Bajaj Auto Limited analyst Q&A

Thank you, Dinesh. Sagar, we can open the forum for Q&A.

Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question, may press * and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press * and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Kapil Singh from Nomura.

Good evening, sir. My first question is on KTM, just want to understand what is your vision on operating this business? Would it largely operate the way it was operating prior the issue that they face on account of market turmoil in the sense that the production will continue as it is? Or are there any guarantees for manpower to continue as it is? So that's one part. And the other part is from a capital requirement perspective, how soon do you think KTM will be in a position to service the debt that we have provided them? And is there a need for more capital in terms of working capital or capex requirements for the year till they come back?

Thanks Kapil. And I'm going to draw a reference again to the press release that we put out because we have to be very mindful that there is currently a process of regulatory approvals that is being sought. And so therefore, we have to be mindful t ill those come in place. We cannot give effect to or gettin g actively involved at the moment. But it is very clearly our intent, as regulatory approvals come through, and that part of the hoop has crossed, to look at this very, very differently. We've decided that we would take charge and that is the message that we sent out through the announcement that we put out on the 22nd. Looking at control of the enterprise very clearly, we will initiate a revamp of the entire governance framework as to what will happen at that point of time. There will be a full-fledged work stream that will be put up, which was essentially to leverage the experience and expertise of the Bajaj system and the Bajaj ecosystem that will be aimed at restoring the momentum and competitive growth of the business as well as driving the financia l viability, looking for synergies in procurement and component sourcing in production, right . We will also, at some point in time, look at expanding the remit of the joint development program as a possible opportunity. And today, you're aware that, that program only extends up to bikes, which are under 400cc. But there is clearly an opportunity to be able to expand that all the way up to let's say, the 990cc in the immediate term horizon. And I think we will continue to look for potential partnerships and collaborations that can help build the KTM business to sustainable competitiveness and long-term value creation. But I want to add that we need to wait for the regulatory processes to come through, for those approvals to come through and the y are essentially three in number. We need to get approval from the takeover commission, we need to get approval from the investment authority, and we need to get merger control approvals from key and specific geographies that are relevant to this transaction and that will play out over the next 2 or 3 months. It is only after that, that we can get involved and comment. And I think you will expect that we will comment in greater detail at that point of time. So , we just don’t want to jump the gun at this point of time by commenting prematurely, but this is the broad directional intent that we went in with, to absolutely run the business differently , once those approvals are in place from the way it was run in the past.

Thanks, on that sir. And the second question is on the domestic market. You did allude to the fact that there was a bit of market share pressure, and you have taken some actions. If you could talk about the underlying market conditions, what has caused a bit of a slowdown that we are observing in the market that continues? And on the market share front, what is the number of new products that you are looking to launch in various segments in the coming year? And how do we see the ev olution of market share in the domestic market?

So, the market performance as I said, slowed down in quarter 4 and we believe it is largely happening in the smaller urban centers. We feel that the deep rural is the slow, the smaller towns and mid-tier towns are doing well. The metros are also okay, but the larger towns, that kind of a segment is slowing down, perhaps under the pressure of the inflation, which is being experienced by our type of customers, driven particularly by things like rental inflation. And we have seen some pressure on purchasing power. We've also seen that the southern markets have been under greater pressure in terms of the industry performance while the northern markets particularly Uttar Pradesh, Delhi, Haryana, these types of belts are doing much better. I would like to actually wait and see a few more months before trying to extrapolate this performance because it's very hazardous in this up and down way of market behavior to take a small segment and then extrapolate for the whole year. That is what happe ned last year. So , you saw that quarter 1 w as 11% growth for the industry. Quarter 2 was 2% growth, quarter 3 was, again, just in October, very high growth, and then quarter 4 was minus 2%, but combined, we delivered about 6%. I think it's going to be very, very similar. There will be some high-growth regions, some high-growth periods. But we should be sort of that 5% to 6%. But what is very, very clear, like I said, is the top half of the industry is certainly growing much faster. Our erosion of about 1 or 2 percentage points has largely been in the 125cc+ segment in the domestic motorcycles’ portfolio. And it is based on the timing of competitive launches versus our, there is always a lead, and every launch cannot be timed. We gain when we launch new and successful products and by the time competition responds to them , you get a very nice period where you can acquire market share. And that works for us as well as against us. And so, we had to do some catching up in terms of making our portfolio more feature -rich, which we have responded very quickly because we noticed this erosion by the middle of the year when dust has settled from the festive. And very quickly within a quarter, we have responded with feature-rich products. And we will continue this exercise with the introduction of new products in the Pulsar portfolio right through FY '26. We are also looking at entry -level 125cc product and therefore, it's a full pipeline of products for FY '26. And hopefully, on that basis, we should be able to start increasing market share. We're in a solid second position, with 1.3x more than the third and the fourth guy but we are behind the number 1 position and our aim is to come as close as possible to the number 1 position in FY '26.

