Chip crunch, high RM to dent Bajaj Auto's margins in Q1FY23, say analysts

Bajaj Auto Q1 preview: Supply-side bottlenecks, chip shortage, commodity inflation, and negative operating leverage are likely to weaken Bajaj Auto’s June quarter results (Q1FY23). Analysts, on average, expect the revenue to fall up to 7 per cent quarter-on-quarter (QoQ) to Rs 7,416 crore in Q1FY23. The company is slated to report its June quarter numbers on Tuesday, July 26.

That said, higher input prices and weak sales is expected to dent margin trajectory in the range of 130 to 140 basis points (bps) QoQ to 15.8 per cent from 17.1 per cent. However, price hikes across select variants, analysts believe, is likely to help the automaker expand margin by 60 bps on a year-on-year (YoY) basis from 15.2 per cent in Q1FY22. Meanwhile, profit after tax (PAT) is expected to drop up to 13 per cent QoQ to Rs 1,061 crore.

At the bourses, Bajaj Auto has surged over 22 per cent so far in the calendar year 2022. In comparison, Nifty50 and the S&P BSE Sensex tumbled over 5 per cent each, during the same period, ACE Equity data show.

Factors to watch
 

Investors will closely monitor margin outlook for FY23, commentary on demand environment – both urban and rural despite weak macros, normalcy in supply constraints, feedback on geopolitical turmoil, and benefits arising from softening of metal prices.

Here’s what top brokerage houses expect from Bajaj Auto’s Q1FY23 numbers:

Axis Securities: The brokerage firm pegs revenue to fall 7.5 per cent QoQ to Rs 7,375 crore in Q1FY23 from Rs 7,975 crore due to inferior product mix. Meanwhile, EBITDA is expected to fall 17 per cent QoQ to Rs 1,132 crore due to higher raw material prices and fall in revenue. EBITDA margin, too, is likely to compress 177 bps QoQ to 15.3 per cent from 17.1 per cent on the back of commodity inflation and shipment costs.

IIFL Securities: Analysts estimate volumes of the auto-maker to decline 4 per cent QoQ to 9.3 lakh units in Q1 from 9.7 lakh units due to chip shortage. They anticipate increase in input costs and negative operating leverage to dent margin 56 bps QoQ to 16.5 per cent. However, the latest price hike in July across select variants coupled with currency benefit on exports is likely to expand margin by 93 bps YoY from 15.6 per cent in Q1FY22.

Sharekhan: The brokerage firm estimates revenue to remain flat on a YoY basis but drop 7 per cent QoQ to Rs 7,416 crore in Q1 due to sharp decline in volumes. EBITDA margin, too, is expected to contract 130 bps QoQ to 15.8 per cent on the back of commodity inflation. That said, net profit is anticipated to slip 27.7 per cent QoQ to Rs 412.3 crore from Rs 1,469 crore.

HDFC Securities: Among the two-wheeler (2W) players, analysts expect Bajaj Auto to be the worst hit due to semi-conductor shortage. The brokerage firm models the auto major’s revenues to decline 3.5 per cent QoQ to Rs 7,672 crore. Weak sales, adverse mix and high raw material prices are expected to ruin margin picture by 140 bps QoQ to 15.5 per cent in Q1FY23. PAT, on the other hand, is likely to drop nearly 14 per cent QoQ to Rs 1,061 crore. That said, analysts believe that Bajaj Auto is the only player among the 2Ws to see a volume drop of 7 per cent YoY despite a low base.

Motilal Oswal: The brokerage firm forecasts net sales to increase 4.2 per cent YoY to Rs 7,699 crore. However, they anticipate chip shortage to affect volumes in Q1 for premium motorcycles and three-wheelers. Volumes are expected to drop 7.2 per cent YoY to 9.3 lakh units. EBITDA margin, meanwhile, is pegged at 15.7 per cent in Q1FY23 from 17.1 per cent in the preceding quarter. Analysts have shared a ‘neutral’ rating on the counter with a target price of Rs 4,020 per share.