Bajaj Auto shares plummeted as much as 10.65% on Thursday, October 17, 2024, hitting an intraday low of Rs 10,380 per share following the company’s Q2FY25 results. Despite delivering strong financials, analysts expressed concerns over lower average selling prices (ASPs) and export headwinds, leading to a cautious outlook.
While Bajaj Auto reported healthy growth in revenue and profit for the September quarter, the stock’s sharp decline reflected mixed sentiment from both domestic and international brokerages. Analysts at Emkay Global Financial Services noted that the company’s two-wheeler retail growth has been modest, with a year-to-date increase of just 6.7% and a growth rate of 5.7% in September and October. Additionally, the company has been losing market share in the rapidly growing 125cc motorcycle segment, a key concern for analysts.
Emkay downgraded Bajaj Auto from a ‘Reduce’ to a ‘Sell’ rating, setting a revised target price of Rs 9,500. Their downgrade was based on the company’s weaker ASPs, coupled with a less optimistic export recovery. They also highlighted that while the three-wheeler (3W) segment is growing, Bajaj’s major export market, Nigeria, remains significantly below its peak by about 50%. On the other hand, they preferred Hero MotoCorp Ltd (HMCL) and TVS Motor Company Ltd (TVSL) for their better risk-reward profiles and stronger growth prospects, respectively.
International brokerages remain Bearish
International brokerages echoed a similar sentiment, with Citi maintaining a ‘Sell’ rating on Bajaj Auto, citing the company’s slightly disappointing Q2 results due to lower ASPs and a minor shortfall in gross margins. Citi set a lower target price of Rs 7,800, indicating further potential downside in the stock.
While concerns were raised over Bajaj Auto’s performance, analysts at Nuvama Institutional Equities took a more optimistic stance. Nuvama projected an 8% compound annual growth rate (CAGR) in two-wheeler volumes from FY24 to FY27, driven by 7% growth in the domestic market and 10% growth in exports. They also highlighted the company’s increasing focus on electric and CNG vehicles, which are expected to contribute over 20% of the domestic two-wheeler portfolio by FY27. As a result, Nuvama raised its FY25E–27E earnings before interest, tax, depreciation, and amortization (Ebitda) estimates by up to 3%, maintaining a ‘Buy’ rating with an upgraded target price of Rs 13,200 from Rs 12,000.
Cautious outlook on exports
Despite these optimistic views, other analysts remain cautious due to risks in exports. InCred Equities, for instance, flagged potential challenges from rising tensions in the Middle East and global currency fluctuations. Although the stock had rallied 20% over the last three months, pushing its price-to-earnings (P/E) ratio well above its 10-year average, InCred maintained a ‘Hold’ rating. They updated their target price to Rs 11,860, based on a P/E multiple of 30x forward earnings for one year.
Meanwhile, Macquarie took a ‘Neutral’ stance, setting a target price of Rs 11,072. Nomura, on the other hand, maintained a bullish view, reiterating its ‘Buy’ rating with an upgraded target price of Rs 13,400 per share.
Strong Q2FY25 results
Bajaj Auto’s financial performance for Q2FY25 was robust, with the company reporting a standalone profit of Rs 2,005 crore, a 9.2% year-on-year (YoY) increase from Rs 1,836.1 crore in Q2FY24. Revenue grew by 21.8% YoY to Rs 13,127.5 crore, up from Rs 10,777.3 crore in the same quarter last year. Ebitda rose by 24.3% YoY to Rs 2,652.2 crore, with margins improving by 40 basis points to 20.2%.
Moreover, Bajaj Auto’s Board of Directors approved an additional investment of up to $10 million (around Rs 84 crore) in its wholly-owned subsidiary, Bajaj Brazil, to support business expansion in the region.
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Segment performance
Bajaj Auto’s domestic business achieved its highest revenue to date, marking its 10th consecutive quarter of double-digit growth, driven by strong sales in motorcycles and commercial vehicles. The company’s electric scooter sales nearly tripled, reflecting its ability to capitalize on the growing demand for electric vehicles (EVs).
Export revenues also saw double-digit growth, boosted by favorable USD/INR exchange rates and an enhanced product mix. In Latin America (LATAM), Bajaj Auto delivered a record quarter, with the Pulsar brand alone selling over 110,000 units. The company also saw positive traction for its new ‘Freedom 125,’ the world’s first CNG-integrated bike, selling over 30,000 units in more than 350 cities.
In the commercial vehicle segment, volumes reached an all-time high of 140,000 units. The company’s Chetak electric scooter gained market share, achieving a 21% share in September, supported by an expanding distribution network.
Despite solid financials and promising growth in key segments, Bajaj Auto’s stock took a sharp hit after its Q2FY25 results, with analysts expressing caution over its ASPs, margin outlook, and export challenges. While some brokerages remain optimistic about the company’s long-term growth prospects, especially in EVs and CNG vehicles, others have taken a more cautious stance due to market share erosion and risks in international markets.