Thank you, sir.

Thank you. The next question comes from the line of Amyn Pirani from JP Morgan. Amyn Pirani Thanks for the opportunity. First, just a clarification on the comment that you just made that you are looking at an entry-level 125cc. Would this be of the Pulsar brand? Or will this be a separate brand? And a related question was that you have the Freedom, which has a positioning. You have the Pulsar which spawns a lot of engine and price points. Is there space or is there requirement from Bajaj side to have, say, another brand in the 125cc to say, 150cc category? I would love to hear your thoughts on that.

So that question is still open. As the product sort of acquire its specs and its full form, we will decide on the branding. I can say that the 125cc segment, in particular, not the 125cc+, the 125cc segment in almost now equal to the executive 100cc segment, which is like 28% of Indian motorcycle indu stry is just the 125cc segment. And we can see two or three sub-segments emerging over here. Freedom is, of course, an innovation, though it's a 125cc, but it cuts across different cc classes and is the propositioning for the long-distance rider who is very keen to save money because of the long-distance riding. Now whether there is space for one more brand beside Pulsar will be based on careful analysis of how distinct these sub -segments are. This work is going on and we will conclude this and reveal it to you closer to the time when we launch the product.

Sure sir. Lo ok forward to that. And my second question was on 3 -wheelers. So broadly, how should we think about the growth potential over the next say, few quarters for the domestic 3 - wheeler business. And within that, since you have already talked about the launch of the e- Rickshaw. Obviously, the addressable market is quite large, but I'm guessing that you will start with a particular subcategory within that. So, should we look at the way you ramp ed up the E auto volumes? And should that be a way of thinking about or a template to think about how you will ramp up the e-Rickshaw volume? Or should we think about it differently?

I am very, very optimistic about the 3-wheeler business. And it may have its ups and downs, and it has its peculiarities in terms of parts of it being regulated , then there is this whole diesel to CNG conversion and of course, now the entry of the electric, which can sort of override the permit, etcetera, which opens the options. Despite all these constraints, let me say, unique features of this industry, the thing that is driving the 3 -wheeler business is the enormous requirement for last mile mobility. That is not getting fulfilled by either the metros or the buses or local trains and stuff like that. The 3-wheeler is a very, very important vehicle to satisfy India's hunger for last mile mobility. And I'm including e-Rick as a 3-wheeler in it. That's 40,000 vehicles per month. So, e-auto gives us a very, very good method to access the regulated market. And it opens things for introducing the e-auto. So, it may sort of go through its ups and downs, but fundamentally, the 3 -wheeler business will continue to grow. It's fuel type and shape may change. Now when it comes to the e-Rick, this is a 40,000 per month segment. Top 10% is Lithium-ion. Obviously, we are going to introduce a lithium -ion product because lead acid has its own problems. I draw parallel to what we did in Africa when we went in and came in with a very high premium to the existing Chinese players there at that time, 10, 15 years ago in recognition of better quality and ownership convenience . Over a period that people got educated, they shifted. Even today, we are seeing that the e-auto itself is upgrading e-Rick. It has its sources of growth in diesel and in e-Rick and we can sort of see one third of the growth of e-auto is being driven by people who are second-time buyers, end-of-life driver of e-Rick. So, by placing a good quality e-Rick, which has its own unique proposition in terms of size and payback and number of passengers it carries, and it access in narrow streets, we feel that we should be able to upgrade the balance, 90% also. But this obviously will take time. Our eyes are set on the entire 40,000 , but I'm not saying that that will happen as soon as we want. FY '26 will be a year of observation and a year of building a pace. It will not be the year of solid scale up. We will see quarter-on-quarter how it goes. But really, our eyes are on the 40,000. It may take some time, and we will begin with putting in a good product, observing it, understanding how it is delighting the drivers and the passengers and then going back and seeing whether we need to modify our product and our go-to-market approach appropriately.

