hikes and currency benefits supported profitability. PAT increased 42.3 per cent year on year to Rs 2,980 crore, which was 8 per cent above the broker's estimate.

Domestic Motorcycle Growth and Launch Pipeline

Management said domestic two-wheeler retail volumes grew 14 per cent in 1QFY27, led by electric scooters and 150-400cc motorcycles. The 100-125cc segment recorded low single-digit growth. Bajaj Auto's domestic sports motorcycle volumes grew 50 per cent, supported by Pulsar interventions, while the N and NS series accounted for more than 60 per cent of the company's 150cc-plus volumes.

The company plans to introduce a new 150cc Pulsar, 10 product refreshes in the 160-400cc range, Pulsar 125cc upgrades and two new 125cc brands in FY27. Motilal Oswal expects this launch cycle to support a gradual recovery in domestic motorcycle market share and estimates 12 per cent domestic volume growth in FY28E.

Operational disruptions, including labour shortages and energy-supply constraints, affected volumes by about 10-15 per cent, principally in electric vehicles, premium motorcycles and exports.

Electric Vehicle Momentum and Capacity Expansion

Electric vehicle revenue across two- and three-wheelers represented about 30 per cent of domestic revenue in 1QFY27, compared with about 15 per cent a year earlier. Chetak volumes grew 80 per cent year on year, ahead of industry growth of about 65 per cent, and Chetak market share improved to approximately 23 per cent.

Management stated that the combined EV business has delivered a double-digit EBITDA margin for the last couple of quarters, with Chetak turning EBITDA-positive. Bajaj Auto has increased Chetak capacity to 50,000 units monthly and aims to reach 60,000 units monthly, with full utilisation expected in FY27.

The company is also expanding overall capacity by about 25 per cent, from 70 lakh to 90 lakh units annually. The expansion covers electric two-wheelers and three-wheelers, premium motorcycles and internal-combustion three-wheelers.

Export Growth Outlook

Exports remain a major growth driver. Bajaj Auto is growing at about twice the industry rate across its top 30 export markets, which contribute 80 per cent of export volume. Africa exports more than doubled in 1QFY27, while Nigeria volumes grew about three times year on year despite logistical and geopolitical challenges in the Middle East and North Africa.

Management targets monthly exports of about 2.5 lakh units from 2QFY27. Motilal Oswal forecasts a 22 per cent export CAGR over FY26-28E, with revenue, EBITDA and PAT CAGRs of 20 per cent, 22 per cent and 22 per cent, respectively.

Cash Flow and Capital Allocation

Free cash flow was Rs 2,300 crore in 1QFY27, representing approximately 80 per cent of PAT, while surplus cash exceeded Rs 21,000 crore. Management expects Rs 10,000 crore to be distributed through dividends and buyback, with surplus cash expected to rebuild to about Rs 15,000 crore by FY27-end.