Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AAA/Stable/Crisil A1+' ratings on the bank facilities of Bajaj Auto Limited (BAL). 

 

The ratings continue to reflect the strong business risk profile of the company, backed by its established market position in the motorcycle segment, leading position in the three-wheeler passenger carrier segment and diversified geographic profile with presence in over 100 countries. The ratings also factor in a robust financial risk profile, aided by a strong balance sheet with adequate liquidity. These strengths are partially offset by modest presence in the economy motorcycle and scooter segments.

 

Crisil Ratings has also taken note of the recent announcement by BAL of proposed acquisition of a controlling stake in Pierer Bajaj AG and therefore, in Pierer Mobility AG (the parent of KTM AG), to address the KTM business’ acute liquidity challenges and enable a structured revival of the brand that has a strong heritage and acclaimed position worldwide. BAL also announced in an exchange filing intimating that board of directors have taken note of the transaction pertaining to execution of a facility agreement between BAIH BV (wholly owned subsidiary of BAL) and KTM for unsecured team loan of ~Euro 666 million from four banks repayable within a tenure of one year. Hence, overall debt package of ~Euro 800 million is aimed to address the liquidity needs to meet creditor obligations pursuant to the approved restructuring plan and fund restart of operations. However, timely receipt of the necessary regulatory approvals for the said transaction and gradual ramp-up of KTM’s operations will remain monitorable.

 

BAL reported revenue growth of ~12% on-year to Rs 50,010 crore for fiscal 2025, aided by increase in average realisation owing to rise in sales of electric portfolio and high-end motorcycles. During fiscal 2025, domestic two-wheeler volumes witnessed marginal decline of 2.6% that was offset by strong growth of 13.3% in the exports owing to higher demand in key markets -- including countries in the Association of Southeast Asian Nations, Asia and Latin American -- and better foreign exchange realisation.

 

Operating margin rose to 20.2% for fiscal 2025, from 19.7% in fiscal 2024, driven by improved realisations on account of favourable product mix and better cost management translating into higher operating leverage benefits. Further, revenue is expected to grow at higher double digits in fiscal 2026, after considering the combined revenue for BAL and KTM, whereas the operating margin may witness some moderation owing to the underlying operating losses in KTM and will witness gradual improvement post completion of acquisition of controlling stake in KTM by BAL that will result in revival in the operations and narrowing down of the losses in KTM.

 

Credit metrics were strong on account of the robust capital structure, supported by a debt-free balance sheet and total outside liabilities networth ratio of 0.3-0.4 time as on 31st March, 2025. Liquidity continues to be superior, with surplus over Rs 18,000 crore as March 31, 2025, and moderately utilised bank limit.

 

The financial risk profile remains healthy even after factoring in the expected investment in Bajaj Auto Credit Ltd (BACL) and KTM over the medium term. Further, despite the debt pertaining to KTM coming in going forward, the financial risk profile will remain comfortable supported by strong unencumbered cash surplus of more than Rs 15,000 crore over the medium term.

Analytical Approach

Crisil Ratings has assessed the standalone credit risk profile of the company and has also factored in BAL’s support to its subsidiary, BACL, and has accordingly carried out adjustments in lines with the capital allocation criteria.

Key Rating Drivers & Detailed Description

Strengths:

Diversified product portfolio supported by healthy market position in the two-wheeler segment (motorcycles) in domestic and overseas markets: BAL is the third-largest player in the domestic motorcycle segment, with market share of 16.9% for fiscal 2025, compared with 18.6% a year earlier. It is the largest exporter of two wheelers, accounting for ~45.0% of total two-wheeler exports for fiscal 2025. The market share may sustain because of strong position of key brands and launch of new products under flagship brands.

 

Over the past few years, the company has demonstrated robust product development capabilities, as reflected in model launches under the KTM and Husqvarna brands in the premium segment, CT and Platina in the economy segment and Pulsar and Dominar in the executive segment. BAL has strong market share in all these segments.

 

Export contribution to total sales volume improved to 40% in fiscal 2025 (from 38% in fiscal 2024), with revival of demand from the key exporting markets.

 

Performance will remain stable over the medium term, driven by healthy market position, strong product development capabilities, established brand and diversified product portfolio. The company has continued to gain a crucial edge in the electric two-wheeler market with Bajaj Chetak.