Thank you for that. I’ll come back in the queue.

Thank you. The next question comes from the line of Gunjan Prithyani from Bank of America.

Hi. Thanks for taking up my question. Just a follow -up on this 3 -wheeler discussion. I mean there has been some recovery that we've seen on the export side, right? And this did see a lot of drag over the last couple of years. So, anything in terms of the rebound of the business that you can talk about? And there's an interesting comment that you made that the business saw double- digit revenue growth in quarter 4 despite the single digit volume growth, I think it was about 4%, 5%. So, I'm just trying to understand, if I look at fiscal '26, is it fair to say given that EVs are fast growing within the 3-wheeler piece, can revenue growth be double digits still for fiscal '26? I mean both exports plus EVs put together.

You ask lots of questions and it seems a bit weird there. The rebound or the growth in 3-wheeler in exports is largely the result of Asia and little parts of Africa, Ethiopia, etcetera, coming back. And particularly, Asia coming to growth areas, some places like Mexico, etcetera. So , it is part of the 30 countries which I talked about, I was telling you that we monitor 30 countries and 26 of them have grown both in 2-wheelers and 3-wheelers. And as you know, over there, also, we have a very good position. Obviously, with the growing component of the electric business, it buffets up the top line , beyond the volume growth. But the overall mix, how FY '26 spans out in terms of the volume versus value growth, depends also a lot on the rise of Africa. Right now, Africa is steady like I told you, it is not going down, it's not going up. But we can see that it is still tentative and ready to certainly rise, then it has an adverse effect on the volume to value ratio.

Got it. And the second question I had, Dinesh, was on the margins. I think clearly, a good gross margin improvement in this quarter. You did call out FX and Chetak profitability. Can you talk a little bit more on how the contribution margins or overall platform pr ofitability of Chetak stacks up now? And how should we be directionally thinking about the E2-wheeler business profitability?

Yes, Gunjan, I think it's been significant progress, if I just look at it from a 12 to 15 -month horizon of where we did not have at that point of time contribution breakeven in sight. We've got to a situation now where with the launch of the 35 series and everything that's followed ever since from December onwards. I'd say we are now very close to line of sight on being EBITDA breakeven, yes. But that is subject to a big if, which is the fact that pricing needs to hold steady at these levels because you know that over this last 12 to 15 months horizon, market level pricing has come off. But let's for a moment assume that is the case, I would say now with 35 series we're probably slightly away from getting to EBITDA level breakeven with the PLI being accounted for the way we have consistently been doing for this last year. That's where we currently stand from what was possibly a very significant bleed we have now come to line of sight of or being nearly breakeven. But obviously every time I get asked this question, the way we think of it , I think we're also starting to think of it as once we look at the unit economics from an electric scooter perspective, we also look at it as now how we're doing on the overall profit pool for the electric business. And that has moved from being a few hundred crores of loss about a year ago to a marginal profit situation right now on the back of both improved unit economics of Chetak scooter, but also the scaling up of the electric 3 -wheeler, which is now becoming quite material and significant in the overall scheme of the electric business.

And how do you see that going forward? How significant can be the improvement from current levels?

Yes. I think the journey on cost rationalization continues unabated. So therefore, there is already work underway looking at the next level of savings as it was. So directionally, we continue to look for the opportunities to move cost down even further. PLI will be quite consistent in the course of this year because that's not changing. As per pricing, anyone's guess, but if we make the assumption that pricing is going to hold constant at these levels , it then really comes out to cost savings, which we will continue to do but with the new platform having been launched only in December, I expect the next flush of cost savings to only come towards the later part of this current financial year.