 

Leading position in the three-wheeler passenger carrier segment: The company is the largest player in the domestic three-wheeler segment, with a market share of around 75% for fiscal 2025. The passenger carrier category within the three-wheeler segment accounts for around 88% of BAL’s three-wheeler volumes, and under this segment, the company had domestic market share of 80% for fiscal 2025 (against 83% a year earlier). On March 31, 2025, BAL launched its electric three wheelers, which are easily available throughout India and continue to gain good market share. Further, steady cash accrual in this segment provides boosts the business risk profile and topline diversity.

 

Robust financial risk profile: The company is likely to maintain debt-free balance sheet. Cash surplus was strong at over Rs 18,000 crore as on March 31, 2025. Furthermore, the company’s ability to generate strong cash flow from operations is sufficient to cover dividend and capital expenditure (capex). Further, despite the debt pertaining to KTM coming in going forward, the financial risk profile will remain comfortable and help withstand competition in terms of pricing flexibility and meet necessary expenditure for in-house research and development, product launches and upgrades or sluggishness in revenue growth. The financial risk profile will remain robust, supported by superior unencumbered cash surplus above Rs 15,000 crore over the medium term.

 

Weaknesses:

Profitability susceptible to macro-economic factors, industry cyclicality and raw material prices: The automobile industry faces macroeconomic headwinds emanating from inflationary pressure and economic slowdown. Economic downturns impact consumer spending on discretionary items, and hence, slowdown in economic activity can impact industry sales. Prices of raw materials and components are directly influenced by international commodity prices, which account for 70-75% of revenue. In the existing global scenario, the export operating environment remains uncertain owing to tough macroeconomic environment amid geopolitical issues. While markets in Africa and South Asia remain impacted, recovery was witnessed in Latin America, Philippines and the Middle East markets. Currency devaluation in Nigeria and transit delays, owing to geopolitical issues and higher freight rates, also impacted exports.

 

Modest presence in the economy segment: Although BAL is the second-largest player in the economy segment of 75-110 cc, its market share declined to 9% in fiscal 2025, from 12% in fiscal 2024. However, the company is enhancing its focus on the mid-segment of 110-150 cc, wherein its domestic market share stood at 24% in fiscal 2025.

 

Exposure to intense competition: The domestic two-wheeler market is highly competitive with players such as Honda Motorcycles & Scooters India Pvt Ltd, Hero MotoCorp Ltd and TVS Motors Ltd. However, BAL has been able to maintain healthy market share through strong product development and diversified product portfolio.

Liquidity: Superior

Liquidity will remain strong over the medium term in the absence of debt, unutilised bank limit and strong cash accrual against capex of around Rs 800 crore. The company had unencumbered surplus over Rs 18,000 crore as on March 31, 2025, which is sufficient to cover near-term debt obligation arising out of KTM. Further, unencumbered cash surplus is expected to remain more than Rs 15,000 crore over the medium term, despite investment in BACL and KTM.

Outlook: Stable

BAL will continue to benefit from its well-diversified revenue profile and robust financial risk profile.

Rating sensitivity factors

Downward factors

• Sustained decline in market share in the motorcycle segment below 10% or a sharp fall in operating margin below 10% on a sustained basis
• Sizeable cash outflow in the form of dividend, share buyback or large acquisition, depleting cash surplus or increasing dependence on debt
• Any significant outflow of funds towards KTM, resulting in substantial decrease in key debt protection metrics such as return on capital employed remaining below 20% on a sustained basis

About the Company

Erstwhile BAL was incorporated in 1945 as Bachhraj Trading Corporation Pvt Ltd to import scooters and motorised three wheelers from Piaggio & Company. The entity’s name was changed to Bajaj Auto Pvt Ltd in June 1960 and to its current name in August 1960, after it was reconstituted as a public-limited company. BAL has a significant market share in the three-wheeler segment and strong position in the motorcycle segment in both domestic and export markets.

 

The company has total capacity of 5.7 million units of motorcycles and 1.02 million units of commercial vehicles (passenger carrier, goods carrier and quadricycles) at its plants at Waluj and Chakan in Maharashtra; and Pantnagar in Uttarakhand.

Any other information: Not Applicable