Ok. Got it. Thank you so much.

Thank you. The next question comes from the line of Chandramouli Muthiah from Goldman Sachs.

Hi, good evening. And thank you for taking my question. My first question is just on the prepared remarks. I think you made a comment that you expect 5% to 6% industry volume growth in FY '26. So, I just want to understand how we look at our own volume growth outlook for FY '26. I think we had a good start in the first half of FY '25 and then it was more sort of negative 7% to negative 8% volume declines in the back half. I just want to understand what milestones we need to achieve to get closer to industry volume growth outlook in FY '26, if not exceed it? That's my first question.

Our priority is to outpace the industry growth in the 125cc+ segment. That is our core focus area. It will remain so. And we s lipped on that in a few months, not the entire year, for the reasons I explained. We have taken few countermeasures. I cannot tell you exactly how much we will outpace the industry by because, again, the industry, like I said, is going be feel like a snake in the tunnel. It's not going to be linear, so it's going to be up and down. But we will, hopefully, over a period, not month-on-month or like that but let's say, every quarter, every 4, 5 months, when we take stock, we should be ahead of the 125cc+ industry growth rates.

Got it. And just a related question on volumes. I think in the prepared remarks, you mentioned that you expect a 15% to 20% growth visibility on exports. Could you just clarify what time frame you have line of sight on that? Is it sort of a 6-month period, or the full year given where inventory levels are in the export market?

Got it. That’s helpful. My second question is on the rare earth metal issue. At this stage, it appears that most auto companies in India are reasonably well stocked on inventory up to mid or end July. But beyond that, most companies don't seem to be as sure. So just wanted to und erstand what your thinking is based on the latest updates on the processes that are being followed and the negotiations between the Indian government and Chinese government on the rare earth metal supplies given that China controls almost 90% supplies?

Well, there is no particular negotiation. The process for declaration and certification that the rare earth imports will be not used for military purposes, has been now defined. I mean on fourth of April, an intent was published, but now a process has been defined, which entails self-declaration by the importing company, which would be our vendors. And which is then certified by a couple of agencies of the ministry , and then finally, by the Chinese embassy in India. With these, the certified declarations are sent to China where there were 2-level certification or 2-level approval, one by the provincial government, to which the exporters belong. And once that is done, it goes to a desk in their Ministry of Commerce for the final approval. My information suggests that about 30 applications have been made, which have been certified by all the agencies in India, including the Chinese embassy in India and have been forwarded to China. We have to wait to see whether there are any questions, how much time it is going to take and how smooth it's going to be, et cetera. So, we have to wait and see the outcome of these 30 applications to fully understand what this process entails. Like you said, almost 90% of the supplies of these materials are from China, building alternative is not an option in the short term because this will take development work. This will take investment. This will take testing, validation and integration into the vehicle systems. So , this will be more of a medium -term option. At this point, we are keen that the process is smoothly followed, and things are expedited both in India and China.

All right. That's helpful. And lastly, just a bookkeeping question, if you could share the export revenues and the spares revenues for the quarter, please?

Exports revenues is 470 million.

And spares?

Spares revenue INR1,566 crores.

Got it. That's helpful. Thank you very much and all the best.

Thank you. The next question comes from the line of Raghu Nandhan from Nuvama Research. Please go ahead.

Good evening, sir. Thanks for the opportunity. Firstly, on KTM, you're working towards normalizing the international operations, inventory reduction and even production commencement in CY '25. Would you expect things to turn around in CY '26 with better sales resulting in a positive EBITDA?

So, Raghu, we’ve not started working on it as yet. We're still going through a process, and I want to keep calling that out because it is a regulatory process that we are bound by. It is our intention to get started once all those approvals are in place. And then there's a full turnaround plan, knowing fully well what the diagnosis of the issue is and where the opportunities lie that will be put into action. With that happening, I imagine we will be past the middle of this year. And so, it is our intention to try and get at least the first set of results to start showing up in the next calendar year once that plan is put into place, so to call. So, CY '25 will be a year of bringing back continuity because you know that production has stopped in December, it came on for a bit and then it went off again. It is about reviving the engagement, the partnership with customers on the extended ecosystem. It is about ensuring normalcy in operations setting in and then, of course, a new way of working, a collaboration kind of s etting in once approvals are in place and we can actually get in. So much of this year will be gone, but it'll have at least started the process, and we should start to see the first set of those results reflect in possibly in calendar year '26.

Thank you, Dinesh. Second question to Rakesh, sir. Sir, thanks for sharing the industry growth for exports, which is 26%, very strong. Trying to understand the growth drivers. We keep hearing macro challenges, adverse currency, fall in crude prices. Despite all this, exports are growing strongly. What is supporting this 15%, 20% growth expectation? How do you see that? Thanks.

See the 26% growth, which I said was just to make that point very clear to you is on the top 30 countries, which account for 72% or 75% of the industry. So first, I just wanted to get the math right, but yes, you can assume that it's 26%. Now this 26% grow th is mainly on a base, sort of had got hurt by first by COVID and then by the extreme volatility of the currency in many countries when the dollar went through a phase of getting stronger and that resulted in devaluation in many emerging markets leading to retail inflation and depression of demand. So, as things stabilize, it's not about devaluation or the appreciation. What happens is that most countries seek steadiness, certainty. And there has been a period of steadiness in the currency movement, at least, as also in the macroeconomic condition, which has allowed people to digest the new prices and get back to the normal routines. And w hich goes beyond the motorcycle industry. The secure environment, coupled with the fact that in most countries, the penetration of 2-wheelers and 3 -wheelers is very, very low outside of ASEAN, India and China ; Africa, Latin America, Middle East, all these places, the penetration of 2-wheelers is very low. And that is a fundamental driver for increase. I mean, today for us, for example, Mexico is a very, very large market. If you look at Mexico 10 years back and look at the 2 -wheeler industry now , Mexico is the second largest market for 2-wheelers after Brazil. And that is all being driven by the increasing penetration of 2-wheelers per 1,000 population. What is driving us at 15% to 20% is that we took some early steps in Latin America because we realized that Africa is in for a long haul it may go up and down and it is considerably weakened as an economy, if I would say . We took very early steps in strengthening our brand channel platform, in aligning our partners and in sharpening our portfolio in each of these countries. And therefore, we have very good competitive positions. In the Sports segment, we are number one in Mexico, number one in all 5 countries of Central America, number one in Colombia, number one in Argentina, number one in Peru, and these things come very handy when the markets start to revive. And so, I would say a large part of this and seeing parts of South Asia, for example, Sri Lanka is now experiencing revival. You know that we had a very strong position in Sri Lanka. And today, as the Sri Lanka n market returns, 80% to 85% of that benefit is being rea p by us. So, I would say that some early anticipation in Latin America, strong positions and many of these new markets where revival is there, and the return of the KTM exports as we are expecting in quarter 2, hopefully, all combined to make us feel that, yes, we can aim for a 15% in the quarter, 15% to 20% growth.

Thank you, sir. Very helpful.

Thank you. The Next question comes from the line of Vipul Agrawal from HSBC. Please go ahead.

Hi. Thank you, sir for taking my question. Sir, you highlighted about CNG penetration, basically share in 125cc about 10%, 11% in certain regions. What about be these regions? And is it just pump density which is impacting the CNG sales? Or there is something else to it like maybe power performance of the CNG bike?

The product acceptance is fantastic. 60,000 bikes have been retai led. And obviously, we had done some surveys. And most of the people have a very high acceptance of the product and actually delighted by the product and particularly by the savings that is supposed to deliver. We are encountering two issues in the scaling up of Freedom. The number one issue is the anxiety of not having enough pumps. And therefore, we are finding a very clear correlation between those space. Now, let's say, Bihar maybe having a lot of pumps. But the density of pumps is what is more important. If the pumps have spread out over a large area, the customer gets obviously anxious about being st randed in an area which it doesn't have a pump. And therefore, we are finding adoption is very slow in these areas. But Kerala, as you know, Kerala is a very, in any case, geographically tight. And Delhi, in these places the pump density is good. And we are finding that Freedom is acquiring 6% to 10%, 11% penetration in these areas. The second issue, which we are encountering is the filling pressure. This is a 2 kg pump tank, and it's supposed to deliver about 200 kilometers with a full condition. But some of these pumps do not have the right kind of pressure, as a result of which the tank is under filled and the range gets compromised and that becomes an issue with long distance riders. So, it's the quality of the pumps and the thing. That's why we are right now, as I've said, we are focusing on people where we are now, through experience, know which are the areas which has got the right pump density. And we have started to calibrate our resources in terms of engaging with customers, etcetera, in this. This has been the learning over the last 3, 4 months. That it takes a while to understand this and now we are using this learning to have very selective targeting in these geographies to these cohorts, which are long-distance riders. So that is the way we feel that we will steadily build up on Freedom. Whoever is using the product is experiencing a good amount of savings.

Understood. That's all really helpful. So, my second question is on your BACL and basically the financing in the rural area. We are seeing incrementally NBFCs are becoming averse to financing of the customers, which have weak CIBIL score, which is actually we think is impacting the 2- wheele growth overall. So normally, we see that captive NBFCs normally come forward and to help in such scenarios. So how is BACL is helping in that? And what will be the share of BACL in total financing in rural and urban?

So, we are running BACL at an arms length. It has got an independent board, which the MD of BACL reports to, and we don’t want to run it as a handmaiden of Bajaj Auto. So, it has to be run on the sound principles of a financing company. So, I wouldn't say that just because it is captive it's risk policies and lending policies are influenced by us. They're completely independently done. Where it is very helpful is that they have presence, virtual and physical at all our counters, which makes access to customers easier and smoother. He comes in to buy or she comes in to buy a Bajaj motorcycle or a scooter and get Bajaj finance. So , it's seamless operation and it becomes very smooth and friction free. But like I said, the risk policies and the credit assessment of the customer, this is done absolutely independently and by sound principles. I've heard this comment and question being raised by others also that there is a certain tightening, and we know from our understanding of competition that, that has been a contributory to sort of hitting the industry a little bit. But I must point out that both BFL and BACL, we never worked with them on any subvention basis. So , we have not provided any subvention to them to give user sort of loans. And therefore, there was no need between Q2 and Q3 and Q4 to suddenly pull back, there is no pulling back from Bajaj auto side or the BACL and BACL continues to follow its own risk assessment process. So therefore, we haven't seen much of a change. The penetration of BACL in motorcycles is about 40% and about 50% in 3-wheelers.

Thanks a lot for that sir. Really helpful.

Thanks for the opportunity again. My question was also related to the financing business. Can you just remind us how much money you have already invested ? And is there a broad number that you can share for fiscal year '26? And also , if you could share the book value or the net worth of the business, if you have it handy?

So, the total capitalization from the time we started the entity is INR2,400 crores, of which INR2,100 crores has gone through this last financial year. Capitalization needs for this business, I expect it would be close to about anywhere between INR1,200 crores to INR1,400 crores more, as the book went up because this is the year in which we will have the full national footprint for the full year. If you recall last year, we were building up the book. We started the transition for BACL on 1st of Jan 2024. So, it was a staggered buildup of the book. The book ended up with an AUM of about INR9,500 crores.

Okay. Excellent. Thank you.

Yes. And I think you had a question on net worth, it was just capital of about INR2,400 crores that we've put in, and losses have essentially got recouped because the year has turned a profit of about INR60 crores thereabout in the first financial year.

Okay. Great. Thanks for that.

Thank you. Ladies and gentlemen, I now hand the conference over to the management for closing comments.

Thank you, everyone, for joining the call so late in the day. Thank you so much.

Thank you. Thank you, everybody.

Thank you. On behalf of Bajaj Auto Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.